Switzerland, Morocco and Panama might have little in common – but all feature on a new list of countries New Zealand could look to as it moves into a new era of free trade deals
Free trade deals with the United Kingdom and European Union remain tantalisingly close for the Government, while the United States and India remain elusive targets - but beyond that, the cupboard is bare when it comes to obvious dance partners for New Zealand.
A new report, produced by Sense Partners economist John Ballingall for the New Zealand International Business Forum, has used data to identify potential partners for the Government to pursue in the coming years.
According to the report, New Zealand trades $10.3 billion of goods exports and $8.4b of imports with countries where it does not have actual or potential preferential market access - with the countries making up 16.1 percent of the Kiwi goods trade, but almost 40 percent of both the world’s GDP and population.
Potential partners were ranked using an ‘FTA partner suitability index’, with 29 criteria including population, income levels and growth, tariff and non-tariff barriers, and openness to trade and investment.
Switzerland received the top score through the index. Its wealth, high foreign direct investment share and ease of cross-border trade acted as pros, but its relatively small population, slow GDP growth and high meat and dairy trade barriers served as cons.
In second place was Norway, a wealthy and trade-friendly nation but one which had a highly protected agricultural sector.
Rounding out the top three was Morocco, which had fairly fast GDP growth and scope to move on agricultural trade barriers, but fairly low income and a narrow, dairy-dominated NZ import profile.
The other countries on the list were (in order) Israel, Turkey, South Africa, Ghana, Guatemala, Brazil, Nigeria, Egypt, Sri Lanka, Bangladesh, Panama, Iran, Algeria, Trinidad and Tobago, the Dominican Republic, Pakistan, El Salvador, Costa Rica, and the Côte d'Ivoire.
The report said trade-offs were abundant across the potential partners, with many of the larger economies often relatively poor, agricultural market access frequently challenging, and existing export relationships often narrow.
“None are ideal, but we are now at the point where ideal need not be the objective.”
While commercial and geopolitical considerations would likely rule some of the countries out in the shorter term, the purpose of the report was to look further ahead given the status quo could well change.
The gains from future FTAs were likely to be highly concentrated for particular firms or sectors, which raised the question of whether New Zealand should move away from its traditional approach of seeking the removal of all tariffs on all products.
A more targeted approach focused primarily on specific sectors of interest, or more “horizontal, thematic and plurilateral agreements”, would be less resource-intensive and could still deliver benefits for New Zealand businesses.
“This break from tradition would no doubt be uncomfortable and would require careful planning and external communication, but we would argue a one-size-fits-all FTA template makes little sense when looking at the next tranche of potential FTA partners we have identified here.”
The report excluded countries with whom New Zealand already had an FTA or was negotiating with, as well as the US (given it was already a priority), India (already “loosely associated” with the RCEP deal), and the suspended Russia FTA.
The analysis also focused largely on goods trade, and the primary sector in particular, due to limited data on services and investment.
Speaking about the report at an NZIBF launch event, Ballingall said his index was not an exact science, and the list it produced showed the challenges of a data-driven approach.
“It’s going to throw up all sorts of unusual names, some of which won’t necessarily make sense, but they’re all there for a reason.”
The exact list of potential partners was less important than the discussion which should flow from it, he said.
“When China initially shut down, we had to move very quickly to change the course for our products around the world, and we were able to do that very successfully, because of the deep customer relationships that we have, and the range of market access options that we had as well, so it comes down to options, options, options.”
Jenny McGregor, Fonterra’s trade strategy general manager, welcomed the release of the report, saying while her company exported around 95 percent of what it produced, dairy trade still remained highly restrictive.
“A number of markets that remain highly protected are large and sophisticated dairy markets that have high-end consumers with strong dairy demand. Those are consumers that are willing to pay a premium for value-added products, sustainability credentials ... so having access to those consumers is really important for us.”
McGregor said there was a significant opportunity for New Zealand to expand its trade network in South Asian countries like Sri Lanka, Bangladesh and Pakistan, as well as in Africa, where seven countries were already in Fonterra’s top 50 dairy markets.
Esther Guy-Meakin, the Meat Industry Association’s senior manager for strategy, trade policy and advocacy, said economic diversification remained important for Kiwi exporters as was highlighted by the Covid-19 pandemic.
“When China initially shut down, we had to move very quickly to change the course for our products around the world, and we were able to do that very successfully, because of the deep customer relationships that we have, and the range of market access options that we had as well, so it comes down to options, options, options.”
Guy-Meakin said almost all of the markets listed in the report had little New Zealand representation, and the Government and businesses would need to think carefully about how they invested in relationships given the resource advantage of competing countries.
Speaking about Ballingall’s suggestion that negotiators move beyond an all-encompassing approach to trade deals, trade policy consultant Stephanie Honey said creativity was valuable but it was important to keep a “broad agenda”.
“We care about something that a lot of other countries don't really want to do otherwise, which is agriculture ... because what we're talking about is a long, slow burn, this is the options that will be available to New Zealand exporters in 10 years or 20 years, it's really important to actually keep that sort of comprehensive approach.”
