New Zealand's Position in a Global World

For over 125 years, New Zealand as a small and remote country has relied on exporting to make a living in the world.

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Keynote address to the 2007 New Zealand CEO Symposium, Auckland

Thank you for the invitation to address the New Zealand CEO Symposium this afternoon.

For over 125 years, New Zealand as a small and remote country has relied on exporting to make a living in the world.

From predominant reliance on one market, the United Kingdom, and a narrow range of agricultural commodities, New Zealand has diversified both its markets and its production.

In the globalising and rapidly changing economy of the 21st century it faces new opportunities and new challenges. New Zealand's focus today is on improving access to markets and ensuring that we have innovative firms with the capabilities to take advantage of access to new markets.

Setting the Scene

Recent years have seen a rapid expansion in world trade. Exports of goods grew by an average of 6 percent per year between 1990 and 2005, and the value of world trade in goods has more than doubled since 1990.

What's more, much of this growth has taken place close to home, in Asia. The value of trade by the Association of South East Asian Nations or ASEAN, for example, has tripled since 1990.

Growth in world trade has coincided with growth in global incomes - particularly in large developing economies like China and India.

This has contributed significantly to the growth of world output and has fuelled rising demand for commodities.

New Zealand has felt the effects of this in two main ways. First, we have seen the growth of new markets for our goods. The value of our exports to India and China has roughly doubled since 2000.

Second, increased demand for commodities has led to improvements in our terms of trade; our export prices have grown relative to import prices and we are getting more for our products.

Worldwide, services exports have ballooned, growing at 10 percent annually, between 2000 and 2005.

New Zealand has benefited from this growth, particularly in our tourism and education sectors. Since 2000, the value of New Zealand's education exports has more than doubled, and the number of tourists arriving here has increased by 30 percent.

Trade Policy Priorities

Trade liberalisation would promote further world growth with the World Bank estimating that total freeing up of trade would boost world global real income by US$287 billion a year in 2015.

The best way to achieve this, and New Zealand's top trade policy priority, is to successfully conclude the Doha Round of the World Trade Organisation.

For New Zealand, concluding the Round could result in potential benefits of up to $1 billion a year to our economy.

The Doha Round covers a range of issues critical to us including market access for agricultural and manufactured goods, services, and environmental goods.

What's more, the WTO is the only way in which we can tackle global trade distorting issues such as domestic subsidies and export incentives.

But as with the previous Uruguay Round, the Doha Round has suffered from numerous obstacles and delays.

Last month, the Chairs of the WTO Agricultural and Industrial goods negotiating groups released texts outlining what they saw as the centre of gravity for the negotiations. They received mixed reactions.

Delegations confirmed that they were prepared to work towards an outcome using the agriculture draft modalities text as a basis, a tribute to the skill of the chair of the Agriculture Negotiating Committee, New Zealand's Ambassador Crawford Falconer.

While many countries, New Zealand included, would have liked greater ambition, the paper provides an agreed basis upon which to progress negotiations in the sensitive agriculture sector.

Though many challenges remain before an agriculture deal is possible, the paper is a positive step forward. Negotiations begin again in early September.

On non-agricultural market access, on the other hand, developed countries expressed significant concern over parts of the text, which they believe asks too much of them and too little of large developing countries.

There was likewise strong criticism of the text from a large number of developing countries from the opposite perspective, with some even rejecting it outright.

The negative reactions to the NAMA negotiating text mean not only problems in the industrial goods area per se, but will also cause reluctance by countries such as the US, EU and Japan to make concessions in agriculture unless they can show their stakeholders gains in areas like industrials and services.

And, as always, pressure from vested interests which stand to lose protection is often stronger than support for the Round from the majority who will benefit from its successful conclusion.

For small countries like New Zealand, the rules-based, multilateral trading system that the WTO represents is critical.

Those that lose the most if we fail to conclude the Doha Development Round will be smaller and developing country WTO members, who unlike larger or richer economies, lack the power to achieve access to markets and remove the unfair competition from heavy subsidization in developed countries by any other means.

With the way forward in the WTO unclear, New Zealand continues to also work to progress bilateral and regional trade liberalisation options.

Right now, China is our biggest FTA commitment. New Zealand was the first developed country to begin FTA negotiations with China, and a comprehensive result could increase our exports of goods and services by between $260 million and $400 million per year, as well as saving over $100 million in tariffs a year.

Negotiating efforts are intensifying. Thirteen negotiating rounds have now been completed and solid progress made, though difficult issues remain. Both sides are aiming for a comprehensive, high quality, balanced agreement by April 2008.

We had the first round of negotiations with the Gulf Cooperation Council - a group incorporating Saudi Arabia, Oman, Kuwait, Bahrain, Qatar and the United Arab Emirates - last month.

Both sides found the discussions productive. We're both looking for a quality agreement, and are aiming to make quick progress.

We are conducting a joint study with Korea to examine the benefits of a bilateral FTA which we will complete by this November. We hope to make progress following the conclusion of the US-Korean negotiations earlier this year.

We have a joint working group underway with Japan to examine how our economic and trade relationship can be reinvigorated, and we hope that this will become part of a process that eventually leads to an economic partnership agreement, though high levels of agricultural protectionism remain an obstacle.

In the US, we have strengthened our governmental relationship and our prospects for being on the list of new negotiating partners for a free trade agreement. However, nothing can happen until Congress renews the Administration's Trade Promotion Authority. This may not happen prior to next year's Presidential election.

A joint experts' group established to examine our relationship with Mexico has concluded that a case exists for deepening and widening the existing trade relationship. We will progress discussions on this when President Calderon visits New Zealand in September.

My Indian counterpart, Kamal Nath, and I have agreed in principle to commence a study into the implications of an FTA between New Zealand and India. Officials from both countries are in the process of developing terms of reference for such a study.

But a proliferation of FTAs in Asia-Pacific also presents risks for New Zealand, including of trade diversion, and the risk of getting tangled up in the complexity of access conditions.

We are starting to look at how we might consolidate the so-called "spaghetti-bowl" of bilateral agreements in our region.

The concept of a Free Trade Area for the Asia Pacific was put on the agenda at the APEC 2006 Leaders' Meeting in Hanoi. Last year's East Asian Summit committed to studying a Japanese-led Closer Economic Partnership for East Asia proposal further.

New Zealand has been active in both these processes. Nobody expects that either of them will happen overnight. But as ideas they have come a long way in quite a short period of time.

They are broadly complementary and, ultimately, have the potential to deepen regional integration and deliver new trading opportunities for us.

If the Doha Round stalemates, there is also the possibility that a group of countries ready for more ambitious liberalisation may come together to join up existing free trade areas such as NAFTA, CER and our P4 grouping with Singapore, Chile and Brunei. This could create a high quality FTA with the opportunity for other countries to opt in.

Non-Tariff Barriers

A central focus of all the trade arrangements I've just mentioned is the reduction and elimination of tariffs. And, the traditional focus on "market access" will remain very important to New Zealand, as a result of the make-up of our relatively narrow export profile.

But we also recognise that the pattern of global business is changing.

Economic partnerships are allowing economies to become more connected, including across a range of "new economy" areas. Stronger relationships in science, research and development, and education will increasingly supplement the benefits of freer trade in goods and services.

And this means that we have to take a much broader view of "barriers to trade", as these are increasingly behind-the-border issues, or non-tariff measures.

Anyone who exports electronics or electrical machinery, for example, will be familiar with the prohibitive impact that variations from international standards can cause when they add significant costs to production processes, or require costly re-testing.

Non-tariff barriers can even be as blunt as a requirement to make import permit or product registration applications through opaque, complicated procedures that are designed to create uncertainty for exporters.

There is often a very fine line between legitimate standards required for the protection of consumers, and those that are disguised barriers to trade - which is why negotiating fair and transparent trade rules is an increasingly important part of our trade negotiations.

But government-enforced standards are not the only type of non-tariff barrier affecting New Zealand's exports. The issue of food miles has become a significant focus of the New Zealand and UK media in recent months.

Consumers are beginning to care more about how their products are made and their environmental impact. These are important concerns.

However, when assertions about the environmental footprint of New Zealand exports have been based on inaccurate and misleading science and untrue information, then this becomes a very real threat to New Zealand's commercial interests.

The food miles argument simplistically - and incorrectly - claims that consuming products which have to travel further to market, is inevitably worse for the environment than consuming locally produced goods.

This logic is clearly flawed. By looking at distance alone, food miles does not take into account on-farm energy use.

New Zealand research has shown that once energy use across a product's entire life cycle is considered, that New Zealand primary producers are more energy efficient than their UK counterparts. This energy efficiency more than offsets the emissions cost of transporting food by sea to the UK.

False claims have also been made about New Zealand horticultural produce being air-freighted to the United Kingdom.

In fact, 99.75% of our food and beverage exported to the UK is sea-freighted - a form of transport which has a relatively low carbon footprint.

The fact food miles is an intrinsically flawed idea does not mean that it does not have the potential to harm our exports.

Unlike most non-tariff barriers we do not have the option of using WTO procedures to counter food miles - because food miles unlike most other non-tariff barriers, is not an issue regulated by Government.

The UK Government to its credit has made it very clear that it places absolutely no credence in the food miles argument.

The impact of food miles on New Zealand lies in the ability of its advocates to influence changes in consumer preferences, rather than directly by government policy settings.

New Zealand is actively confronting the food miles claims. Government agencies, industry and academia have worked in partnership through the Food Miles Group in New Zealand, and our High Commission and a PR Agency in the UK, to share information and respond rapidly to inaccurate claims.

These efforts have resulted in more balanced recent media coverage.

The food miles issue has a limited shelf-life. Issues around sustainability in trade and economic policy, however, are going to be central to the future policy agenda and to the challenge businesses face.

Sustainability is a central tenet of the Government's policies, and for good reason. New Zealand, as a good international citizen, must play its part in addressing the challenges presented by climate change.

Sustainability also makes good sense for New Zealand's economy. By striving for and demonstrating sustainable practices across our supply chains, we can strengthen our market position and our brand of clean, green, 100% pure new Zealand.

Developing Globally Competitive Firms

Government trade policy priorities focus on improving market access for our businesses and countering the non-tariff barriers that they face in overseas markets.

The removal of such barriers is an important element in the ability of our businesses to engage globally.

But we also need more firms that can compete on a global stage.

That involves building the aspirations, confidence and capacity of New Zealand businesses, to break into new export markets.

It's that goal which lies behind the public-private sector partnership promoting 2007 as Export Year, not as a one off event but a platform for continuing efforts.

Glidepath's managing director, Ken Stevens, has acted as champion for Export Year.

His firm provides airport baggage handling hardware and software. He has grown a small company into a multinational multi-million dollar enterprise beating all contenders to win contracts in 55 countries. He is an example of what New Zealand firms can achieve with drive and innovation.

At regional export award ceremonies, time and again I see small and large New Zealand companies who through ingenuity, fresh thinking and strategic business acumen, are succeeding internationally.

It is private firms that export and that drive this success, not government.
But Government can and does help, working in partnership with the private sector.

Through the multi-million dollar expansion in the Market Development Assistance Scheme, NZTE can help firms gain information about markets, promote their products and participate in trade fairs such as Cebit. The Pathways to Market Programme provides customised training and support to companies fast tracking their entry to specific markets.

The Beachheads programme enables New Zealand firms to get expert advice and be put in touch with key players in the market.
Through Kea, New Zealand's global talent network, new entrants to markets can also gain valuable advice and contacts.

At home, Government supports incubator programmes like Icehouse that promote both innovative product ideas and help to commercialise them.

Support for Business Mentors New Zealand to recruit and train mentors with export experience provides invaluable practical advice to potential exporters.

The Export Credit Office is providing new products such as contract bonds for firms bidding for US Government contracts.

The Exporter Education programme works to build the capability of New Zealand businesses and a new tertiary level course provides qualifications in International Trade.

Building aspirations to be entrepreneurial and to export starts even earlier, with teaching resources provided to schools to help children understand the importance of exporting and global trade in their lives.

At the macro level, the last Budget of course provided $2.1 billion in corporate tax cuts and a quarter billion dollar boost through tax credits for R & D over the next four years to help business.

Conclusion

In conclusion, I have outlined today New Zealand's objectives and efforts in promoting trade liberalisation, and the need to deal with both tariff and non-tariff barriers.

I have also touched upon Export Year and some of the work being done in partnership between the government and private sector to promote New Zealand's export capability.

A rapidly globalising world presents both new risks and new opportunities for New Zealand.

It affects all of New Zealand and not simply exporters. Today firms selling into the domestic market also need to compete internationally.

New Zealand has done well in the last 7 years. Our economy is 25% bigger than it was in 2000.

We have had strong job growth (around 347,000 new jobs), have low unemployment rates and have seen business profits and household incomes grow.

However, with a high balance of payments deficit and exports which stand at around only 30% of GDP, we have to export more. The task in front of the private sector and government is to work together to meet the challenge of economic transformation in New Zealand and to compete effectively in today's globalised world.