In one corner, there is the United States; in the other, China.

The sole superpower trying to maintain its top position versus a dormant giant now increasingly ready to assume what it deems its rightful place in the world.

Or so the popular narrative goes.

It sees both nations vying for influence in the region by binding other countries to them through trade deals: the Trans-Pacific Partnership (TPP), which the US is a part of, and the Regional Comprehensive Economic Partnership (RCEP), which China is in.

This impression has been reinforced by rhetoric from both sides.

US President Barack Obama, in championing the TPP, argued that if the US did not take the lead in setting trade rules, other countries would have a chance to set less stringent standards.

When it was signed by its 12 member countries - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam - the TPP was hailed as a landmark trade deal setting high standards in labour and environmental regulations.| Continue to full article | Published Dec 11. 2016 |

Non tariff measures (NTMs) are becoming increasingly worrisome for New Zealand exporters. Our firms know these NTMs impose considerable costs, reduce trade volumes and eat into margins posts John Ballingall, Deputy Chief Executive, NZ Institute for Economic Research (NZIER) on TradeWorks.

NTMs are regulatory tools, other than standard border tariffs, that can have potential economic effects on trade – either a decrease in quantities traded, an increase in their price, or some combination of both. Common examples are quotas, technical standards (TBT), registration processes, labelling, sanitary and phyto-sanitary (SPS) measures and biosecurity procedures.

NZIER wanted to estimate just how serious these costs are. NZIER’s recent paper presents a number of key findings. Here are the top 5:

1.  Not all NTMs are born equal; all impose costs but some deliver benefits

NTMs may be imposed by a government for genuine policy reasons, such as protecting human, plant or animal life or health (mainly SPS measures) or protecting the environment and consumer safety (mainly TBT) or even national security. These measures can be seen as delivering benefits in terms of domestic welfare gains.

Yet they also distort trade: this can harm both domestic consumers and firms (i.e. they must pay higher prices or have less choice) and the welfare of other economies (because exporters can’t fully exploit their comparative advantages).

NTMs are also used for more nefarious purposes – largely to protect domestic producers from international competition, much in the same way that punitive tariffs do. These are often referred to as non-tariff barriers or NTBs, and are the most trade-distorting and expensive NTMs.

2.  NTMs cost Kiwi exporters billions every year

The overall cost of NTMs imposed by other governments on New Zealand’s primary sector exports to APEC economies is NZ$6.7 billion (based on 2011 trade). For our overall export portfolio, the cost is NZ$8.4 billion.

The vast majority of these costs are imposed on the dairy (NZ$3.9 billion), beef (NZ$1.1 billion) and food products (NZ$ 1.0 billion) sectorsn – precisely the things New Zealand is good at exporting.

3.  Governments’ use of NTMs is growing significantly

As tariff levels have fallen over time due to bilateral and regional trade agreements, the use NTMs has become more common in the Asia-Pacific region. The total number of NTMs imposed by APEC governments APEC has increased by 74% from 814 in 2004 to 1,414 in 2015.

4. NTMs are three times as costly to APEC firms as tariffs

If you convert NTMs to tariffs, NZIER estimates that the tariff equivalent of NTMs in APEC is 9.7%, compared to an average APEC tariff of 2.9%. That means these measures add almost 10% to the costs of doing business in APEC.

NTMs cost APEC economies some US$790 billion each year, around three times as much as tariffs.

5. NTMs are complex to negotiate away

The delineation between an NTM and an NTB is nearly always blurry. One country’s legitimate policy justification is another’s protectionism in disguise. This makes establishing the costs and benefits, and apportioning them across economies, especially challenging. In turn, this makes any rational ‘exchange’ of offers to reduce NTMs in trade negotiations very tricky.

New Zealand’s suite of free trade agreements makes a start to putting in place more effective rules for NTMs. That said, given the very high cost to consumers and firms of NTMs in the APEC region, any regional initiatives to reduce NTMs would be hugely valuable, and very much welcomed!

| A TradeWorks release | Dec 9, 2016 |

Trade Minister Todd McClay will meet Brunei’s Second Minister of Foreign Affairs and Trade tomorrow.

The Minister, Pehin Lim Jock Seng is visiting New Zealand along with Brunei’s Industry Minister, Pehin Yasmin Umar.

“Brunei is a good friend of New Zealand, working cooperatively with us within ASEAN and beyond,” says Mr McClay.

“Brunei and New Zealand cooperate in trade, defence, and education – and Brunei is also a strong supporter of trade liberalisation.

“Two-way trade is worth NZ$506 million and is dominated by oil. Of our more modest exports, butter accounts for 30 per cent.

“I look forward to talking to the Minister about our bilateral relationship and the agreements we have in common, such as TPP and RCEP.”

Mr McClay will also host the Brunei delegation in his Rotorua electorate at the weekend.

The distance between China and New Zealand has just became a lot closer today with the announcement of five new business landing pads now available for Kiwi businesses in China.

Five leading business innovation hubs in Shanghai, Chengdu and Chongqing have fostered a relationship with New Zealand based business FunderTech to open their doors to foreign businesses. The Chinese Local Government are supporting the initiative by providing shared workspaces while FunderTech will be providing a wrap-around support service for kiwi businesses to accelerate grow and investment opportunities. The deal provides flexible terms for up to 40 foreign businesses to establish at an innovation hub.

Incubation Hub Manager for Chengdu Ms Li announced the plans “Chengdu is the fastest growing economy in China and we need to continue to attract the best and the brightest people from the world to our city. With direct flights now operating from Auckland to Chengdu, we are opening a new gateway for New Zealand businesses.”

Kiwi businesses are being given an eye watering offer that is almost half the annual rental price of taking an office in the equivalent innovation hub in Auckland with a great deal more benefits.

Each innovation hub has something different to offer but will include a shared local Business Development Manager; a modern office space for three employees with room to grow; a range of modern office furniture; assistance with company registration; assistance with a multi entry visa application; assistance with establishing a business bank account; assistance with finding accommodation and some incubation hubs also offer a months free accommodation; unlimited wifi access; and regular social networking opportunities.

FunderTech Managing Director Rob Thomas said “Kiwis are amazing innovators but our businesses need to be closer to capital and consumer markets. Each city has a population of more than ten million people and it’s important to bring New Zealand companies close to the action.”

FunderTech Director David Liu also added, “The incubation hubs in rapidly growing China cities present a great opportunity for Kiwi start-ups. The enormous China market in bloom is full of both competition and opportunities, the incubation hubs are the active agents that can help Kiwis learn the rules of Chinese business games and prepare them to fly high.”

Mr Thomas continues “The decision to set up an office in China should be well thought through. There are a number of pitfalls that business can make when entering the market. However, the wrap-around service and the deal struck by FunderTech with the Innovation Hubs will provide an affordable and viable way to bridge the gap for kiwi business entering into China.”

FunderTech is also offering business support modules available to accelerate the landing process which include consumer research, product & marketing, manufacture and importation. They are also assisting businesses apply for Local Government Grants and introductions to Chinese Angel Investors.

Since FunderTech established its business in August they have taken five kiwi businesses into China. New Zealand founder of the NZ SME Network Tenby Powell joined them as the keynote speaker at the Chengdu Innovation Hub in October.

The next FunderTech angel investor roadshow is planned for February 2017, after the Chinese New Year, which will involve visiting Incubation Hubs and pitching to Angel Investors. For more information please visit the www.FunderTech.com website.

The factory to the world has a new export: inflation. And it’s shipping faster than many thought possible just a few months ago.

China’s weakening yuan, stimulus designed to ensure robust growth ahead of a crucial Communist Party Congress next year, and rebounding commodity prices are pushing up factory prices. Having turned positive in September for the first time in more than four years, producer prices rose 1.2 percent in October from a year earlier. That will almost double to 2.3 percent in November, according to analysts surveyed ahead of data due Friday.

The pace is seen quickening even more next year: JPMorgan Chase & Co. estimates factory inflation will rise to as high as 4 percent in the first quarter while Commonwealth Bank of Australia sees it peaking at 6 percent in the third quarter of 2017.

Such increases would ripple through China’s vast supply chain across Asia, and to consumer markets from New York to New Zealand. The price turnaround coincides with a recent spike in oil prices and rising expectations for global reflation as U.S. President-elect Donald Trump prepares to boost fiscal and infrastructure spending.

Continue to full Bloomberg released article

APL is seeking to capitalize on the fact China is New Zealand’s second-largest trading partner for exports and third-largest for imports.

CMA CGM’s newly acquired APL will begin a direct weekly service between North Asia ports and New Zealand from the end of December, increasing coverage in response to fast-growing trade with China.

The New Zealand Express II, or NZ2, service will increase its port calls in New Zealand to five to strengthen APL’s presence in the Oceania trade lane. With the launch of the NZ2 service, APL will have a network of six Oceania services that connect Asia with Brisbane in Australia and New Zealand.

“APL introduced the new NZ2 service to serve the China-New Zealand market in a direct and more efficient way. Compared to transshipment options, the NZ2 service provides our customers with dedicated and faster connectivity between the North Asia and Oceania markets,” said Tonnie Lim, APL head of intra-Asia trade.

The new NZ2 service will be made available through slot swaps on ANL’s ANZEX service, and will deploy seven vessels with capacities between 4,132 and 4,578 twenty-foot-equivalent units. It will complement the existing New Zealand Express, or NZE, service, with a port rotation of Shanghai, Ningbo, Chiwan, Kaohsiung, Brisbane, Auckland, Port Chalmers, Lyttelton, Napier, Tauranga, Hong Kong, and Keelung.

“The direct service will enable businesses to accelerate their products’ speed and access to these markets, as they seize new growth opportunities in the region,” Lim said.

New Zealand’s trade relationship with China has nearly tripled during the past decade, with two-way trade rising from $8.2 billion in the year ended June 2007 to $23 billion up to June this year. Annual exports to China have quadrupled and annual imports from China have doubled since 2007, according to the country’s Ministry for Foreign Affairs and Trade.

“We have traded more with China since the free trade agreement entered into force in 2008 than in all our previous history, and growth is faster with China than any of our other major trading partners,” the ministry said in a statement.

China is New Zealand’s second-largest trading partner for exports and third-largest for imports. In the year ended June 2016, 17 percent of the country’s goods and services exports went to China and 16 percent of goods and services imports came from China.

New Zealand’s top goods export to China in the past year was milk powder, and has been since 2008. The trade ministry said at its peak in the year ended June 2014, milk powder accounted for more than 40 percent of New Zealand’s total annual export value of goods and services to China. Other leading exports are untreated logs and beef and lamb.

Clothing was the largest import during the past decade, but has dropped from around 16 percent to 11 percent of the total import value from China this year.

Also capitalizing on the rising trade between China and New Zealand is Maersk Line that in October inserted Tauranga on the westbound northward leg of its AC-3 Asia-west coast South America service, a weekly service connecting Mexico, Panama, Colombia, Peru, and Chile directly to New Zealand.

Leading the AC-3 service was Aotea Maersk, and its capacity of 9,640 TEUs made it the largest container vessel ever to call at a New Zealand port. The port of Tauranga has a long-term strategy to extend its freight catchment and consolidate its position as the country's leading freight gateway. Handling larger vessels is a key part of this focus and its shipping channels have been widened and deepened, to 47.6 feet inside the harbor entrance and 51.8 feet outside the harbor.

That long-term plan also included signing a 10-year deal with logistics company Kotahi that guaranteed Tauranga 1.8 million TEUs during that period.

Maersk Line and APL are members of the Asia Australia Discussion Agreement along with ANL, China Cosco Shipping, Evergreen Line, Hamburg Sud, Hyundai Merchant Marine, Mediterranean Shipping Co., Orient Overseas Container Line, Pacific International Line, Sinotrans Container Lines, T.S. Lines, and Yang Ming Line.

Article written by Greg Knowler Dec 07, 2016

Brexit trade minister and North Somerset MP Liam Fox has admitted Britain will have to effectively have the same trade agreements with other countries around the world – even after leaving the European Union.

Dr Fox announced he has opened discussions with 164 other countries in the World Trade Organisation, but because Britain has just two years before it leaves the EU, he will have to 'replicate as far as possible' the current agreements and 'obligations' to the World Trade Organisation.

And that - given the Brexit campaign was won largely on the basis of the promise of bespoke trade deals between Britain and other major countries outside the EU, like Brazil, China and the US – has caused criticism from Brexit campaigners.

Whitehall officials said Dr Fox's announcement is the first and necessary part of the process of leaving the EU, but the International Trade Secretary is in a Catch-22 situation because although Britain needs trade agreements in place with other countries outside the EU, most of the 164 members of the World Trade Organisation are waiting to see the deal Britain strikes with the EU on the terms of Brexit.

Continue to full article

Foreign Minister Murray McCully has welcomed the visit to New Zealand later this week by Brunei’s Second Minister of Foreign Affairs and Trade Pehin Lim Jock Seng and Energy and Industry Minister Pehin Yasmin Umar.

“Brunei is an important partner for New Zealand in South East Asia, and we enjoy friendly cooperation in defence, trade and education,” Mr McCully says.

“During the visit, we will discuss Brunei’s plans to diversify its economy and how New Zealand can best support these efforts. Our talks will also focus on regional economic and political issues.”

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during November 2016, shows total sales in October 2016 decreased 6.81% (year on year export sales decreased by 20.72% with domestic sales increasing by 20.14%) on October 2015.

In the three months to October, export sales decreased an average of 7.0%, and domestic sales increased 13.9% on average.

The NZMEA survey sample this month covered NZ$288m in annualised sales, with an export content of 56%.

Net confidence rose to 42, up from -23 in September.

The current performance index (a combination of profitability and cash flow) is at 98, up from 94.3 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 101, up from 99 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 105.5, up on the last result of 102.33. Anything over 100 indicates expansion.

Constraints reported were 63% markets, 16% skilled staff, 10.5% capital and 10.5% production capacity.

A net 5% of respondents reported a productivity decrease for October.

Staff numbers decreased 1.29% year on year in October.

Supervisors, tradespersons, managers, professional/scientists and operators/labourers reported a moderate shortage.

“Export sales continued their downward trend also experienced in September, with October export sales decreasing 20.72% on October 2015, with an average year on year decrease of 7% in the three months to October. Taking a longer view, export sales have been flat at an average year on year monthly decrease of 0.3% over the last 12 months.” Said Dieter Adam.

“Domestic sales again saw better results, increasing 20.14% on October 2015, and continuing the recent positive streak, with an average year on year growth of 13.9% in the three months to October. Domestic sales have held a positive trend, with an average year on year monthly increase of 5.4% over the last 12 months.

“Despite the fall in export sales, confidence and all three index measures, performance, forecast and change, all improved on September. Market conditions remain the largest reported constraint to growth. Reported profitability has been trending downwards throughout 2016 for manufacturers.

“The recent challenges for exporters reported in our survey was also reflected in the latest Overseas Merchandise Trade numbers from Statistics New Zealand for October. Export values for mechanical machinery and equipment decreased 7% on the previous month, and saw a decrease of 15.62% compared to October 2015. Electrical machinery and equipment exports improved 2.8% on the previous month, but felt a decrease of 13.59% on the same month last year. In the last three months, exports sales for both these categories have been well below the average experienced in the previous year.

Continue to full article

Forgotten deal relied on common sense instead of currency

 The advent of New Zealand’s only branded home-grown vehicle the Trekka 50 years ago was the result of a counter trade, a barter, that even today is still staggering in its simplicity. Indeed, the sheer scope of the barter even today is still unrecognised just because it was so straightforward.

New Zealand had a surplus of wool.

Czechoslovakia’s Skoda Works had a surplus of vehicles.

Therein lay the deal.

Until this moment it has remained a secret. We will now reveal how it worked out in practice.

The organisation to see the opportunity was Motor Holdings of Auckland. The company in that era decided to run the deal through an offshoot in Palmerston North known as Five Star Motors.

In those days 50 years ago Palmerston North was an important centre of the auto industry in terms of assembly and distribution.

It was now that the government was approached with the outline of the deal.

The reason that a government approval was necessary was that at this time any import of any kind at all was controlled by quota and licence.

At this time. 50 years ago, the export price of wool declined by 40%.

New Zealand's sheep population continued to rise. Available storage space everywhere was crammed with unsold wool.

But still the government sought to squelch the deal on the grounds that the barter or counter-trade was simply a device to by-pass the rigid import licencing of that era.

But Five Star motors had a trump up its sleeve which it now played carefully.

Fifty percent of the showroom floor price of the New Zealand-ised Skoda would be local input.

Moreover, it would be branded as a New Zealand product and with a New Zealand name.

It was now that the Customs Department began to give way. The Trekka had taken on a political life of its own. The department backed down. The Trekka had arrived.

The skill and patience of the Palmerston North negotiators who implemented the Trekka counter trade had much to do with Palmerston North’s presence as a swinging parliamentary seat between National and Labour.

The rest of the story is relatively well-known. The Trekka, which looked like a boxier version of the Land Rover was one of the cheapest vehicles available in a market where new car prices were high, and cash deposits of up 60 percent were mandatory.

Better still, the Trekka, a forerunner of the SUV, was available off the floor, on low deposit, making new car ownership accessible to many for the first time.

The Trekka though will be remembered as the most successful counter deal ever. Its success was in its simplicity.

The most curious thing about it was that it was so hard to repeat as New Zealand trade began to turn eastward. In spite of Asian customers being notoriously and institutionally bad payers – another topic still rarely talked about, especially departmentally—it proved a hard act to follow.

In our next revelation on the silent, and officially-ignored world of counter-trades, we will detail an example of one that did not work out and very largely because of the absence of official support.

From the MSCNewsWire reporters desk - Wednesfday 7 December 2016