New Zealand looks likely to hold out on China’s plan for a replacement for the TPP unless it can get a better deal from Japan.
Trade Minister Todd McClay flew to Peru last night for the APEC Trade Ministers meeting with the TPP all but dead and China enthusiastically pushing its replacement Regional Comprehensive Economic Partnership.
RCEP includes all of ASEAN plus China, Japan, Australia, New Zealand and India.
However, the two big plums that New Zealand got in the TPP — the US and Mexico – are not included.
A senior White House official said last week that U.S. President Barack Obama would no longer press Congress to ratify the treaty during his term. Trump has said he will pull the United States out of the pact as soon as he takes office on Jan. 20.
But Representative Kevin Brady (R-Texas), chairman of the House Ways and Means Committee and its sub-committee on trade, told the Wall Street Journal’s CEO Council on Tuesday that Republicans should defend the TPP and seek to renegotiate, rather than withdraw from the free-trade pact.
“There is plenty that levels the playing field,” Brady told the forum, according to Reuters. ”Renegotiate. Fix the problems that exist today. Let’s find a way to move forward.”
It is comments like that, which persuade McClay and some members of the TPP lobby in New Zealand that all is not yet lost.
“We’ve seen signs of (Trump) moderating some of the things that were said,” said McClay.
“Over the weekend they came out with some more language around their trade views.
“It’s quite moderate, some of it.
“But having said that, President-Elect Trump took a very strong position on some of his concerns around TPP.”
Japanese Prime Minister Shinzo Abe has faced down a strong anti-TPP lobby in Japan, and it is clear that Japan believes the TPP is more than a trade agreement and they see it as a way of locking in United States influence in East Asia.
Abe will meet Trump in New York today.
“There’s no doubt that there would be a pivot to RCEP if the TPP doesn’t go forward,” Abe told a Committee in the Diet over the weekend.
But China has been making overtures to some TPP countries to get behind RCEP.
Malaysian Trade Minister Mustapa Mohamed said on Tuesday that Malaysia was looking to push RCEP.
“The current uncertain international economic situation has motivated and strengthened the resolve of RCEP countries, which are among the fastest-growing countries in the world, to continue working closely in reaching a conclusion of this trade agreement,” Mr Mustapa said in a statement.
But there are significant differences between RCEP and the TPP.
One key difference is that while the RCEP is expected to cover standard items such as trade in goods and services, investments and dispute settlements, it may not extend to areas such as the environment and labour and food safety standards – like the TPP.
McClay is not convinced that New Zealand should sign RCEP yet.
“The quality of the deal certainly needs to improve from what is on the table at the moment,” he said.
New Zealand sought two big gains in the TPP — access for meat and dairy products in particular into the US and Japan.
McClay says New Zealand has concerns about the liberalisation of goods trade under RCEP.
“The outcomes need to be commercially meaningful for all countries,” he said.
“The challenge that you have in RCEP is that thee economies are in different degrees of liberalisation and openness.
“They are also at different degrees of economic integration.
“I think the level of ambition needs to be higher; we need to make sure that wherever it settles that there are commercially meaningful outcomes for all countries.”
Asked if Japan had put an offer to New Zealand on the table that was the same as or better than its TPP offer, he said: “I can’t go into the details of what different countries have offered, but certainly all of the countries should be looking at TPP and better.”
In other words, he appears to be saying that Japan has not matched its TPP offer to New Zealand.
Apart from the quotas and tariffs which dairy exports to Japan face, there are also issues over beef where New Zealand exporters must now pay a higher tariff than Australia because that country has a free trade agreement with Japan.
There are other agreements that will be discussed at APEC.
The Ministers will get a report on another Chinese proposal to establish a “Free Trade Area of the Asia-Pacific” which would embrace all of the APEC countries.
Clearly, this would have been a difficult agreement to get finalised before Trump became President, but will be much more difficult now.
McvClay says that the idea was that eventually the TPP and RCEP would link up to form the basis if the agreement.
He says that nothing could realistically happen until the new administration was in place in Washington.
Thus the next few weeks may mark a historic turning point in trade in the region when leadership switches from the United States to China.
New Zealand will be able to live with that, but it will need better access to Japan to be completely comfortable.