Koreans keep the free trade ball rolling
New Zealand Herald, Auckland
Fran O’Sullivan: Koreans keep the free trade ball rolling
4 March 2009
By Fran O’Sullivan
South Korean President Lee Myung-bak put on an impressive show in Auckland yesterday as he talked tough about the necessity for world leaders not to fall prey to anti-protectionist forces.
Lee’s fervent advocacy for free trade is in stark contrast to the mixed messages being broadcast by some of New Zealand’s trading partners - particularly the United States.
The South Korean President indicated that his US counterpart, President Barack Obama, had assured him that he would also be anti-protectionist.
But there is a gap between assurances and actions.
In New Zealand, policy-makers are deciding what to make of a US request to defer talks due to take place in Singapore later this month on the Trans-Pacific Economic Partnership (P7) proposal which is widely seen as the entry-point for this country and the US to finally do free-trade business.
Is it because Obama’s nomination for the position of US Trade Representative, Ron Kirk, owes back taxes and still has to be confirmed? Or is there something more profound at work as evidenced by a Congressional letter sent to Obama, and signed by 50 political representatives, asking for a rethink on globalisation?
In Lee’s case there was no doubting his sincerity when he told a business audience that South Korea hoped to benefit in several aspects from the forthcoming free trade agreement with New Zealand.
Foremost was a determination to learn from New Zealand’s experience in freeing up its agriculture market by removing all subsidies - even though it is bound to cause opposition from some elements of its own agriculture industry.
Lee - a businessman of some repute before entering national politics - has a ready ally in Prime Minister John Key who has already proven more than adept in picking up the free trade ball thrown to him by his predecessors.
There is also a lot Korea has to offer New Zealand - particularly in technical co-operation.
The Korean announcement caps a great fortnight for New Zealand’s trade negotiators.
Trade Minister Tim Groser began free trade negotiations with India 10 days ago, then inked the free trade deal between Asean, New Zealand and Australia at the subsequent annual meeting of the 10-strong group of Southeast Asian nations.
The Indian negotiations will be long and arduous - rather like the complex bargaining New Zealand negotiators faced when putting the China-New Zealand FTA in place.
Asean is important to New Zealand. Thailand, Indonesia, Malaysia, the Philippines and Singapore between them take more than 90 per cent of New Zealand’s exports to Southeast Asia.
Before the Crisis (BC), New Zealand export growth into Asean was rocketing along at an annual growth rate of 77.8 per cent.
It is a big market for dairy player Fonterra which exported about $2.5 billion (BC) with wool and meat recording another $330 million (BC).
But sustaining the previous bilateral export growth rate will be a challenge as the crisis hits the Asean grouping hard.
Some of Asean’s more powerful members - such as Singapore - want to transform the group into a European Union-style bloc.
But wide economic disparity among the 10-member nations has long stood in the way of the region’s ability to rise to the challenge.
Asean summit chair Thai Prime Minister Abhisit Vejjajiva has pushed again for the 570 million-strong group to "accelerate" the formation of an "attractive single market" to compete for investments with China and India.
But while the group contains within it basket-cases such as Myanmar, progress towards a common platform will be difficult.
Credit where credit is due.
Much of the glory for the past fortnight’s trifecta of bilateral and regional trade breakthroughs goes to the previous Labour Government.
Former Prime Minister Helen Clark’s painstaking diplomacy paved the way for New Zealand to join Australia in negotiating a free trade deal with the Asean bloc.
India put a bilateral free trade deal on the table during the visit here of its then Finance Minister Shri P Chidambaram in 2006, then followed through with a business mission last year for preparatory talks.
The Asean deal chugged along for years (it should have been finalised two years ago), and, the shape of the Korea-New Zealand deal was also in place two years ago - but the launch was deferred while Korea negotiated its bilateral deal with the US.
Where the Key Government has a real opportunity to differentiate itself from its predecessors is in rising to the challenge to elevate the Closer Economic Relations agreement with Australia to a much deeper economic integration between the two countries.
Key has made good strides by lifting the level of ambition to get the integration accelerated. The history on this score has been vexed.
The business sector - notably former Bank of New Zealand chairman Kerry McDonald (NZ) and former Qantas chairman Margaret Jackson who formerly co-chaired the influential Australia New Zealand Leadership Forum - embraced a proposal for a common border (or "fly domestic" as I dubbed it back then) as far back as 2004.
The ability to "fly domestic" across the Tasman has long been a no-brainer given the strong integration of the two economies at a business level.
The cost-savings from reducing customs compliance - particularly in valuable business time - will be immense.
Neither Clark’s Government nor the Howard Government wanted the transtasman single economic market to be wrapped with a common border with all that implies (common tariffs, common security, common currency and so forth). But if Key and Rudd can knock off their agenda, the true customs union must be the next obvious step.
Where Key and Rudd have picked up the tempo is in expanding beyond the business regulation platform into the tough areas.
Among their decisions:
Finalise this year an investment protocol to promote investment between the two economies through a reduction in regulatory barriers and compliance costs for business (former Finance Minister Michael Cullen could not get internal backing for this).
Complete a new comprehensive transtasman tax treaty to reduce tax barriers to trade and investment, further protect the tax base in each jurisdiction and simplify and improve certainty for those with transtasman business interests (started by Cullen and Costello).
Conclude a scheme for the mobility of transtasman retirement savings which will enable pension funds to be moved between Australia and New Zealand (initiated by Cullen).
Undertake a review of CER Rules of Origin, and an updating of the Australia-New Zealand Joint Food Standards Treaty (accelerated by Key and Rudd).
Reduce remaining barriers at the borders to ensure that people and goods can move more easily between the two countries, including through effective air links (accelerated by Key and Rudd).
Strengthen co-operation to promote open markets and trade opportunities for exporters, including through the Asean Australia New Zealand Free Trade Agreement and a successful conclusion of the WTO Doha Development Round (this is not as rosy as both sides would have you believe).
Expand joint trade promotion activities to increase global market shares for the transtasman economy.
The major breakthrough was the agreement to work closely together in the lead up to the Copenhagen climate conference and look at harmonising the emissions reductions regimes on both sides of the Tasman.
Given Australia Inc’s long policy of an "Australia First" approach, this can only be good news for New Zealand businesses and farmers.
