Governments are becoming more open on trade policy

By Phil O'Reilly, April 2017

Historically, trade policy has been a subject for policy elites - governments, businesses, NGOs and trade unions. However, this is changing.

We are starting to see more public consultation on trade in many countries, including New Zealand where the Government has released a "trade strategy refresh".

This strategy refresh, which will guide trade policy through to 2030, went through extensive public consultation.

This was clear recognition trade can no longer operate in isolation. It needs to be open and completely interlocked with other parts of economic and social policy, such as social protection, health, skills and infrastructure.

While we are welcoming this long overdue transparency and inclusion, increased openness is under threat in some countries, notably the United States.

Populism and protectionism in the US has led New Zealand, with other global business voices, to be more active in supporting openness to trade.

Vigorous discussion is taking place in international meetings such as the B20 (the business forum that advises the G20 leaders' meeting), as well as at the OECD and other global policy making bodies.

The US aside, much of the rest of the world remains committed to trade openness. China, the Association of Southeast Asian Nations and countries in the Middle East and Latin America have all been consistent in their determination to free up trade and increase globalisation.

Countries are doing this because there is overwhelming evidence that trade and openness lifts national wealth, from the poorest upwards. Countries who trade become richer, countries who do not become poorer.

The way in which countries trade is changing rapidly. In the past, trade was largely about transporting physical goods across borders that faced high tariffs.

This is still the case with some of New Zealand's most significant export products, especially dairy, but most world trade these days is now dominated by global value chains.

Here, different countries and economies specialise in different parts of the manufacturing or services related components of shifting goods and services to world consumers. A good example is that the largest motor vehicle exporter from the United States is the German multi-national BMW Group.

In addition global trade is increasingly more services-based. Think education, consulting and tourism, and digital.

Not so long ago you would have bought imported CDs at the supermarket. Now, you are more likely to be streaming music on your phone from a server operated somewhere else in the world.

Digital has become so pervasive that the idea of being able to put digital trade in a separate box to other types of trade is nonsensical. The fact of the matter is that trade is digital and digital is trade.

Investment too plays an increasing role, since without investment, global value chains for goods or services simply wouldn't exist nor could they grow.

New Zealand's trade policy strategy refresh takes into account this changing trade climate and proposes four big shifts:

The first is that the Government wants 90 per cent of New Zealand's trade to be covered by FTAs (free trade agreements) by 2030.

While this reflects the work eastern and far-eastern countries are putting into their trade policies, given the protectionism in the US, and rising protectionist forces in parts of Europe and in countries such as India, it may be perceived as ambitious.

However, let's not forget that the time horizon is long enough for us to be patient and wait for trade strategies to settle down in those countries.

The second major shift is that our trade policy will become more concerned with protectionism behind borders and non-tariff barriers.

This means it will address the likes of bogus restrictions placed on certain food, occupational qualifications or investment rules which act as barriers to trade even though they might not technically be trade related.

The third change is that our trade policy strategy will focus more on the growing areas of services-based trade, digital trade and trade related investment.

The fourth significant change is that our trade policy will not just be about market access, but about building the capacity for companies to be more successful in global markets after they have accessed them.

Having a conversation about why trade matters to New Zealanders is an important task. And it's the best way to make sure that the benefits of trade are felt by all.

Phil O'Reilly is chair of Business at the OECD and a New Zealand member of ABAC, the Apec Business Advisory Council.