World disorder ahead

International trading is under pressure, with war in Ukraine just the latest challenge to disrupt existing mechanisms, Glenys Christian writes.

In Business10 Minutes

International trading is under pressure, with war in Ukraine just the latest challenge to disrupt existing mechanisms, Glenys Christian writes.

N ew Zealand faces “an even more than usually disordered world”.

That is what Ministry of Foreign Affairs and Trade (MFAT) deputy secretary of trade and economics, Vangelis Vitalis told the New Zealand Meat Board’s online annual meeting. He had pre-recorded his sobering address ahead of the meeting on March 15 as he was about to fly to Europe with the Minister for Primary Industries (MPI), Damien O’Connor.

Vladimir’s Putin’s move into Ukraine was very serious, and a grave change to the way we have thought about the world, he said.

“It’s a long time since the map of Europe has been redrawn by force.”

Vitalis said for the first time many countries were in a frantic race to put in patches defending the existing world trade order rather than building on what was already there.

“Major economies are either unable, unready or unwilling to show leadership.”

While the Biden administration was giving all the right signals in terms of a more structured and predictable trade policy, the United States wasn’t likely to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) any time soon.

Bilateralism was being seen in the two big architectural structures of the CPTPP and the Regional Comprehensive Economic Partnership (RCEP), including the 10 members of the Association of Southeast Asian Nations (ASEAN).

“The US is in neither, but these two groups are going to drive change,” he said.

Vitalis said this placed a lot of pressure on the international trading system and the question was how NZ could make sure its interests were still pursued and prosecuted.

China remained NZ’s largest trading partner with over half the Pacific economies relying on it for up to 40% of their trade and one economy exceeding that amount.

But trade flows were slowing with Covid. As countries tried to pick themselves up in its wake Chinese demand would be an important driver.

“It will be interesting to see where it goes,” he said.

Vitalis said the period from 1994 to 2018 was “the golden weather” for trade but that had now ended. There was rising protectionism not seen for five years with tariff barriers and subsidies globally at an all-time high.

“We’re in a different world now.”

He said while NZ was continuing to support trading rules already in place there was a growing sense of disorder.

“The challenge is that as a small economy we are vulnerable and none of the changes are insignificant.”

Some of these changes in the role of trade which needed to be faced were the sharp decline in trade with the US and EU. This was matched by the rise of China, India and Indonesia, all of these important markets for this country. In NZ’s favour was the fact it was adept and agile. With the challenges facing Australia’s wine and barley exports to China, a functioning, rules-based system meant it was able to step up exports of these products to the US, EU and Brazil.

Risks with digital disruption

Another recent trend was the changing nature of trade where digital disruption was affecting certification, identification and phytosanitary agreements.

“It’s already changing the way we think about international trade,” Vitalis said.

“There are advantages but challenges with privacy and protecting information as we don’t have a digital agreement at the World Trade Organisation (WTO).”

He said the role of trade was also changing in line with sustainability concerns about what could or couldn’t be done.

“Consumers don’t want to be green-washed.

“But I see it as an opportunity. NZ has a strong story to tell and our reputation as an honest, credible partner goes a long way.”

Vitalis said there were additional challenges which would need to be worked through in the future which were likely to come into sharp relief in the ratification phase of an EU trade agreement.

The Government’s trade recovery strategy of supporting exporters involved three parts; refreshing, retooling and reconnecting with the world. It took a sharp and structured approach to the present challenges by focusing on how help could be given to generate more returns.

When it came to the reinvigoration of the architecture of world trade, Vitalis said there were high hopes that the postponed 12th ministerial conference of the WTO, which will start on June 13 in Geneva, would sustain that organisation.

The free trade agreement NZ had made with the United Kingdom had delivered significant outcomes meaning this country would be able to compete on a much more level playing field.

“I’d love to be able to tell it will be as good from the EU, but based on the EU’s past agreements, I’m afraid that it will disappoint.”

With the CPTPP, he said applications to join from the UK, China, Chinese Taipei and Ecuador could be time consuming and challenging.

NZ, Singapore and Chile’s digital trade agreement made two years ago could well attract other countries, with Korea close to joining and China having already applied for membership.

“Hopefully Canada will look to join too,” he said.

But while it was good to have rules in this area the bigger question was how member countries’ actions would match up.

“I encourage the meat industry to think about what it means,” he said.

“It is a challenging world out there and it will continue to be difficult, notwithstanding the good export returns recently.”

Opportunities for farmers

Farmers would do well to think of the opportunities presented by the changing nature of trade and the benefits that could be facilitated.

“But we need to be very alert to public perceptions of trade,” he said.

“It’s important to tell the story in the right way so it’s understood.”

MFAT, together with MPI, NZTE, Customs and other NZ Inc agencies, was there to help in solving problems and addressing issues and wanted to make sure the support it provided was fit for purpose. He was looking forward to the year ahead.

Meat Board chairman, Andrew Morrison, said a rules-based system was vital.

A sustainability lens was now creating the story and systems in trade.

In answer to a farmer’s question about how this was happening, Beef + Lamb NZ chief executive, Sam McIvor, said it was a big part of the UK FTA discussions and there was no doubt it would figure in the EU negotiations.

“That’s a strong message around the expectations of our trading partners,” he said.

Work being done under the He Waka Eke Noa initiative was being talked about with the expectation that sustainability concerns would increase over time, making the next 10-15 years challenging for farmers.

Another farmer wanted to know more about the risk of protectionism escalating.

“We’re a world in crisis with Covid and Russia invading Ukraine,” Morrison said.

Export restrictions on Russian wheat already put in place in Argentina and Hungary would benefit Ukraine as a major exporter. And McIvor said he had been told by Vitalis previously that up to 60% of the value of FTAs could be lost with non-tariff barriers.

“But NZ can be very agile in responding and that gives other countries confidence to deal with us.”