Trade risks to New Zealand

07 Dec 2018

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The growing tensions between the United States and China are casting an ominous shadow over world trade. The risks are now becoming the subject of frequent commentary in mainstream media, with reports telling of the jostling for position between these two world powers. 

The recent appeasement between the two countries is only temporary, and may not endure; the implications for New Zealand could be severe. This is because New Zealand relies on the sale of our agriculture and horticulture produce to enable the country to be financially viable, with about 50% of our exports coming from the rural sector.

The growth of our horticulture sector has been reported on by the Horticulture Export Authority in a trade report issued earlier this week. This report is prepared every two years, and is a comprehensive assessment of New Zealand’s horticulture trade across the world.

The key points are:

- In the last two years horticulture has grown by 7.6%

- Progress with Free Trade Agreements since 2012 has reduced tariffs by 12%

- The European Union, India, Japan, and South Korea are the countries we pay the highest tariffs to. With the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) coming into force, tariffs in Japan are eliminated. Also, the government is involved in trade negotiations with the European Union, India, and South Korea. By the time of the next report, there will be significant improvements.

- The EU remains our largest trading partner, but second place is now China, (formerly Japan).

- There has been an increase in non-tariff barriers - negotiating access to new markets in particular is taking a long time.

The risks to New Zealand are all too real, and cause for discomfort. New Zealand’s relies on the World Trade Organisation’s (WTO) rules and its ‘court’ system to ensure that we can export our produce, knowing that the country we are sending our produce to will accept it. If there are problems with this, then the ‘court’ system can be invoked.

The problem we face is that some of the major countries and trading blocs around the world are not supporting the WTO as they once did. If the WTO loses support from the major participants, it will lose the ability to enable smooth trading. The result could be that countries will unilaterally decide to change the rule for exports, making it more difficult for our exports to get into countries around the world. That will stifle our growth and our financial vitality. 

This increases the importance of multi-country agreements like the CPTPP and Regional Comprehensive Economic Partnership (RCEP). These agreements put trading rules in place, but remain reliant on the WTO as the foundation of free trade. As such they are a substitute, but not the answer to the diminishing power of the WTO. 

The growth highlighted in this trade report may not endure if we can’t ensure that the WTO continues to be the prime trade organisation in the world, enabling and enforcing fair world trade.

- Mike Chapman, CEO