The real reason why we should care about China

There has been a lot of rhetoric in the media during the past few weeks around New Zealand’s apparent deteriorating relationship with China, bought to a head by the GSCB’s Huawei rejection.

But all this commentary has failed to highlight a major threat to New Zealand, its trade, exports and economy that could have far greater and far more reaching implications for our economic future than if we choose or reject Huawei as our preferred partner for a 5G roll out.

What we all should be focusing on is the current trade talks between the U.S. and China and whether an agreement between these two major super powers could sound a death knell for the WTO and all the minor nations that are part of it.

New Zealand has been in nirvana trade wise since agricultural reform and tariffs became part of the WTO umbrella in the 1990’s (Uruguay Agreement). Since then, we have had a dream period where protectionism has diminished, and where partisan, multi-lateral and regional agreements have allowed countries like us to box far above our weight when it comes to being heard on the global trade stage. And this has given us favorable access to many markets and countries.

The WTO has been there to protect us, enforce our agreements, and challenge any breach of the WTO rules through its appointed judiciary panel. But this is now under serious threat as we may no longer be able to rely on this protection.

Central to the U.S. (Trump’s) assault on the longstanding international order in trade through his attack on China is his threat to grind the settlement of international trade disputes to a halt in the WTO. He is doing this by blocking the appointment and reappointment of the WTO judges whose rulings help resolve the trade disputes. U.S. intransigence may soon reduce the WTO Appellate Body from its full roster of seven judges down to the minimum of the three needed to decide an appeal.

If the U.S. continues this strategy, the appellate court will be left with only three judges in September, and only one judge by December 2019—not enough to hear an appeal. Already slowed by the current shortage of judges, the rule-based dispute settlement system that has resolved more than 500 international trade disputes since its creation in 1995, and that has prevented an untold number of additional disputes, could come to a standstill and become dysfunctional. 

And that could then lead to a collapse of the WTO as we know it. And without the WTO, small countries like New Zealand will become collateral damage while the major trading countries look to do deals with who they consider will deliver the biggest bang for their buck for their respective economies.

Accompanied by self-interest and increasing protectionism, bilateral agreements could become the norm leaving countries like New Zealand marginalised or out in the cold. Just look at one of the key trade platforms the US is currently at loggerheads on with China - Agricultural access and tariffs.

Through our Free Trade Agreement with China, which some believe is one of the best FTA’s we have ever negotiated, we have favored status on agriculture with China across many commodities which gives us a competitive advantage over the likes of the U.S. But we are only a marginal player when it comes to global trade.

If China and the U.S. decide the WTO is no longer delivering what they need as regards global trade and is no longer relevant, they will then look to establish joint trade agreements that heavily favor their own countries at the expense of all the marginal players like New Zealand. Through such a process, it is possible the favored status of our agricultural products into China could become neutralised, or even compromised by such agreements.

With the golden period of trade globalisation waning, and storm clouds fast appearing on the horizon, we need more than ever to ensure we have good relationships with our major trading partners, of which, China is now number one.