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Trade: A Discredited View

Posted February 09, 2014

“The old beggar-thy-neighbour idea of ‘exports: good; imports bad’ is now utterly discredited.  It’s trade that matters.”

Phil O’Reilly is the chief executive officer of BusinessNZ, New Zealand’s largest business organization, and he was one of five presenters at last week’s Global Business Dialogue colloquium on TPA and the Observer Effect.  But he wears another hat as well. Mr. O’Reilly is the chairman of the Business Industry Advisory Committee (BIAC) to the OECD in Paris.  Like its labor counterpart, TUAC, the Trade Union Advisory Committee, BIAC is an officially recognized source of advice for the OECD.
Phil OReilly
The OECD and its economic research - especially its work on trade in value added products - were very much on Mr. O’Reilly’s mind last week.  Like the WTO’s “Made in the World” project, the OECD’s trade in value added work focuses on global value chains.  Global value chains have dramatically changed the way many people - not everyone, but many - look at global trade.  Where, in the past, the key question was, what does this or that country produce?  Now the question is, how does it fit into global production processes?  It was in discussing the OECD’s work on global value chains that Mr. O’Reilly made the observation highlighted above.

His presentation was both wider and more focused than today’s quote suggests.  Yet never strayed far from twin topics of Trade Promotion Authority and the Trans-Pacific Partnership.  Those two are now twisted together in a DNA-like double helix.  Briefly, his remarks consisted of short elaborations on seven themes. Here is a compressed version.

1. Patience is the watch word for TPP.  It has been going on for a long time, longer than the six years the U.S. counts.

2. A High Quality TPP. Yes, TPP needs to be a high-quality, comprehensive agreement.   “The new glue of trade is investment,” Mr. O’Reilly said, which means TPP needs to address behind-the-border issues.  Of course it needs to tackle tariffs and other market access issues that are still out there, but if that is all it does, it will have failed.

3. The Pivot. Mr. O’Reilly spoke positively about the Obama Administration’s “pivot” toward the Asia Pacific region, but trade needs to be a big part of it.  “From a U.S. perspective,” he said, “you’re not going to get the kind of influence you seek ... in the Asia Pacific ... just through sending aircraft carriers.  In fact, most of the engagement with Asia Pacific will be through trade and people contacts.”

In today’s world, that means TPP.  Mr. O’Reilly was clear on two points.  He hopes that TPP will get done, but it is not a foregone conclusion.  “If America doesn’t do TPP for some reason,” he said, “then it will be America that loses face and presence.”

4. Other forces at work in the region.  Beyond TPP, the other big one is RCEP, the Regional Comprehensive Economic Partnership.  This large, FTA-like agreement is being negotiated by the ten countries of ASEAN and their FTA partners, including Australia, China, Japan, Korea, and New Zealand.

It was China, Mr. O’Reilly focused on especially.  New Zealand has an FTA with mainland China.  It also has FTAs with Hong Kong and Taiwan.  New Zealand is not a big market for China; so why did China do it? Mr. O’Reilly speculated that China took on the FTA with New Zealand mainly to demonstrate its commitment to the region.  As for the effects of the agreement on the New Zealand business community, Mr. O’Reilly said, yes, the tariff reductions are important, but the larger impact of the deal was to change attitudes in New Zealand about doing business in China.  It made it seem “safer and friendlier.”

And the experience of dealing with business counterparts in China has been positive.  “They [the Chinese] are very good to deal with on the whole,” he said, and New Zealand business is now more focused on China.  That development, he said, “has been somewhat at the expense of the New Zealand-U.S. business relationship.”

5. The U.S. is back, Mr. O’Reilly said.   And that’s a good thing.

6. The target is out there.  Mr. O’Reilly acknowledged that there should be some solid trade gaines from TPP to the countries participating in it.  Both the United States and New Zealand, for example, hope and expect to see improved market access into Japan from the TPP negotiations.  And yet, he told the group, the real target is out there, beyond TPP.  To illustrate the point, he mentioned that, even though lamb is very much a niche product in China, New Zealand now sells more lamb to China than it does to the U.K.  He conclusion:

“TPP is not about the 12. It’s about the APEC 21.  It’s about showing the rest of the world it can be done.  It’s about establishing a new architecture so no free trade deal of any consequence in the future can be anything other than comprehensive and high quality.  That’s what we should be on about.”

7. On Trade Promotion Authority.  Mr. O’Reilly did discuss TPA in his prepared remarks, but we found these comment he made in the Question-and-Answer session even more compelling.

“Some people were telling me yesterday that we [the U.S.] don’t need TPA to get TPP done.  Well, that that is technically correct, but how many heads of pins do you want to dance on here? ... 

“If we are going to sit in a room somewhere, the U.S. negotiators and the other negotiators, and get a deal done, the seriousness of the United States is in question if TPA is not done.  That will go to the capacity of the other sides I suspect ... ”My sense is, if you don’t have TPA, I can’t see in a practical sense how it is going to go forward.”

Source: Global Business Dialogue Inc.