Challenges and opportunties for exporters
Wednesday 11 July 2007, 11:53AM
By Hon Phil Goff, Speech
735 views
Export Year 2007 is built around the need for government and the private sector to work in partnership.
---------------------------------
Address to the export breakfast, Palmerston North
Thank you for the opportunity to speak to you this morning. And for the part you're playing in Export Year. I welcome your contribution to New Zealand participation in the international economy.
It's never been easy to be an exporter from New Zealand. We are a country with a small and open economy, a long way from most of the world's markets.
And exporters are not helped by our exchange rate, which because of high interest rates and very positive terms of trade is currently over valued.
I pay tribute to the resilience of our exporters, demonstrated by the results of the recent DHL survey that showed the vast majority of exporters intending to increase export sales in the coming year.
I also acknowledge the contributions to Export Year being made by people like our Export Champion Ken Stevens, and Export New Zealand - which is co-hosting this event.
There is much to celebrate about our economy.
It is 25 per cent bigger than it was seven years ago. We've created 347,000 new jobs. Business profits and household incomes have grown strongly. And the terms of trade have moved in our favour, with dairy in particular doing remarkably well. Dairy prices have risen around 96% in the last year and given that dairy makes up almost 20 per cent of our exports, that is having a big impact on our economy.
But there are some imbalances both within New Zealand's economy and within the global business and trade environment.
Our current account deficit, though down from the peak of over 9% is still high by international standards at 8.5 per cent of GDP. Quite simply, we spend too much. New Zealand households spend $1.15 for every $1 they earn, and borrow to make up the difference. And because we have a poor savings record, we have got into the habit of borrowing from overseas - effectively relying on the savings of foreigners to pay for our consumption and to invest in our businesses.
The New Zealand Superannuation Fund, which has accumulated $12 billion and the new Kiwisaver Scheme are practical and important responses to this problem.
At the moment, the open nature of the economy and the imbalances within it are exposing exporters to an overvalued exchange rate. The rate is not only a reflection of New Zealand's situation but also partly a reflection of the weaker US dollar.
There is no easy way to address short-term fluctuations in the exchange rate. We cannot and should not rely on a low New Zealand dollar for export success. The exchange rate is overvalued, given the current underlying economic position. But in the longer term a high exchange rate may well be the reflection of a strong economy.
Nor should we rely for our well-being on the current point of cycle of commodity prices. Commodity prices over time rise and fall.
Leaving aside things we cannot readily control, we need to work on improving New Zealand's competitiveness in the global marketplace. That includes addressing our skill levels, the capability and capacity of enterprises, technology, productivity, creativity and innovation. They are keys to building a successful future.
We don't want New Zealand to be a low-margin, commodity based export economy so we are working to transform our economy into one that is high income, knowledge-based and innovative.
This doesn't mean that New Zealand needs to move away from its primary production base or get out of manufacturing.
But we can't just keep doing more of the same.
We need become better at finding out what customers overseas want and become more innovative at finding ways to deliver to them. We need to work smarter not harder - if we are to keep the great Kiwi lifestyle that we treasure.
Local company Steelfort Engineering is an example of a manufacturing firm that has done well out of concentrating on quality and understanding its customers. It manufactures mowers and exports them from New Zealand to Europe.
Marton is home to another manufacturing success story - PEC Fuel Pumps. This company has 80 per cent of the market in Australia and New Zealand for fuel bowsers. Next time you fill up your car in New Zealand or while visiting Australia, you'll probably be using a pump made in the Horowhenua. PEC Fuel Pumps has also been innovative in applying its expertise and has branched out into low-volume manufacturing of high value electronics under contract for other companies. It is now competing with Asian companies to win orders from overseas.
To raise productivity in a small domestic market like ours, firms need to get economies of scale by going global. We need more companies to aspire to export, to move out of the comfort zone of the local market and to face the challenges and exploit the opportunities of opening up internationally.
We need to capitalise on and create new opportunities. The upside to New Zealand's small size and position away from the major trade and cultural centres of the world is that we have learned to respond quickly to opportunity.
Palmerston North Based New Zealand Pharmaceuticals is a good example of this different thinking. When people think of pharmaceuticals, they often think of Swiss multinationals such as Roche or Ciba-Geigy. But the clean, green, status of New Zealand is sufficiently appealing that, New Zealand Pharmaceuticals can export ingredients to the world's pharmaceutical companies - including companies in Switzerland. The company has thought differently about the global pharmaceuticals industry to identify opportunities created by operating from New Zealand.
Because we have a small and open economy, free and fair trade in a rules-based international system is very important to New Zealand.
Our first priority has been the Doha Round of the WTO. The reasons for this are obvious.
The multilateral system allows us to negotiate for the elimination of export subsidies and the lessening of domestic subsidies on agriculture, to reduce unfair competition.
It potentially allows us to utilise international leverage to bring down - in an across the board manner - high tariffs on agricultural and industrial products and open new trade in services, including in Asia.
The failure of the G-4 countries to reach agreement at Potsdam was a serious blow to hopes that the Doha Round might be completed this year.
The G-4 process, by which four key players - the EU, US, Brazil and India - sought to resolve differences and find convergence for moving the Round forward is probably dead.
But the Round itself is still alive, reverting to using the Agriculture and Non Agriculture Negotiating Groups in Geneva to seek agreement.
Next week the Chairs of both Negotiating Groups will release texts setting out proposals to resolve differences. These will be debated the following week, followed by a summer recess in August to consider positions before resuming an intensive text-based process in early September.
Can the Geneva process work when the G-4 process, and before that the Green Room format involving 25 or so countries, failed to reach agreement?
Perhaps, if there is the political will and flexibility - and a realisation that every country loses if the Round fails.
Maybe the G-4 countries and others will find it easier to make concessions under the cover of a multilateral process, than in the smaller group process where they could be held responsible by others, more directly, for the outcomes.
The WTO remains our top trade priority, but it is not the only mechanism by which we are seeking to secure more open markets for New Zealand exports.
Last year in Hanoi, APEC leaders placed on their agenda for the first time, discussion of a Free Trade Agreement for the Asia-Pacific.
This should be seen as complementary, rather than as an alternative to Doha. It is, in fact, not a radical departure from the original vision for APEC in 1989 and reaffirmed in the Bogor Goals of 1994 of regional integration and free and open trade and investment in the Asia Pacific.
But there are obviously big challenges in pulling together economies like China, Taiwan and the US and resolving differences between them in order to realise a free trade area.
Similar challenges exist for achieving a Closer Economic Partnership for East Asia, promoted by Japan, which last year's East Asia Summit committed to studying further.
New Zealand is involved in both groupings, and will continue to press for progress in each towards the goal of integrated free trade areas of which we would be a part. Neither, however, is a short-term prospect.
Another option is to look, inside or outside of APEC, for a coalition of countries with greater ambition to achieve a regional FTA by moving ahead of - rather than waiting for a consensus within - larger organisations.
There are models for this - the pathfinder concept within APEC, or the Trans Pacific Strategic Economic Partnership, or P-4, of Chile, New Zealand, Brunei and Singapore.
A grouping of progressive economies including perhaps the US, Canada, Mexico, Australia, the P-4 countries, Korea, and others could reach a high quality Free Trade Agreement, which would allow others prepared to meet this threshold to dock into it.
This option has not yet been tested but could be explored if avenues such as the Doha Round do not come into fruition.
Bilateral deals are another important focus. New Zealand already has FTA's with Australia, Thailand, Singapore, Chile and Brunei.
I hope that in less than a year we will complete our largest ever Free Trade Agreement with China.
We are on target to conclude a comprehensive and high quality agreement, which will take our commercial relationship with China to a new high level, with benefits to traders in both countries.
We are also exploring ways we can advance our economic relations with Japan and Korea, our third and sixth largest export markets respectively.
With Japan, we have an economic working group from both countries reviewing the relationship following the Clark-Koizumi agreement to reinvigorate our trade and economic partnership.
With Korea, we are conducting a joint study into the merits of an economic partnership agreement (EPA), which will report by November.
My sense is that we will move forward first with Korea in respect to an EPA after its agreement with the US, but in each case there will be challenges to overcome.
India should also be mentioned in this regard. Earlier this year Kamal Nath, the Commerce Minister, agreed in principle to establish a joint study into a possible FTA. India is one of our fastest growing markets, albeit from a low base.
It is also one of our few trading partners where food and beverage do not dominate our exports, because of the high level of protectionism.
Trade negotiations are important in opening the door for greater trading access.
Export Year 2007 is an opportunity to focus on building export capacity and aspirations for the future to ensure potential New Zealand exporters are in the position to take advantage of new opportunities.
It has for example supported the launch of a teaching resource into primary and secondary schools to help children learn about international trade. We are also revising and expanding content in NZTE's Exporter Education Programme.
Export Year support has also ensured that Palmerston North Based Export Training Services can teach the internationally accredited Diploma in International Trade. Until now, there has been no tertiary level qualification available in New Zealand that specifically meets the needs of exporters.
Export Year is also supporting Business Mentors New Zealand to provide export-focussed training for existing mentors and boosted to recruit new mentors with export experience. Mentors can provide individualised advice from those with practical experience and skills which firms wanting to export will find invaluable.
Export Year 2007 is not a one off event but is designed to lay the foundations for stronger export performance in the longer term.
The Government is committed to supporting the long-term success of business by creating and sustaining a supportive business environment. The World Bank's 2007 Doing Business report ranks New Zealand second best in the world for our regulatory environment and ease of starting a business and third best for ease of getting credit. We also rate highly for our tax system.
But we can and are doing more.
Last month's budget delivered the most substantial tax cuts to the business environment in 20 years.
Corporate tax cuts ($2 billion over four years), tax credits for R&D (more than a quarter of a billion dollars over 4 years), and more favourable international tax laws should give business an important boost.
NZTE has also been funded to do more through opening new offices in China, Japan and India and expanding the Beachhead programme. It has also been provided with additional funding for market development grants - $33.7 million when Export Year was launched and $87.8 million more over four years announced in the Budget.
New Zealand can't survive by protectionism, and nor can we survive by competing on the basis of low wages and skills. Our goal is to be a high wage, high skill economy where, despite being a small nation a long way from our markets, we can compete on the basis of creativity, quality and exploiting niche markets.
Export Year 2007 is built around the need for government and the private sector to work in partnership to lift our performance. While the government has a clear role to play in creating the right environment, it is private-sector firms that actually do the business.
It is the private sector that will ultimately determine the success of New Zealand's export economy, enabling New Zealand to create growth and wealth, improve living standards and enhance our quality of life and social services.
Thank you for coming along to this breakfast and thank you for your contribution to New Zealand's export effort.
---------------------------------
Address to the export breakfast, Palmerston North
Thank you for the opportunity to speak to you this morning. And for the part you're playing in Export Year. I welcome your contribution to New Zealand participation in the international economy.
It's never been easy to be an exporter from New Zealand. We are a country with a small and open economy, a long way from most of the world's markets.
And exporters are not helped by our exchange rate, which because of high interest rates and very positive terms of trade is currently over valued.
I pay tribute to the resilience of our exporters, demonstrated by the results of the recent DHL survey that showed the vast majority of exporters intending to increase export sales in the coming year.
I also acknowledge the contributions to Export Year being made by people like our Export Champion Ken Stevens, and Export New Zealand - which is co-hosting this event.
There is much to celebrate about our economy.
It is 25 per cent bigger than it was seven years ago. We've created 347,000 new jobs. Business profits and household incomes have grown strongly. And the terms of trade have moved in our favour, with dairy in particular doing remarkably well. Dairy prices have risen around 96% in the last year and given that dairy makes up almost 20 per cent of our exports, that is having a big impact on our economy.
But there are some imbalances both within New Zealand's economy and within the global business and trade environment.
Our current account deficit, though down from the peak of over 9% is still high by international standards at 8.5 per cent of GDP. Quite simply, we spend too much. New Zealand households spend $1.15 for every $1 they earn, and borrow to make up the difference. And because we have a poor savings record, we have got into the habit of borrowing from overseas - effectively relying on the savings of foreigners to pay for our consumption and to invest in our businesses.
The New Zealand Superannuation Fund, which has accumulated $12 billion and the new Kiwisaver Scheme are practical and important responses to this problem.
At the moment, the open nature of the economy and the imbalances within it are exposing exporters to an overvalued exchange rate. The rate is not only a reflection of New Zealand's situation but also partly a reflection of the weaker US dollar.
There is no easy way to address short-term fluctuations in the exchange rate. We cannot and should not rely on a low New Zealand dollar for export success. The exchange rate is overvalued, given the current underlying economic position. But in the longer term a high exchange rate may well be the reflection of a strong economy.
Nor should we rely for our well-being on the current point of cycle of commodity prices. Commodity prices over time rise and fall.
Leaving aside things we cannot readily control, we need to work on improving New Zealand's competitiveness in the global marketplace. That includes addressing our skill levels, the capability and capacity of enterprises, technology, productivity, creativity and innovation. They are keys to building a successful future.
We don't want New Zealand to be a low-margin, commodity based export economy so we are working to transform our economy into one that is high income, knowledge-based and innovative.
This doesn't mean that New Zealand needs to move away from its primary production base or get out of manufacturing.
But we can't just keep doing more of the same.
We need become better at finding out what customers overseas want and become more innovative at finding ways to deliver to them. We need to work smarter not harder - if we are to keep the great Kiwi lifestyle that we treasure.
Local company Steelfort Engineering is an example of a manufacturing firm that has done well out of concentrating on quality and understanding its customers. It manufactures mowers and exports them from New Zealand to Europe.
Marton is home to another manufacturing success story - PEC Fuel Pumps. This company has 80 per cent of the market in Australia and New Zealand for fuel bowsers. Next time you fill up your car in New Zealand or while visiting Australia, you'll probably be using a pump made in the Horowhenua. PEC Fuel Pumps has also been innovative in applying its expertise and has branched out into low-volume manufacturing of high value electronics under contract for other companies. It is now competing with Asian companies to win orders from overseas.
To raise productivity in a small domestic market like ours, firms need to get economies of scale by going global. We need more companies to aspire to export, to move out of the comfort zone of the local market and to face the challenges and exploit the opportunities of opening up internationally.
We need to capitalise on and create new opportunities. The upside to New Zealand's small size and position away from the major trade and cultural centres of the world is that we have learned to respond quickly to opportunity.
Palmerston North Based New Zealand Pharmaceuticals is a good example of this different thinking. When people think of pharmaceuticals, they often think of Swiss multinationals such as Roche or Ciba-Geigy. But the clean, green, status of New Zealand is sufficiently appealing that, New Zealand Pharmaceuticals can export ingredients to the world's pharmaceutical companies - including companies in Switzerland. The company has thought differently about the global pharmaceuticals industry to identify opportunities created by operating from New Zealand.
Because we have a small and open economy, free and fair trade in a rules-based international system is very important to New Zealand.
Our first priority has been the Doha Round of the WTO. The reasons for this are obvious.
The multilateral system allows us to negotiate for the elimination of export subsidies and the lessening of domestic subsidies on agriculture, to reduce unfair competition.
It potentially allows us to utilise international leverage to bring down - in an across the board manner - high tariffs on agricultural and industrial products and open new trade in services, including in Asia.
The failure of the G-4 countries to reach agreement at Potsdam was a serious blow to hopes that the Doha Round might be completed this year.
The G-4 process, by which four key players - the EU, US, Brazil and India - sought to resolve differences and find convergence for moving the Round forward is probably dead.
But the Round itself is still alive, reverting to using the Agriculture and Non Agriculture Negotiating Groups in Geneva to seek agreement.
Next week the Chairs of both Negotiating Groups will release texts setting out proposals to resolve differences. These will be debated the following week, followed by a summer recess in August to consider positions before resuming an intensive text-based process in early September.
Can the Geneva process work when the G-4 process, and before that the Green Room format involving 25 or so countries, failed to reach agreement?
Perhaps, if there is the political will and flexibility - and a realisation that every country loses if the Round fails.
Maybe the G-4 countries and others will find it easier to make concessions under the cover of a multilateral process, than in the smaller group process where they could be held responsible by others, more directly, for the outcomes.
The WTO remains our top trade priority, but it is not the only mechanism by which we are seeking to secure more open markets for New Zealand exports.
Last year in Hanoi, APEC leaders placed on their agenda for the first time, discussion of a Free Trade Agreement for the Asia-Pacific.
This should be seen as complementary, rather than as an alternative to Doha. It is, in fact, not a radical departure from the original vision for APEC in 1989 and reaffirmed in the Bogor Goals of 1994 of regional integration and free and open trade and investment in the Asia Pacific.
But there are obviously big challenges in pulling together economies like China, Taiwan and the US and resolving differences between them in order to realise a free trade area.
Similar challenges exist for achieving a Closer Economic Partnership for East Asia, promoted by Japan, which last year's East Asia Summit committed to studying further.
New Zealand is involved in both groupings, and will continue to press for progress in each towards the goal of integrated free trade areas of which we would be a part. Neither, however, is a short-term prospect.
Another option is to look, inside or outside of APEC, for a coalition of countries with greater ambition to achieve a regional FTA by moving ahead of - rather than waiting for a consensus within - larger organisations.
There are models for this - the pathfinder concept within APEC, or the Trans Pacific Strategic Economic Partnership, or P-4, of Chile, New Zealand, Brunei and Singapore.
A grouping of progressive economies including perhaps the US, Canada, Mexico, Australia, the P-4 countries, Korea, and others could reach a high quality Free Trade Agreement, which would allow others prepared to meet this threshold to dock into it.
This option has not yet been tested but could be explored if avenues such as the Doha Round do not come into fruition.
Bilateral deals are another important focus. New Zealand already has FTA's with Australia, Thailand, Singapore, Chile and Brunei.
I hope that in less than a year we will complete our largest ever Free Trade Agreement with China.
We are on target to conclude a comprehensive and high quality agreement, which will take our commercial relationship with China to a new high level, with benefits to traders in both countries.
We are also exploring ways we can advance our economic relations with Japan and Korea, our third and sixth largest export markets respectively.
With Japan, we have an economic working group from both countries reviewing the relationship following the Clark-Koizumi agreement to reinvigorate our trade and economic partnership.
With Korea, we are conducting a joint study into the merits of an economic partnership agreement (EPA), which will report by November.
My sense is that we will move forward first with Korea in respect to an EPA after its agreement with the US, but in each case there will be challenges to overcome.
India should also be mentioned in this regard. Earlier this year Kamal Nath, the Commerce Minister, agreed in principle to establish a joint study into a possible FTA. India is one of our fastest growing markets, albeit from a low base.
It is also one of our few trading partners where food and beverage do not dominate our exports, because of the high level of protectionism.
Trade negotiations are important in opening the door for greater trading access.
Export Year 2007 is an opportunity to focus on building export capacity and aspirations for the future to ensure potential New Zealand exporters are in the position to take advantage of new opportunities.
It has for example supported the launch of a teaching resource into primary and secondary schools to help children learn about international trade. We are also revising and expanding content in NZTE's Exporter Education Programme.
Export Year support has also ensured that Palmerston North Based Export Training Services can teach the internationally accredited Diploma in International Trade. Until now, there has been no tertiary level qualification available in New Zealand that specifically meets the needs of exporters.
Export Year is also supporting Business Mentors New Zealand to provide export-focussed training for existing mentors and boosted to recruit new mentors with export experience. Mentors can provide individualised advice from those with practical experience and skills which firms wanting to export will find invaluable.
Export Year 2007 is not a one off event but is designed to lay the foundations for stronger export performance in the longer term.
The Government is committed to supporting the long-term success of business by creating and sustaining a supportive business environment. The World Bank's 2007 Doing Business report ranks New Zealand second best in the world for our regulatory environment and ease of starting a business and third best for ease of getting credit. We also rate highly for our tax system.
But we can and are doing more.
Last month's budget delivered the most substantial tax cuts to the business environment in 20 years.
Corporate tax cuts ($2 billion over four years), tax credits for R&D (more than a quarter of a billion dollars over 4 years), and more favourable international tax laws should give business an important boost.
NZTE has also been funded to do more through opening new offices in China, Japan and India and expanding the Beachhead programme. It has also been provided with additional funding for market development grants - $33.7 million when Export Year was launched and $87.8 million more over four years announced in the Budget.
New Zealand can't survive by protectionism, and nor can we survive by competing on the basis of low wages and skills. Our goal is to be a high wage, high skill economy where, despite being a small nation a long way from our markets, we can compete on the basis of creativity, quality and exploiting niche markets.
Export Year 2007 is built around the need for government and the private sector to work in partnership to lift our performance. While the government has a clear role to play in creating the right environment, it is private-sector firms that actually do the business.
It is the private sector that will ultimately determine the success of New Zealand's export economy, enabling New Zealand to create growth and wealth, improve living standards and enhance our quality of life and social services.
Thank you for coming along to this breakfast and thank you for your contribution to New Zealand's export effort.