Navigating regional and bilateral trade agreements

While it is true – we do need trade – free trade agreements can be a complex web of rules and obligations to navigate.   

A core objective of trade agreements is to promote increased trade. Whether a bilateral free trade agreement (FTA) with one nation or a regional economic agreement, most trade agreements achieve increased trade through preferential tariffs. This means that New Zealand exporters can become more competitive without the added cost of tariffs. This is, in part, why New Zealand is a big proponent of free trade and trade agreements.

New Zealand has signed 14 regional and bilateral agreements with countries from Europe, Asia, and the Pacific. Many of these agreements have been hugely beneficial through providing new exporting opportunities, reducing technical and non-tariff barriers, fostering people-to-people connections, and providing cheaper trade for New Zealand exporters. But many of these agreements also involve the same countries. For example:  

• The United Kingdom’s (UK) imminent entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will mean New Zealand is party to two agreements with the UK: the CPTPP and the New Zealand-UK FTA
• New Zealand is involved in three agreements with Thailand: the New Zealand-Thailand Closer Economic Partnership (CEP), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), and the Regional Comprehensive Economic Partnership (RCEP)
• New Zealand is party to four agreements with Malaysia: the New Zealand-Malaysia Free Trade Agreement (MNZFTA), the RCEP, the CPTPP, and the AANZFTA. 

This complex web of overlapping agreements and rules can be difficult to navigate for export businesses – the main users of trade agreements. This is not a unique New Zealand phenomenon and is often referred to as the spaghetti bowl or noodle soup effect.  

With multiple agreements at play when attempting to export to certain countries, New Zealand businesses need to navigate the agreements and their provisions to ensure that they can leverage any of the numerous commercial avenues available.

It was recently announced that large parts of the seafood industry were not effectively leveraging all the commercial benefits provided by eliminated tariffs, including from the CPTPP, the New Zealand-UK FTA, and the New Zealand-European Union (EU) FTA. It is estimated that 40 percent of seafood exports to the UK were still paying the previously eliminated tariffs. It is hard to say whether this is direct evidence of the noodle soup effect or not.  

Regardless, there are significant cost-saving benefits that businesses are missing out on. With multiple agreements at play, when attempting to export to certain countries, New Zealand businesses are required to choose which to use. What goes into this choice largely comes down to the nature of the export. But importantly, awareness and understanding of each agreement is necessary for businesses to fully maximise the benefits available.  

The Tariff Finder Tool operated by the Ministry of Foreign Affairs and Trade (MFAT) or the International Trade Centre’s (ITC) Rules of Origin Facilitator are useful tools to understand and navigate the complexity and nuance of each agreement.  

Let’s say a business wanted to export butter to Thailand. There are three agreements that are applicable, one bilateral and two regional, with provisions available to businesses to potentially leverage if they can comply with the rules stated. Notwithstanding other rules, and looking only at tariff rates and documentation requirements, the New Zealand-Thailand CEP might be best suited. It has zero percent tariffs and self-declaration of origin available.  

This compares to the zero percent tariffs but a required certificate of origin from a third party under the AANZFTA, or the 30 percent base rate tariff under the RCEP. A service exporter might choose a different avenue. While the AANZFTA and RCEP have competitive provisions to support services, the New Zealand-Thailand CEP does not cover services. This is just one example, but it is a simple demonstration of the varying and overlapping characteristics of trade agreements.  

For businesses wanting to export, this landscape can be challenging (not to mention the pool of acronyms involved in trade agreements), but understanding the provisions that apply and navigating the numerous avenues effectively can provide significant benefits. Effective implementation of trade agreements comes with building businesses’ awareness and understanding to ensure that they can leverage New Zealand’s busy but purposeful trade agreement landscape.