The End Of The Golden Weather

2019 – The End Of The Golden Weather, and India’s chance to lead the way in International Trade

Vangelis Vitalis, Deputy Secretary, Trade and Economic Group, New Zealand Ministry of Foreign Affairs and Trade, gave a frank description of an increasingly murky global trade climate at a recent New Zealand India Trade Alliance seminar.

“The period 1995-2018 has been the ‘Golden Weather’ for New Zealand trade policy,” said Mr Vitalis. “The establishment of the WTO; the legal enforceability of trade disciplines from 1995; and a reduction of global protectionism over this period – facilitated in part by a burgeoning network of FTAs - has delivered significant benefits for our economy.

“Unfortunately, 2019 is likely to mark the end of this Golden Weather.” Mr Vitalis said.

Amongst a number of economic and geopolitical factors Mr Vitalis highlighted two particular reasons. Firstly the rise of global protectionism, with the last two years seeing the sharpest increase in trade restrictive measures since the establishment of the WTO.

Secondly our assumption that enforceable WTO rules would widen and deepen is also in trouble; “Enforceability hinges on a functioning WTO Appellate Body (AB). Assuming the US does not change its position – to block the appointment of new AB members - by mid-December this body will no longer have a quorum, thereby threatening the viability of the wider system.”

Mr Vitalis said this functioning international rules-based system, currently administered via the WTO is vitally important to New Zealand.

“This body houses the world’s only legally enforceable set of rules that bind all of the world’s economies large and small. and remains our first best option for international trade rules, providing a set of mechanisms, particularly its dispute settlement function through which major economic powers like the EU, China, the US, India, Indonesia and others, can be held to account.”

The risk, according to Mr Vitalis, is that; “WTO members will (again) fail to agree a reform pathway this year, leading to the gradual erosion of existing rules and the WTO itself. That will signal the beginning of the end of the current world trading order – with the foundation blocks for a new one only coming into view more slowly.”

One of the more likely results of this path, Mr Vitalis says is; “a return to a Hobbesian ‘might makes right’ world order (already the revealed preference of several major players).” This is a world dominated by large countries dictating trade terms to smaller players.

Mr Vitalis points out that this, understandably, is not the ideal situation for New Zealand, with our obvious disadvantage in international trade - a consequence of our (small economic) scale and distance from markets, both of which are compounded by our continued, albeit diversifying, reliance on agricultural exports.

So what can New Zealand do?

Mr Vitalis says the we cannot sit complacently aside. New Zealand must align itself to help create and sustain regional structures and instruments as a way of maximising our influence, and defending our interests: “APEC, the CPTPP, and indeed RCEP can be seen in this light, as one of the ways in which New Zealand is investing in such processes as a way of protecting itself from suffering collateral damage in turbulent and changing times.

“Our priorities need to be numerous and across a range of fronts. Effectively implementing CPTPP is key to ensure the maximum benefit to our exporters and through them as a feedback loop into the New Zealand economy. We also need to work to conclude the Pacific Alliance negotiations; push for the conclusion of or at least a significant breakthrough in the mega-plurilateral Regional Comprehensive Economic Partnership (RCEP - which crucially includes India). Alongside this we need to continue and intensify our negotiations with the European Union and be prepared to take full advantage of emerging opportunities such as with the UK and Mercosur, as well as through non-traditional trade policy forums like the Commonwealth – a new and important focus for our work.

“We should also work with others to swiftly expand the membership of existing agreements. In particular, CPTPP represents an opportunity to extend its high quality rules by encouraging the membership of economies as diverse, but important as Korea and the UK. In this way, the agreement offers a way of supporting regional and international public goods in support of the rules based system. Alongside this, we will need to work to ‘upgrade' - with an eye to relevant sensitivities on both sides - existing agreements with Singapore, China and ASEAN.”

India’s position.

Mr Vitalis said that despite its growing economic clout (and sheer scale at 1.3 billion people), and its increasingly outward-looking foreign policy, there are few indications that India intends to open its borders to trade.

“An export-led growth model is not currently favoured by India. More broadly, India’s approach to WTO negotiations has been challenging depending on the issues under discussion and it has been rather more defensive than one might expect of such a global player, including across both our bilateral negotiations – now nearly a decade old – and those well underway in RCEP.”

Mr Vitalis said New Zealand would welcome India playing a greater role in the region, as one of the re-emerging major players in international trade and indeed in the global order itself. He said Prime Minister Modi’s stated preference for a rules-based order; “is both welcome and significant.

“…the rules-based system fosters and sustains both India’s economic development, but also that of other international actors, not least the more than 100 small states, of which of course New Zealand is one.”

Mr Vitalis said Like India, New Zealand is focused on the diversification of our trade relationships. NZ regard the tools within the WTO architecture, our bilateral FTA and plurilateral FTA negotiations not simply as commercial opportunities but; “as a way to mutually reinforce the plurality of interests we have in ensuring India’s integration into the Asia-Pacific and its continued support for and engagement on global trade rules and disciplines.”

Mr Vitalis concluded that the risk of a fragmentation of international rules: “underlines the need for major players like India to exercise leadership, and with that leadership comes a responsibility to sustain and support a transparent, certain and fair international rules-based system. RCEP is one important avenue for such engagement, but the bilateral track is another which can complement and support the RCEP outcome.

“In the meantime, the New Zealand business community is engaged on India, and interested in advice and information on business and exporting opportunities. This will always be welcome, and the role of the New Zealand India Trade Alliance is appreciated in this regard.

“New Zealand has to work particularly hard, and be particularly present, simply to keep up with developments. Even greater effort than usual will therefore be needed to ensure that we are contributing not just on process but also in substance, ie to be creative, constructive, interesting and interested as well.”

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