John Ballingall: Why the time is ripe for a new trade strategy

Of Interest

On the 22nd of November, while the National Party was putting the finishing touches on its coalition agreement, the European Union (EU) ratified a new trade deal with New Zealand.

It was the latest in a long line of agreements NZ has struck since 1983, but it could be the last.

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, John Ballingall, a partner at economic consultancy firm Sense Partners, says NZ may have reached “peak FTA” as there aren’t any likely or worthwhile deals on offer.

This jars with the newly-elected National-led government’s promise to “work relentlessly” to smooth NZ’s trade links and open up new markets for exporters.

Todd McClay, a senior and long-serving National MP, was sworn in as the Trade Minister on Monday and will be tasked with doubling the value of exports in the next 10 years.

Achieving that goal would require an annual growth rate of 7.2%, compared to an historical average over the past decade of roughly 4%.

The past two years have seen much higher rates of growth but only because various exports have bounced back from very low levels during the era of pandemic restrictions.

National says it'll chase the goal by working to win a trade deal with India and the Gulf Cooperation Council, while also reducing “non-tariff barriers” to make trade cheaper.

Ballingall says the incoming government needs to put the most resources into that last element.

A paper he published in October provocatively suggests NZ should “gently say no” to any country looking to start an FTA negotiation, unless it will be clean and fast.

The exceptions to this rule would be India, the United States, and the Gulf Cooperation Council countries, but none of these are likely to be achieved in the next 10 years.

If any of these deals were to become possible in the future, they would likely be much less lucrative than the China agreement which transformed the NZ economy. This is partly because of the economic and political situation in those countries, but also because the FTA agreement with Europe did not include dairy and meat.

Ballinghall says the EU deal was “genuinely world leading” in some areas, but it doesn’t offer as much market access for our farming sector as NZ would like.

“Once you've told the rest of the world that you're prepared to take the deal that's on offer, not your ideal outcome, then that becomes the precedent, almost a starting point for your next set of negotiations,” he says.

In a press release prior to the election, McClay said the rewards of securing a free trade agreement were large. Two-way trade with China has increased seven-fold since 2008.

Labour had “dropped the ball” on the India trade relationship, he said, but a National government would make it a “priority”.

Ballingall worries that chasing a trade deal with India would use up too many resources that could be put to better use elsewhere. For example, Australia has been negotiating since 2011.

His report recommends focusing on regional trade agreements that include multiple trading partners and attacking less tangible barriers that create costs for exporters.

Sense Partners estimates the cost of non-tariff measures, such as bureaucratic border regulations, on NZ exporters at about $12 billion. That’s 10 times higher than the cost from the few remaining tariffs.

“The time is ripe for a new trade strategy,” Ballingall says.

One that focuses more on reducing transaction costs and getting the most out of existing trade deals, rather than focusing on new market access with ever diminishing returns.

While that may be a less charismatic message to deliver to the voting public, it does appear McClay and the incoming government are aware of the need to shift focus.

“Over the next decade, National will measure the success of our trade policy in the value of exports, not simply by how many new trade agreements we sign,” McClay says, in that same press release.

The new government has promised a record number of trade missions and a trip to India in the first year, but some in the trade sector will be hoping it also focuses on the less cinematic work of smoothing existing trade links.

*You can find all episodes of the Of Interest podcast here.