Will NZs boom be affected by the Transatlantic Trade and Investment Partnership?

Sir Michael Leigh blogs at the German Marshall Fund:

New Zealand is enjoying an export-led boom. At 3.1 percent, it boasts the highest GDP growth rate of any developed country. Reconstruction after the devastating 2012 Christchurch earthquake has provided an additional boost. Prime Minister John Key of the National Party is expected to win a third term of office in September, an achievement paralleled only by German Chancellor Angela Merkel in the period following the global financial crisis.

National is at 79% on iPredict to still be in Government after the election. This is exceptionally high. In 2011, I don’t think they were ever above 61%.

Much of New Zealand’s growth is fueled by trade with China, which has displaced Australia as the country’s largest export market. New Zealand’s exports to China rose by a spectacular 45 percent in 2013. Milk powder and other dairy products were by far the largest export items but meat and forest products also made major inroads into the Chinese market. Four factors explain the phenomenal growth figures: the implementation of the 2008 free trade agreement between China and New Zealand, Beijing’s first such agreement with an OECD country; rising demand for quality food products from China’s growing middle class, which is set to double within a decade; the high quality and competitive pricing of New Zealand’s agricultural products; and the proactive export strategy of Fonterra, the dairy giant owned by 13,000 New Zealand dairy farmers.

The FTA was Labour’s greatest gift to NZ. It’s appalling that Greens and NZ First opposed it. But one has to also credit Fonterra for their export strategy. An FTA provided an opportunity only.

Observers here worry about the country drifting into a dairy-fuelled version of the Dutch disease, with insufficient economic diversification, inflation, and a property bubble. To counter this, New Zealand’s agricultural production is moving up the value scale. The country’s eight universities are teaming up with industry to foster innovation. New Zealand increasingly exports know-how, technology, and services, linked to investment projects. Still, agriculture remains the mainstay of the economy.

It is not a choice of high tech or agriculture. We need to do both.

The Transatlantic Trade and Investment Partnership (TTIP), now being negotiated by the United States and the European Union, excites curiosity and concern. New Zealanders share Europe’s apprehensions about its possible implications for food security and about the need to maintain high health, safety, and environmental standards. They are also concerned about the bilateral nature of the agreement and the apparent absence of provisions for accession by third parties.

New Zealand is one of only six WTO members that do not have current or expected preferential trade deals with the EU. The abolition of transatlantic tariffs on food exports could put New Zealand at a further competitive disadvantage. There are high tariff peaks for dairy and meat products in the EU and United States which would still apply to New Zealand exports.

This is why the best outcome would be to conclude the Doha round and have a multilateral agreement to reduce tariffs. Without that we run the risk of bilateral and plurilateral trade agreements disadvantaging New Zealand in a relative sense.

More fundamentally, New Zealanders recognize TTIP’s potential for strengthening the rules-based international trading system, in which they have a strong interest. After the failure of the Doha Development Agenda, there may never again be another comprehensive round of global trade liberalization, despite the modest breakthrough in Bali last year. New Zealand would then have to rely on bilateral agreements such as its FTA with China, or the agreement under negotiation with Russia.

It is hard to see the Doha round ever being completed.

Kiwis are under no illusion concerning these countries’ commitments to intellectual property protection, health and safety standards, or judicial independence. New Zealand suspended trade negotiations with Vladimir Putin’s cherished Customs Union after Russia’s forceful annexation of Crimea. This and tensions in the South China Sea are reminders that Moscow and Beijing may not always be reliable partners. TPP and TTIP would effectively set global standards which could be adopted by countries around the world and codified by the WTO.

Former U.S. Secretary of State Hillary Clinton described TTIP as the economic equivalent of NATO. For all their geographic isolation and growing economic integration with Australia, Asia, and the Pacific, New Zealanders feel they belong to the West and would broadly welcome TTIP as reinforcing values they share with Europe and the United States.

I’ve not paid too much attention to TTIP (as opposed to TPP), but maybe it could be the base for a NZ-EU agreement of our own one day?