Making trans-Pacific friends: Stephen Jacobi comments on the implications for New Zealand's relations with China and the United States of the recent agreement on the Trans-Pacific Partnership.

• Author: Jacobi, Stephen
• Position: Report

The recent agreement on the TYans-Pacific Partnership in Atlanta has opened up new trade vistas for New Zealand. The TPP appears poised to deliver the free trade relationship we have sought for so long. This momentous development has implications for our trade relationship with China, which is not in the TPP. But in the light of the reality of these global business networks it does not make sense to suggest that it will force New Zealand to make some sort of choice between China and the United States. Rather, business in New Zealand seeks the best possible environment for doing business with both partners.

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In this article I will focus on three key issues:

* how business in New Zealand sees the two critical relationships with China and the United States in an economic and commercial context;

* what the Trans-Pacific Partnership (TPP) has to do with all this; and

* how the TPP and, more importantly, what might flow from it, could lead to a new framework for trade and investment across the Pacific encompassing both these key partners for New Zealand.

I am commenting from the vantage point of the New Zealand International Business Forum, an organisation that brings together the leaders of New Zealand's largest and most internationally oriented companies and peak business associations.

Having spent the larger part of my professional life involved in trade and trade negotiations, I still find it surprising that New Zealand has for the last seven years enjoyed the benefits of a free trade relationship with China while a similar set of arrangements with the United States has continued to elude us. The situation is all the more surprising if you think that New Zealand shares fundamental values and principles with the United States as well as shared history as an erstwhile ally and is still a 'very, very, very' good friend, to use the terminology of former Secretary of State Colin Powell. As we know, the reason for this anomaly has to do largely with factors in the political relationship between New Zealand and the United States, which meant that we were unable, as had been the expectation at the time, to follow in the footsteps of Australia in securing a free trade agreement in 2004.

In the period 2005-14 I personally led the work of the NZ US Council, a non-partisan organisation funded by business and government to strengthen the relationship with the United States and prepare the way for a future free trade agreement negotiation. I am delighted that those past political difficulties have now been overcome, the political relationship is now in a better space than it has ever been and the TPP appears poised to deliver the free trade relationship we have sought for so long. None of this has stopped New Zealand from actively pursuing a closer economic relationship with China--building on the famous 'four firsts' and culminating with the successful conclusion of a free trade agreement in 2008.

Much of the academic discourse around these important relationships seems to be focused on whether New Zealand might one day be forced to choose between one of these partners, but this tends to overlook the fact that an important choice has already been made. A generation ago New Zealand faced some difficult re-balancing of our external economy as a result of the consequences of Britain joining the European Economic Community in 1973. At that time we made the inevitable but nonetheless conscious choice to diversify our exports and seek to align ourselves economically with the Asia-Pacific region.

Changed nature

Today that choice sees over 70 per cent of our exports going to a region whose economic pulse to a large extent is determined by both China and the United States. In the last decade also the nature of trade has changed considerably. Models based on import and export are slowly being replaced by much more complex global value chains and networks. Trade in goods is being supplanted by trade in services and by both inward and outward investment particularly as firms seek to be closer to their customers and to benefit from innovation on a global scale.

New Zealand is not immune from these developments. We connect to global value chains in different ways, we increasingly incorporate services into our trade in goods and we actively seek new foreign investment and, although in my view at too slow a pace, invest ourselves in other economies.

Many of these value chains incorporate both China and the United States--like, for example, Pumpkin Patch...