PACER Plus, NZ-China FTA upgrade, proposed trade deal with EU

Although the media focus has been on the fate of Trans-Pacific Partnership, there is a lot else going on in the global trade area.

New Zealand this month signed a Pacific Island trade deal and is now progressing with the upgrade to the New Zealand-China Free Trade Agreement (NZ-China FTA) and readying for the beginning of trade negotiations with the EU.

We look at what these developments might mean for New Zealand business.

PACER Plus

The Pacific Agreement on Closer Economic Relations (PACER Plus), signed in Nuku'alofa on 14 June 2017, includes Australia, the Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, New Zealand, Niue, Palau, the Republic of Marshall Islands, Samoa, the Solomon Islands, Tonga and Tuvalu.

Notably absent are the larger economic powers of Fiji, Papua New Guinea and Vanuatu.

Their absence will compromise the Agreement's ability to achieve what, for New Zealand, is a key objective - improved economic development across the region as a whole.

Key aspects of the Agreement

Labour mobility: New Zealand has committed to enhance the Recognised Seasonal Employer (RSE) scheme and to explore other temporary labour mobility opportunities.

Aid for trade: New Zealand has committed to invest at least 20% of its total Official Development Assistance in the form of 'aid for trade' to help build the trade capacity and infrastructure that the Pacific requires to engage in regional economic integration.

Goods: Unlike New Zealand's other FTAs, the most-favoured nation (MFN) rule applies to goods, meaning that if Pacific Island nations negotiate more ambitious agreements with other countries, New Zealand exporters will get the benefits of those agreements.

Rules of Origin: New Zealand exporters will save compliance costs by not having to obtain independent certification that their goods originate from New Zealand.

Services and investment: Eight of the PACER Plus signatories are not members of the World Trade Organisation (WTO) and have made market access commitments on services (mostly business and transport services) for the first time, while others have improved their commitments compared to the WTO. The investment chapter imposes disciplines on host governments, including to treat investors in accordance with the customary international law minimum standard of treatment and not to expropriate without compensation, but investors have no recourse to investor state dispute settlement.

Some commentary has suggested that PACER Plus is “unbalanced in favour of Australia and New Zealand".1 In reality, there are likely to be upsides and downsides for the Pacific. Pacific Island states already had tariff free access to New Zealand and Australia but should gain from the increased development assistance for trade and employment opportunities for unskilled labour.2

NZ-China FTA Upgrade

The upgrade is intended to ensure the FTA remains relevant, and will address areas already covered, including services, e-commerce, technical barriers to trade, customs procedures, rules of origin, agricultural cooperation, and how to address government procurement.

The government is seeking further input from the private sector to help inform New Zealand's approach, in particular, which provisions could be improved, specific issues negotiators should prioritise, practical experience of non-tariff barriers, and what might be achieved in export or investment potential if these were addressed.

The first negotiating round took place on 24 to 27 April 2017. The next is scheduled for 4 to 7 July.

EU-NZ FTA

A scoping paper released last week following the conclusion of discussions between New Zealand and the European Commission confirms that the proposed FTA will be comprehensive, covering goods, services and investment.

Features

Goods: the acknowledgement of “possible sensitivities (such as, in the case of the EU, for some agricultural goods)" suggests that the FTA is unlikely to include full tariff elimination on all products of export interest to New Zealand.

Animal welfare: cooperation and exchanges on standards of animal welfare will be continued.

Services and investment: the right of government to regulate for public policy purposes was reaffirmed as was the intention to seek high quality, commercially meaningful outcomes in services and investment. The FTA will include a mechanism for resolving disputes between investors and states, with details to be discussed during negotiations. The EU will no doubt push for its model of investor state dispute settlement which involves an 'Investment Court System' that replaces ad hoc tribunals with government-appointed judges.

Movement of business persons: the value of facilitating access and procedures for the temporary movement of people for business reasons is accepted by both sides.

Digital economy: the FTA will consider areas in which new disciplines might be required to address challenges arising out of the digital economy.

Intellectual property: negotiators will seek a “broader framework for recognition and protection of [geographical indications] beyond wines and spirits". The sensitivity of this for New Zealand exporters is acknowledged by a note that “any agreement on providing such a framework will be subject to a satisfactory overall outcome in the Agreement for New Zealand".

Trade and sustainable development: the FTA will contain provisions to promote a greater contribution of trade and investment to sustainable development, a concept that includes environment and trade.

Treaty of Waitangi: New Zealand's ability to fulfil the Crown's obligations under the Treaty of Waitangi will be protected – as in all of New Zealand's FTAs.

The Ministry of Foreign Affairs and Trade ran a public submission process in 2016 and has indicated a willingness to receive relevant input on an ongoing basis.

Chapman Tripp comment

Trade Minister Todd McClay is advisedly taking a more open approach to public engagement in trade negotiations than his predecessor.

Our international trade and investment law team is available to assist businesses and organisations in engaging with the government, including making a submission and advising on how the negotiations may affect specific businesses. Please contact the authors listed.

1 Vanuatu Chamber of Commerce and Industry, “How PACER-Plus undermines the Peoples Plan for Development", 3 April 2017, at: http://www.vcci.com.vu/how-pacer-plus-undermines-the-peoples-plan-for-development/

2 Matthew Dornan, Deputy Director of the Development Policy Centre at the Australian National University, “PACER Plus is not much to celebrate", DevPolicyBlog: http://devpolicy.org/pacer-plus-not-much-celebrate-20170605/

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