While CPTPP looks like a positive step, large challenges remain to grow high value manufacturing and exports
Recent changes to the TPP agreement, now called CPTPP, appear to be a step forward, particularly with the potential removal of some of the more controversial parts, such as Investor State Dispute Settlement (ISDS) clauses. Yet, we need to remind ourselves that the primary target of these FTAs is the reduction of tariffs, providing benefits to our primary commodity exporters, but little relief to our high value manufacturers, who frequently encounter obstacles to free trade in the form of non-tariff barriers.
“Non-tariff barriers are the ‘dirty little secrets’ rarely written into trade agreements, but a matter of daily practice far away from glamorous trade talks. And probably, just as harmful to local manufacturers is the almost complete lack of enforcement of product standards in our domestic markets, allowing imported goods to trade on a price advantage. Not to mention government procurement practices that in most cases pay lip service only to the principle of giving local manufacturers a fair chance, says Mr Dieter Adam, CE, The Manufacturers’ Network.
“The removal of some of the contentious parts of the previous agreement is a positive move from the Government, giving the eventual agreement broader support in New Zealand. However, we know from past experience that the really hard work starts once the agreement comes into force, in working to remove the non-tariff barriers that form the biggest challenges for high-value manufacturers making the most of the markets involved, says Mr Adam.
“Quality trade agreements are a vital component of improving our export competitiveness, especially when non-tariff barriers that effect manufacturers are properly addressed. We cannot ignore the fact, however, that in spite of a string of recent FTAs, such as the China and Korean FTAs, the share of exports in GDP has been dropping over the past decade, rather than growing by 25% - the goal the previous Government had set itself not long after coming into power in 2008. As the new Government is rightly pointing out, New Zealand’s future prosperity can only be secured by significantly growing our exports of high-value products and services. And one of the key preconditions for that lies in improving our productivity, which has lagged through successive governments. Improving productivity and thus increasing our ability to create high-value goods and services is where the new Government should focus.
“The other critical enabler to a more balanced approach to growth in our economy is a more favourable and fair exchange rate, especially against the Australian Dollar, given that Australia is a key market for our manufacturing exports. And in that context comments made by the Acting Governor of the RBNZ, Grant Spencer, at the November MPS press conference that “We’re happy with this [the current] level of our currency, it’s in the vicinity of fair value” are certainly not helpful and point to a change from recent RBNZ statements under Graeme Wheeler, setting around 60 cents as a target rate. It will be interesting to see the response of the new Government to this new assessment of ‘fair value’ by the RBNZ. Addressing our exchange rate, which has remained significantly above trends in the previous decade, need to be part of the discussion in the upcoming review and appointment of a new Governor, said Mr Adam.