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New Zealand has agreed to enter into Closer Economic Partnership (CEP) negotiations with Chile and Singapore. The possibility of a “Pacific Three” or P3 negotiation involving New Zealand, Chile and Singapore was raised during the APEC leaders meeting in Brunei in 2000, when Prime Minister Helen Clark Chilean President Ricardo Lagos, and Singaporean Prime Minister Goh Chok Tong endorsed the concept in general terms. This issue was returned to during the APEC leader’s meeting in Shanghai in October 2001, although it was acknowledged that New Zealand and Chile would need to work through a number of issues relating to Chile’s concerns with agricultural access. In order to progress this initiative, Prime Minister Clark and President Lagos subsequently agreed, during the Prime Minister’s visit to Santiago in November 2001, that Chile and New Zealand should carry out a study examining the issues that could arise in any negotiation of a closer economic partnership that involved the two countries.
The New Zealand study will form the basis document for a programme of domestic consultations, which will be held to obtain the views of interested parties on the possibility of New Zealand entering into a CEP Agreement that includes Chile. Given that New Zealand already has a CEP with Singapore, this study focuses almost entirely on the economic and strategic benefits of entering into a preferential trading relationship with Chile, although the strategic advantages of a P3 negotiation are also discussed. Comments on specific issues relating to the proposed CEP “P3” Agreement arising out of this study would also be welcome. These should be sent by 20 January 2003 to:
“New Zealand/Chile/Singapore – Comments on a possible P3”
The Trade Policy Liaison Unit
Ministry of Foreign Affairs and Trade
Private Bag 18901 Wellington
The Ministry does not undertake to respond to all individual submissions but comments received will be taken into account and will form the basis of a report to Government on issues
New Zealand is a trading nation and participates actively in international affairs. In a wide range of international fora, we work actively to influence the shape of the world to better meet our needs. We need to develop trading linkages with countries we can work with to develop joint perspectives and to promote our interests. For 35 years, New Zealand has been diversifying its relations from our former reliance on Britain. Australia, other European countries, North America and the Pacific were logical priorities. The next focus was on Asia and in this context, the Singapore CEP, our CEP negotiations with Hong Kong and our participation in the AFTA/CER process are improving our profile in these markets. Until recently, however, little attention had been paid to the relatively untapped Latin American markets.
The Latin American Strategy: With the end of New Zealand’s chairing of APEC in late 1999, there was a sense that at the political, as well as the trade and economic levels, New Zealand was at something of a plateau in its relationship with Latin America. To reinvigorate our relationship with the region, the Government launched its Latin America strategy in August 2000. A three year programme was inaugurated to expand, intensify and realise the potential of New Zealand’s links with Latin America across the full spectrum of political, economic, cultural and people-to-people links. In this regard it has been the aim of the Government to lift the current level of engagement and progress with Latin America on trade and economic issues.
Latin America holds great potential for New Zealand. Its population is forecast to reach 625 million by 2015. Its GDP stood at US$1.945 trillion in 2000, and is expected to grow as democratic structures take root and the economic reforms, which were a characteristic of the 1990s for many Latin American countries, lay a foundation for sustainable growth and an increase in the size of the Latin American consumer market.
Bilateral Interest: As a country with which we have enjoyed a close and longstanding relationship, Chile has been a key focus of the Latin American strategy. It has been one of the few Latin American countries with the economic fundamentals strong enough to withstand the current Argentine economic crisis, which has rocked much of Latin America. Chile has a similar economic outlook to New Zealand and having undertaken considerable economic reform is committed to a role as an open and liberal global trader. A Closer Economic Partnership Agreement would add economic muscle to our already close political and cultural links, and would be a further tangible demonstration of New Zealand’s commitment to the region.
A CEP or P3 Agreement (the phrases are used interchangeably throughout the study) that involves Chile represents a natural progression in our bilateral relationship, and would act as an umbrella to incorporate and give new emphasis to many of the political and economic agreements and arrangements that we have entered into with Chile in recent years. With a range of bilateral initiatives in place or currently being negotiated with its key trading partners, Chile is also the major Free Trade Agreement (FTA) player in the region. As such a CEP that involves Chile would ensure New Zealand’s viability in this increasingly competitive market, where FTA credentials are seen as a significant advantage.
Consistent with Chilean strategic goals: From a Chilean perspective, a P3 agreement that includes New Zealand would be consistent with Chile’s expanding interest in the Asia/Pacific region. In his annual state of the nation address, President Lagos said that Chile would turn its attention to the Asia Pacific. New Zealand would provide a relatively easy stepping stone into this increasingly competitive regional market, and a P3 including Singapore would complete the triangle. As participants in a trilateral CEP, Chile, New Zealand and Singapore would also be well positioned to create a partnership to develop and explore opportunities in third markets. Chile’s views on the rationale for a CEP that involves New Zealand are set out in a separate study prepared by the Chilean Government.
The P3 dimension – the strategic benefits: While New Zealand already has a CEP Agreement with Singapore, a P3 negotiation would nevertheless have considerable economic and strategic benefits for all three potential partners. It would reinforce the desire of both Chile and New Zealand to develop trade and economic relationships with Asia, and would be consistent with the open nature of Singapore’s trade and economic policies. Singapore has long sought to promote growth through an open economy. While significant protection still exists in its services sector, the lack of import duties and non-tariff barriers combined with the recently implemented bilateral CEP with New Zealand should ensure a relatively smooth transition to a “P3”.
Although there are important differences between the Singaporean and Chilean economies, New Zealand’s CEP with Singapore could also serve as a useful reference point for a trilateral CEP negotiation. As noted above, the analysis of this paper focuses primarily on the issues involved in creating a preferential trading agreement with Chile, given that our CEP with Singapore is already in place. Nevertheless, it is important to acknowledge that the modalities of a three-way negotiation will be complex. This will be an issue that will need to be carefully worked through both prior to and after the commencement of substantive negotiations.
Potential for growth: Despite our diverse backgrounds and histories, there are many similarities between New Zealand and Chile. We are both small, open economies which have undergone considerable economic reform over the past twenty years. Both economies are reliant upon their natural resource base. Both, by necessity of their small population, rely heavily upon external trade with less emphasis upon traditional manufacturing than many countries at similar levels of economic development. While current two-way trade is at a relatively low level, there is clear potential for this to grow. The increased profile engendered by a CEP agreement may also encourage an increase in services trade and investment flows. In addition, with both New Zealand and Chile having a relatively low level of tariff protection, a CEP would not involve significant adjustments for the protected sectors of either economy.
Growth and Innovation Framework: Greater integration with Chile will not only assist the exchange of goods and services, but should increase our access to skilled people, capital, ideas and knowledge. Increasing our global connectedness has been identified as a fundamental strand of New Zealand’s Growth and Innovation Framework which is designed to build a more vibrant economy capable of producing high incomes within a sustainable framework. Improving New Zealand’s export performance, through a CEP with Chile, would fit with this goal. (Growing an Innovative New Zealand, New Zealand Government publication, February 2002, pg 44).
Regional and Global advantages: From a regional perspective, New Zealand, Chile and Singapore are active and motivated members of APEC. A CEP that included both Chile and Singapore would have a valuable demonstration effect in achieving APEC's Bogor goal of free and open trade and investment by 2010 for developed economies and 2020 for developing economies. Both New Zealand and Chile are also members of the Cairns Group of agricultural traders, and a comprehensive economic partnership would be consistent with their Cairns Group and wider WTO positions.
Partnership: As relatively small agricultural traders, with comparable economic perspectives, Chile and New Zealand have similar interests. These similarities have led in the past to competition in third markets. A CEP would provide the basis for fostering a sense of partnership. This could open the way for joint ventures and collaboration in other markets and the sharing of technology, including in technical areas. A CEP involving New Zealand and Chile should facilitate new investment in both directions, with the P3 dimension helping to facilitate additional investment from Singapore. All of this is consistent with New Zealand’s Growth and Innovation Framework.
The similarities between our two countries acquire special relevance not only from the point of view of technological innovation, which is important in itself, but also because they offer the chance to create new associations, including joint ventures. The current discussions aimed at finalising an agreement to cooperate in key primary industries are a case in point and have the potential to open the way for collaboration in marketing, research, production techniques; and the exchange of personnel, information and ideas.
As a small, export-oriented economy, increasing New Zealand’s exports of goods and services is critical to enhancing our living standards. This study examines some of the broad policy issues that would arise in negotiating a Closer Economic Partnership Agreement that includes Chile.
Why Chile?
Over the past 30 years, Chile has been our closest bilateral partner in the Latin American region. A CEP involving Chile would provide New Zealand with a strategic link into one of the most developed Latin economies. This would lay a platform for enhanced private sector cooperation including investment and technology transfer and open up additional opportunities for strategic linkages into third markets. Chile has established links, as an associate member, with MERCOSUR (MERCOSUR is a customs union comprised of full members Argentina, Brazil, Paraguay and Uruguay, and associate members Bolivia and Chile). and is engaged in negotiations on the Free Trade Area of the Americas. It has negotiated trade agreements with Canada and the EU and is negotiating FTAs with both Korea and the US. The significant number of regional agreements being implemented or negotiated in Latin America could reduce opportunities and market access for New Zealand exports. It is vital, therefore, that we work to ensure New Zealand trade and economic interests are factored into these forward looking developments.
What would a P3 entail?
Like our CER Agreement with Australia and our CEP agreement with Singapore, any P3 agreement would need to be comprehensive, and forward looking, with provisions designed to set high quality benchmarks on trade rules that would help to promote trade liberalisation within the APEC region. The key issues with a CEP are as follows:
