The proposed 12-nation Trans Pacific Partnership (TPP) is now well and truly dead. The question is where do we go from here?
We are hearing talk from various sources about possibilities for a ‘TPP minus Mr Trump’s USA’. But that too is highly unlikely to happen. Getting Japan, in particular, to agree to something without the USA being involved is wishful thinking. And simply waiting for another four years and hoping the USA might came back into negotiations is also likely to prove wishful. Both major American political parties know that supporting a new version of the TPP is a sure way to lose the next presidential election in 2020.
Personally, I have shed no tears about the failure of the TPP. The only real reason to join was that, with almost everyone else on this side of the world apart from China inside the TPP, the idea of us being left on the outside was unattractive. But the benefits to New Zealand were always overblown by politicians and parts of the bureaucracy. Many of us felt that the facts were arranged by our government and the bureaucracy to suit the desired message.
A search of export statistics shows how dependant we are on agri-food. Of total goods exported in the 2016 calendar year, more than 29 billion (60%) were agri-food. Add in forestry and fishing, and natural resource-based products total approximately $35 billion (72% of total goods exported). Manufactured non-food goods, including all forms of machinery and electronics, struggle to reach $6 billion. Our only other big foreign exchange earners are tourism ($10 billion) and foreign students ($3.5 billion)
There is the counter view that as an educated society we can export knowledge. But history tells us that whenever we do come up with new ideas outside agri-food then most of those businesses soon shift offshore. Those that do prosper here are typically those that focus on niche products. Somewhat ironically, they are also often related to our agri-food industries. The idea that we can prosper as a high-income country without reliance on agri-food, forestry and other resource-based industries such as tourism is fanciful.
A look at import statistics soon shows how we would be in trouble without a healthy export sector to pay for them. The big-ticket areas in 2016 include machinery, cars, electronics, oil, new planes and pharmaceuticals. Life would indeed be very constraining without these import flows!
Currently, our big four trading partners, in order of export importance, are China, Australia, USA and Japan. If the EU is treated as one market, then it comes in above Japan. If the ASEAN countries are added together then they too come in above Japan.
It is notable that in regard to bilateral free-trade agreements, it is only China and Australia of our major partners with whom we have free-trade agreements. That is unlikely to change in the near future. That same fact reinforces the key point that vibrant trade arrangements are possible without free-trade agreements. Many of our exports to these countries are already essentially free of tariffs, largely as a result of historical global WTO agreements.
Japan has shown no enthusiasm for a bilateral free-trade agreement with New Zealand – they have bigger issues with which to keep themselves occupied. In any case, Japan’s population is now in decline, and economic growth there is minimal. Selling more to the Japanese will be hard work.
There are prospects for a free-trade agreement with the EU. Such an agreement is unlikely to have the draconian conditions demanded by the USA on our own New Zealand decision processes relating to pharmaceuticals and services such as education, insurance and banking. But there are limits to how much agri-food we will ever sell to Europe. ‘Yes’ for wine, and ‘yes’ for kiwifruit and even ‘yes’ for out-of-season apples. But ’no’ for large scale exports of dairy, sheep and beef. For those products, European internal politics and food security issues will dominate over free-trade arguments.
Once Britain gets out of Europe there will be prospects of a free-trade agreement. But once again, Britain does not really need our agri-food exports. The days when we were ‘Britain’s farm’ are long since gone.
I often come across media articles talking about the challenges of feeding a hungry world and therefore how we need to produce more food in New Zealand. Unfortunately, producing more food in New Zealand will do nothing for the hungry people of the world. The food is largely of the wrong type and it will never be economic to produce food in New Zealand for the world’s hungry people.
I hope no-one will think that I am saying that the problems of the world’s hungry people are not important. They are very important. And I have worked and continue to work in areas of the world where this is a huge issue. I am simply saying that we cannot solve those problems by growing food in New Zealand; it has to be within those countries or nearby.
Here in New Zealand, our future lies in growing food for wealthy people in other countries, and using that income to pay for all of those things that we struggle to produce in New Zealand. So we need to focus our thoughts on countries that have growing economies, a growing middle class, and where there are local constraints on good-quality food production.
Such a search always comes back to China and the ASEAN countries such as Indonesia, Malaysia, Thailand and Vietnam. There are also other opportunities,with Mexico particularly interesting.
Currently Mexico imports a lot of food – it is the biggest export market for the USA dairy industry. Given the developing state of relations with ‘big brother’ USA, we may find a willingness of the Mexicans to engage.
India is another prospect of interest, but no-one should ever under-estimate the challenges of India. Those challenges make dealing with China look very simple in comparison. Nevertheless, for some products such as kiwifruit and perhaps lamb – but almost certainly not dairy or beef– India is worth giving attention to.
South Korea is another opportunity. We do have a free trade agreement with South Korea, and it is one of the more-wealthy countries of Asia. Indeed, they now beat New Zealand on many statistics including GDP per person, life expectancy, and infant mortality. However, the Koreans have forgotten how to have babies, with the so-called average South Korean woman now only giving birth to 1.25 babies in her lifetime.
If we genuinely do want to develop agri-food markets, then a lack of bilateral trade agreements does not have to be a big constraining factor. The limitation is more in our ability to engage with people of other cultures. That includes shedding some of our own cultural perspectives relating to product attributes that these people want. It also means engaging more closely in business arrangements to get win-win value chains that link all the way from consumers back to production.
For many people in New Zealand, working with Asian businesses in mutually beneficial business arrangements is anathema. Well, that is OK as long as people are also willing to forego having a society which can afford to import all those things we have come to accept as being the basics of a Kiwi life.