US Business Summit: New economic framework will re-engage the Indo-Pacific region

Graham Skellern

New Zealand will likely take a place in the Biden Administration-initiated Indo-Pacific Economic Framework (IPEF), particularly with an eye to developing opportunities in digital trade, said Prime Minister Jacinda Ardern.

She told the Inaugural United States Business Summit, organised by NZ INC. and Auckland Business Chamber, that “in the period ahead I expect we will be in a position, along with a number of others, to confirm our participation in President Biden’s IPEF initiative.”

Ardern said IPEF was not a traditional trade negotiation but it did have a trade element, and digital was part of the agenda.

“It is important for New Zealand to be part of any conversation where future rules for digital trade are on the table. We have always been challenged by our distance from major markets and our small scale.

“Digital offers opportunities to shrink those disadvantages. It is also vital that we get the digital rules right, balancing openness and innovation with social values and security in a way that works for all New Zealanders.

“This means being inclusive as well as drawing on te ao Maori views (interconnectedness and interrelationships) on data and digital issues, and maintaining a human-centric approach as we enter the era of artificial intelligence,” Ardern said.

She said New Zealand was also interested in the proposed clean energy, decarbonisation, infrastructure, and supply chain resilience initiatives. “I don’t need to remind this audience how much this (supply chain) matters for business.”

The Indo-Pacific region accounts for more than 50 per cent of global carbon dioxide emissions. Ardern said “an initiative that brings together big emitters and has an explicit climate focus has a real appeal to governments like ours that want to see collective action at scale and with a sense of urgency.”

United States President Joe Biden proposed IPEF in October last year as the centerpiece of his administration’s economic strategy toward the critical region. Administration officials are now fleshing out the contents of the initiative and consulting widely with regional allies and partners, as well as domestic stakeholders and experts.

There are four pillars of work to IPEF:

  • Fair and resilient trade, encompassing seven subtopics including labour, environmental and digital standards
  • Supply chain resilience
  • Infrastructure, clean energy and decarbonisation
  • Tax and anti-corruption

Following negotiations on the pillars, an agreement is expected to be made ahead of the United States-hosted Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in November next year.

The United States expects Japan, South Korea, Australia and New Zealand as well as other Southeast Asian countries to join the initiative. Member countries can decide to participate in parts of the framework.

Ardern said there is more to markets than just trade rules. “One reason we put so much effort into APEC last year was the value businesses attach to good regulatory practice at and behind the border at places of trade.

“I take great satisfaction from the success of our effort to ensure APEC got back on track after several hard years. It is now clearly, once again, one of the pillars of regional architecture. We have high hopes of the United Sates’ year in the chair in 2023.”

Ardern said that when it comes to trade opportunities, it would be New Zealand’s preference to see the United States enter the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

“It remains my hope that in time we will be able to resume that conversation. We have our own commercial reasons for wanting that. But the stakes are much higher.

“It’s important for United States to be present and engaged in the economic architecture of our region. Resilience and stability in our region is not solely defined by defence or military arrangements but relationships in many forms.”

Ardern said New Zealand can take pride in the leadership it has shown over decades in strategic trade initiatives. These have transformed the ability of New Zealand companies to trade in markets and sectors previously closed to them.

There’s the Singapore Closer Economic Partnership; the China Free Trade Agreement; and working with regional partners to conclude ASEAN’s highest standard – the ASEAN Australia New Zealand Agreement.

Ardern said this visionary P4 agreement with Chile, Singapore and Brunei became the foundation for an ambitious regional initiative, the Trans-Pacific Partnership. The successor agreement, CPTPP, is now setting new standards for trade and economic governance across the region, and attracting strong interest from other capitals.

“And we are now breaking ground with the next-generation trade agenda through open plurilateralism initiatives such as the Agreement on Climate Change, Trade and Sustainability, and the Digital Economy Partnership Agreement.

“I note that last year President Biden ended federal funding of subsidies for the fossil fuel industry. We would welcome US engagement on the objectives underpinning Agreement on Climate Change, Trade and Sustainability. Trade is part of the solution for slashing greenhouse gas emission,” Ardern said.

Damien O’Connor, Minister for Trade and Export Growth, told the summit that IPEF is innovative in its form. It will have a trade module where there is negotiation on some traditional trade rules. It also aims to promote cooperative partnerships across a wider agenda.

“We have welcomed the opportunity to work with the US as a trusted partner in the early development of the IPEF concept. We want to engage more closely with business as well as other stakeholders as the negotiating agenda starts to take shape in the months ahead.”

O’Connor said that at a time when climate action is becoming more urgent than ever, it goes without saying that “we welcome the opportunity to engage with some of the world’s biggest economies on what we can do, in partnership, to bend the curve on global emissions.

“For our part I expect we will end up drawing heavily on American innovation, technologies and investment to help drive New Zealand’s transition to an economy generating net zero carbon emissions.”

For example, in March this year the highest number of new electric vehicles registered to drive in New Zealand were Tesla Model 3s.

The United States is New Zealand’s third largest trading partner, behind China and Australia, and the largest market for services. Bilateral trade was $18.5 billion last year, and two-way trade growth has averaged 5 per cent over the past 15 years. The US is a major source of foreign direct investment, innovation and research, and tourism.

O’Connor said sitting behind the two-way growth is the composition of the trade, and the striking shift from volume to value.

New Zealand’s exports of computer-related services, such as software and licensing fees, have doubled over the past four years, he said. The software charge into the US market has been led by major New Zealand companies such as Xero.

But the big players are increasingly being joined by a wider ecosystem of niche firms like Parkable offering a software-as-a-service solution that helps businesses with employee parking and mobility challenges, O’Çonnor said.

“Our next generation offering is not limited to software. The US has become a critical partner to New Zealand’s advanced manufacturing industry. Injections of capital and technology were critical for development of Rocket Lab, now a real force in launch and wider space services.”

O’Çonnor said there has long been a close relationship between the New Zealand and US film production sectors; and two American giants Microsoft and Amazon are planning large investments in New Zealand data centres.

The New Zealand’s primary sector is still a key contributor to export growth to the US, with a striking shift from volume to value in some segments – for example, Marlborough Sauvignon Blanc wine and Silver Fern Farms’ certified net carbon beef product.

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