DAIRY COMPANIES ASSOCIATION OF NEW ZEALAND SUBMISSION TO THE FOREIGN AFFAIRS DEFENCE AND TRADE SELECT COMMITTEE

Transcription

1 DAIRY COMPANIES ASSOCIATION OF NEW ZEALAND SUBMISSION TO THE FOREIGN AFFAIRS DEFENCE AND TRADE SELECT COMMITTEE ON THE TRANS PACIFIC PARTNERSHIP AGREEMENT 11/03/2016 Summary The Dairy Companies Association of (DCANZ) appreciates the opportunity to make a submission on the Trans Pacific Partnership agreement (TPP) in light of its relevance and importance to our member companies. DCANZ member companies collectively account for more than 98% of the milk processed in and the vast majority of s dairy exports. The role of DCANZ is to represent commonly held policy positions of our eleven member companies. DCANZ supports ratification of the TPP agreement and looks forward to the effective implementation of this agreement. The level of tariff reduction achieved for dairy in the deal is far less that we had hoped for. Nonetheless, our assessment is that the deal still offers an improvement on our current market access situation, and that the dairy industry would be significantly disadvantaged if were to stand aside from the agreement. must be part of this agreement to give our dairy exporters the opportunity to make the most of the modest market access gains that have been negotiated. Counterfactually, if New Zealand were to stand aside from TPP, dairy exporters would quickly be at a tariff preference disadvantage to our dairy competitors in the region. We are confident the additional access opportunities that are in the TPP agreement will support some deepening of dairy trade with other TPP countries. We are also mindful of the prospect that TPP will evolve and improve over time. The contact for this submission is: Kimberly Crewther Executive Director Dairy Companies Association of Phone: Kimberly.crewther@dcanz.com We request the opportunity to provide an oral presentation in support of this submission. 1

2 Detailed comments: Trade liberalisation is important to the dairy industry 1. DCANZ is a strong supporter of trade liberalisation. 2. Trade liberalisation is acknowledged to have a broad range of two way benefits, including supporting economic growth, job creation, resource use efficiency, and food security. Increased trade has driven increased global prosperity and stability for centuries. As an exporting nation benefits from open trade. This is why successive NZ governments have invested significant resources in advancing trade liberalisation. International recognition of the benefits from trade liberalisation has recently been renewed by the inclusion of trade liberalisation as a key implementing action under Goal Two of the UN 2030 Sustainable Development Agenda. 3. The dairy industry is 95% dependent on exporting for its success, and we operate in one of the most restricted and protected markets for any product globally. While tariffs have been gradually lowered for most goods via WTO negotiations, dairy has been largely exempt from liberalisation. It is notable that only 13% of global dairy consumption is accessible at tariff rates below 10% and without having to navigate significant non-tariff barriers. Tariff rates in excess of 30% are common for dairy products, and a number of developed country markets maintain tariffs on core dairy products of between %. 4. High-levels of border protection contribute to an extremely thin market for globally traded dairy products. Only 8% of the world s dairy production crosses a border. The thinness of the global dairy market makes it much more vulnerable to extreme price volatility, the effects of which are currently being felt by s dairy industry. 5. Over the last 10 years the global dairy market has become more complex through an increasing number of bilateral and plurilateral trade agreements. Any differential in the tariff rates faced between exporters and exporters from other origins influences competitiveness. If s export competitors secure a tariff preference advantage through trade negotiation, exporters risk losing market share unless secures an equivalent or greater preference. 6. Put simply, it is important that continues to support trade liberalisation to grow opportunities for dairy products, protect the competitive position of our exporters, and to help alleviate the extreme volatility which is affecting global dairy markets. TPP did not realise the level of ambition we hoped for 7. For dairy, the TPP agreement falls well short of the level of ambition that was agreed by leaders in Honolulu in Our aim, and their agreed ambition, was for total elimination of all tariffs on all goods. DCANZ has expressed its disappointment at this outcome. 8. We attribute the disappointing outcome to protectionism in the US, Japan and Canada whose dairy lobbies fought to ensure their domestic markets remain largely closed. The outcome would have been very different if the US, as a growing dairy exporter, had chosen to prioritise an improved regional (and global) dairy market over a largely closed home market. It would also have been different if Japan had recognised that liberalising their dairy market would offer solutions to the regular need for emergency food imports and much needed reinvigoration of their dairy sector. It would also have been different if all the Governments involved, who are on record as supporting the benefits of trade, had been prepared to show the same leadership that successive governments have shown over the last 30 years. 2

3 9. Post TPP the Japanese, Canadian and US markets will remain largely closed for some core dairy products. dairy exporters will continue to face a tariff disadvantage on the majority of the dairy products imported into the Mexican and Peruvian markets. Nonetheless, TPP is a useful step forward in dairy trade liberalisation 10. The TPP agreement does provide improved market access for products into key dairy markets. In particular: a. Tariffs will be eliminated on: protein products into both Japan and the US on entry into force, cheese into Japan in 15 years; fluid milk into Malaysia in 15 years; infant formula and ice cream into the US in 10 years; skim milk powder and Egmont cheese into the US in 20 years, and whole milk powder into the US in 30 years; b. There will be a total of 83,500 metric tonnes (mt) in new duty free quota access upon entry into force and this will expand to 180,300 mt in year 15. c. There are new processes to address non-tariff barriers to trade. 11. The governments National Interest Analysis identifies the tariff savings for currently traded volumes of dairy products as being worth $96 million dollars. Not all the tariffs saved will be captured by exporters. However, the reduction in these border costs will have a positive impact on the commercial dynamics for trade in the dairy products concerned (the value of which is difficult to quantify). 12. The outcome on cheese, for example, will give exporters greater access to a Japanese market that is currently consuming more than 260,000 mt of cheese per annum. And a US cheese market which consumes more than 4.7 million mt annually. 13. The new access provided via quotas will help to expand the global market for dairy products. While this expansion does not immediately represent a material shift in the liquidity of the global dairy market, it does move us in the right direction. It will mean additional sales opportunities for core dairy products. 14. The Rules of Origin settings under TPP should not pose any challenge for dairy exporters to gain preference when exporting products to another TPP member country. However, the rules related to cumulation are complex and could result in some instances where there is variable treatment with respect to further processing in, and export of goods from, a second TPP country. 15. With regard to non-tariff barriers, TPP contains some useful provisions to facilitate discussions on SPS measures, and to promote equivalence recognition between TPP members. This should lead to a lower overall cost associated with trading dairy products in the region. The dairy industry will utilise the TPP outcomes 16. dairy companies are actively planning to be able to utilise the market access improvements made under TPP. The outcomes are spread across a diverse range of products, which are either made, or can be made, by dairy exporters. The new access will provide options for both commodity exports and for value added products such as dairy proteins, UHT milk, infant formula and ice cream. 17. Smooth implementation of the agreement will be important to DCANZ member companies. This includes addressing non-tariff barriers such as the US Grade A requirements, and having appropriate implementation of quota administration arrangements. 3

4 Not moving forward with TPP will risk s competitive position 18. DCANZ supports participation in the TPP agreement. We also support New Zealand s efforts to negotiate further FTA s, regional trade agreements, and s participation in the WTO. These are complementary activities. 19. Standing aside from TPP at this point would risk exporters being at a tariff disadvantage to our competitors. TPP moving ahead without would mean: a. exporters losing out to US and Australian competitors as a result of tariff disadvantages in the lucrative Japanese market; b. A lost opportunity for dairy exporters to partially level the playing field vs. the US into the Mexican dairy market; c. being at an access disadvantage to Australia for exports into the US market; d. dairy exporters being at a competitive disadvantage to the US and Australia for exports into Canada; e. being at a tariff disadvantage to the US and Australia for fluid milk exports into Malaysia. 20. The importance of improving s competitiveness in these markets cannot be over stated. In 2015 the US was s second largest market, by value, for dairy exports (NZ$ billion). Japan was the fourth largest export market for dairy products, by value, (NZ$727 million) and Malaysia was the 6 th largest market, with a value of $593 million. 21. Alongside our support for to progress with TPP, DCANZ is focused on the significant work remaining to be done to liberalise dairy markets post-tpp. This will require the existing network of trade agreements to be built upon and expanded. It will also require action to remove other distortions, including those created by domestic support provisions from agricultural markets. 22. We note that every trade negotiation is different. It is a priority for DCANZ that future New Zealand trade negotiations deliver a much improved outcome for dairy. DCANZ requests: 23. DCANZ requests that the select committee: I. Provides support for the TPP agreement to lock in the market access improvements that are available for NZ dairy products at the current time, and to avoid competitive disadvantage; II. III. IV. Notes that there is a significant amount of work still to be done to liberalise global dairy trade and this is contributing to extreme price volatility in global dairy markets; Offers bipartisan support for seeking further trade agreements, recognising the importance to the economy of building depth in the global dairy market; Agrees that future trade agreements must aim for complete elimination of all tariffs; and 4

5 V. Agrees that must maintain a multi-pronged approach to addressing both market access barriers and market distorting domestic supports. 5