As the Trans-Pacific Partnership nears completion, trade pundits in Brussels are urging the EU to turn its attention to Asia, and jump-start trade negotiations with TPP countries, beginning with New Zealand.
“There is a €1.5 trillion blind spot in the Asia-Pacific, that is the sum of the GDP of Australia, New Zealand and Brunei combined,” said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE). “It is considerable and bigger than Canada,” he added.
With the Transatlantic Trade and Investment Partnership (TTIP) repeatedly hitting roadblocks, and TPP moving ahead, analysts are pushing EU officials to look at greener pastures.
Return of Asia
The case for the return of Asia is pretty clear. In the 1950s, most economic activities took place in the middle of the Atlantic area. Since then, it has gradually moved towards Asia. “Its growth has been artificially hindered by war, borders and bad governance, now it is returning to the norm,” said Lee-Makiyama.
“If one draws a line of all the world economic activity, the focal point would end up somewhere near the China-Russia border,” he commented.
Inter-regional trade in Asia is growing fast, tripling among the 12 TPP countries (see background) since the start of the millennium, while Europe’s trade in intermediate goods with TPP countries has halved.
“TPP is too big to fail,” Lee-Hakiyama added, noting that the regional agreement simply seeks to harmonise existing FTAs among the countries involved, except for Japan, which was brought in to beef up the attractiveness of the deal.
Given the export orientation of the EU, the 28-country bloc has no other choice but to seek parallel negotiations with current and future members of TPP.
And when it comes to where to start, New Zealand, the chief architect of the TPP deal, seems the ideal, though unexpected, candidate.
New Zealand is ranked consistently number one in terms of market openness, and rule of law.
Over the past 10 years, however, EU-New Zealand trade has been stagnating, and the country ranks 55th amongst EU imports, and 50th in export destinations.
Trade in goods amounted to €7.2bn or 0.2% of total EU external trade, while the European market is only second to Australia in importance as a market for New Zealand, closely followed by China, the US, Japan and Korea. That gives the EU a surplus of €1 bn.
“It is not impressive – but New Zealand, with roughly €200 bn GDP – is bigger than Peru and Vietnam, countries with which the EU has FTAs,” said Lee-Makiyama.
The idea of an FTA with New Zealand has struck some support in key members states, such as Germany, and the UK.
The relevance of such a deal lies not only with looking at GDP, but also at consumption.
With $77 billion (roughly €70 bn), consumption in New Zealand is bigger than Singapore ($48 bn), Vietnam ($69bn) or Peru ($73) with whom the EU has signed FTAs.
Agriculture, a non-issue?
Agriculture, experts say, would be a major sensitivity if negotiations started between the two commercial partners.
“Agriculture and dairy is of crucial importance to New Zealand’s economy and high in their trade priorities. New Zealand manages to negotiate much more favourable trade conditions,” Alexander Anton, the Secretary General of the European Dairy Association told EurActiv.
According to milk producers, the Pacific country has a very unique dairy structure, whereby production has increased by almost 60% over the last 15 years.
“New Zealand is exporting more milk than the U.S.A, the EU and Argentina together, hence a quite dominating power within the global dairy trade,” added Anton.
Speaking at a recent event in Brussels, New Zealand’s Ambassador to the EU, David Taylor, addressed some of the concerns.
“Some fear that we might swamp the market with our agricultural products. That is not going to happen. There is no way we are going to switch 50% of our production to Europe,” he said.
The arguments used are that the country’s agricultural land is limited, and shrinking, due to tourism and urban development. In terms of arable land, New Zealand is smaller than Belgium or Estonia. Production is also counter-seasonal and already exported in large part to Pacific countries and China, with whom they have an FTA.
“The global dairy demand by 2021 is going to be roughly 395 billion litres, New Zealand produced 19 bn litres in 2012, roughly 3% of the global supply and we can’t go much higher,” Taylor said. “We are not going to be a key player in feeding the world’s demand for milk.”
“The reality is we are more in powders, you [Europeans] are more in cheeses,” he noted, adding that Wellington is seeking investment opportunities, rather than just plain exports.
Agriculture would be a small part of the FTA, added Ambassador Taylor. “It will be a sensitive part, and there will be hard negotiation, but the real opportunities come in services, regulatory coherence and investment.”
Experts agree. New Zealand’s strategic goal is to diversify. “We see similar phenomenon in smaller economies, such as Taiwan, which has concentrated on electronics,” said Lee-Makiyama.
For the EU, a negotiation with a liberal economy like New Zealand will allow the bloc to refresh its FTA model and to create a third generation FTA that is at least on the par with TPP, and that goes beyond the current one, which is modelled on EU-Korea, at a time of Europe’s difficulties with TTIP .
The preexistence of EU-New Zealand regulatory cooperation – much inherited by the British Commonwealth – on Technical Barriers to Trade, Sanitary and Phytosanitary measures (SPS) and data privacy provides a starting point for negotiations which does not exist with other jurisdiction.
“This is a very rare opportunity for Europe,” added Lee-Makiyama. “The EU is likely to reach a high-level of comprehensivity and quality in an FTA with New Zealand that would go beyond any current and past negotiations, TTIP included.” He sees it as a template for new EU FTAs.
The EU is currently working on more than 20 agreements with more than 60 countries across the Americas, Asia and Africa.
On 14 October, the European Commission will adopt the communication on new Trade Policy Strategy, which will include some indication of which countries it would like to open up FTAs, or Bilateral Investment Agreements.
- 14 October: European Commission's new Trade Policy Strategy
- European External Action Service: EU's relations with New Zealand
- ECIPE: New Zealand: The EU's Asia-Pacific Partnership and the case for a next generation FTA