Times they are a-changin' for trade: David Parker comments on Trade for All and the state of international trade.

• Author: Parker, David

In this article I will address the 'state of the world' in international trade, the concerning trend towards protectionism and three major challenges I see ahead of us--the environment and trade, digital trade and the challenges assailing international institutions. I will then outline New Zealand's response to all of this including our immediate response to the COVID-19 crisis, our trade recovery strategy and finally Trade for All.

Before I discuss these matters, let me comment on our ongoing negotiation with the European Union. The European Union is our third largest market after Australia and China. It is also the source of our largest trade deficits. It has long been a close partner for us in many areas: support for liberal democratic values, addressing global environmental issues, shared values and human rights, the rules-based system and sound governance, including data protection and the rule of law. Most importantly, we share a commitment to international trade rules that deliver a level playing field.

I am, therefore, sympathetic to mounting concern within New Zealand about the European Union's approach to our negotiations. And in that context to the on-going trade deficit with the European Union--two to one in its favour --of about $5.5 billion in the year to March. That is $5.5 billion in the context of a total current account deficit of $8.5 billion.

The European Union's high tariffs and other significant trade barriers are the cause of the prolonged trade deficit. The imbalances are obvious. Our frozen fish traders face an 8-22 per cent tariff into the European Union; our onions 9.6 per cent and our kiwifruit 8.8 per cent tariff. All of their main competitors from other countries get their produce in paying nothing at all. In sharp contrast, key European exports such as wine, cheese, automobiles and pharmaceuticals benefit from some of the most open most favoured nation trade settings in the world in the New Zealand market.

This imbalance in treatment was reinforced by the European Union's recent poor quality and protectionist offer to New Zealand in the last round of negotiations. I am also conscious that there is an erroneous perception that we are taking this lying down.

The negotiation remains by far the best vehicle to redress these imbalances, but I can understand the frustration of those who say we should raise our tariffs against the European Union, especially in these difficult times. In a global environment characterised by rising protectionism and the imposition of tariff and non-tariff trade barriers in many jurisdictions, and in light of our common values and approaches, this is not my preferred approach. But it is not tenable for the European Union to continue to impose such costs on our country. In this regard I agree with the notion that persistent trade deficits should cause policy-makers to look to the reasons behind the imbalances. And that when trade deficits are the result of the lack of reciprocity in market access or the use of subsidies the rules of trade should change.

The European Union says they support fair trade, with environmental and labour standards important to them. They can get this from us in a way that few other countries can offer. I hope we can land a deal. We have many other countries from which we can buy manufactured goods that we currently buy from the European Union. If we do not achieve acceptable reciprocity from the European Union, we have rights to pursue other solutions. I expect the European Commission is aware of this and look forward to the negotiations.

Overall situation

The World Trade Organisation's Trade Forecast predicts that world merchandise trade will reduce by between 13 and 32 per cent in 2020. The OECD estimated in April that GDP drops 2 per cent for each month of strict virus lockdowns.

Treasury figures for New Zealand are better than they would have been had we not stamped out community transmission. Before the second lockdown in Auckland, they predicted a contraction in GDP of 4.6 per cent in the year to June 2020, with a further 1 per cent contraction by June 2021.

New Zealand overall goods exports have remained largely steady throughout the COVID-19 pandemic, although...