Address to business chambers event - PhilippinesTrade
Good afternoon ladies and gentlemen.
It’s a pleasure to be here in Manila on my first visit as New Zealand Trade Minister alongside a delegation of New Zealand companies.
I’d like to acknowledge in particular the business chambers that have supported today’s event.
Prime Minister John Key was to have visited Manila with a business delegation in November last year before plans were put on hold by the tragedy that was Typhoon Yolanda.
Although he is unable to reschedule his visit until after the New Zealand election last this year, he was intent that the business elements of that visit proceed.
I am well aware that the Philippine economy has been enjoying impressing growth in recent times. We see more opportunities for collaboration. We want to put New Zealand on the radar of more Philippine businesses.
The New Zealand economy has come out of the recession and the global financial crisis in good shape, especially when you compare it with our peers around the world. Forbes ranks us number one on their list of “best countries for business”, and one commentator (HSBC Bank) recently referred to New Zealand as the “rock star” economy of the developed world for 2014.
Growth is trending up to 4%, net debt to GDP below 30%, unemployment at 6%, trending down to a bit over 4%, and the highest ever recorded labour force participation rate. And all of this has been achieved while we struggled with the effects of the Global Financial Crisis and the massive destruction in Christchurch, our second largest city, by a devastating earthquake in which tragically a number of young Filipinos died.
Focus on South East Asia
Our visit to Manila also reflects an increased intensity of focus in New Zealand on South East Asia more broadly. This region is playing an increasingly important role in determining New Zealand’s economic future.
New Zealand’s relationships with the founding nations of the ASEAN grouping, including the Philippines, stretch back decades. But our trading ties have been transformed by the remarkable economic growth that has taken place in this region. And ASEAN recently overtook the EU as the largest trading bloc with which New Zealand does business.
That growth is being aided by the ASEAN-Australia-NZ Free Trade Agreement, which entered into force in 2010. I believe that this agreement positions us very well alongside a major emerging global trading bloc – the ASEAN Economic Community.
The Philippines itself was New Zealand’s 12th largest export market last year.
On top of that, an increasing number of Filipino skilled migrants now call New Zealand their home. The Filipino community in New Zealand more than doubled in size between 2005 and 2013, and now represents 1% of New Zealand’s population. The respect New Zealanders have for the Filipino community was one factor in the outpouring of sympathy and generosity following last year’s typhoon.
Our bilateral trading relationship is quite literally in healthy shape: dominated by food and beverage products: primarily, dairy products in one direction and bananas in the other.
In fact, the Philippines has consistently been one of New Zealand’s most important markets for dairy products. Those exports are supported in New Zealand by an increasing number of Filipino dairy farmer workers and farm managers. And the majority of New Zealand dairy exports to the Philippines are used as ingredients in food processing, creating manufacturing jobs here.
But New Zealand is also looking to apply its expertise in dairy farming to help develop the Philippines' own dairy sector. Although the Philippine dairy industry is very small by comparison with New Zealand's, there is ample opportunity to increase supply of fresh milk.
I believe the challenge over the next 20 years will not be about countries competing to meet a limited demand for high-quality food – it will be about countries striving to ensure there is enough supply. That is where I see New Zealand playing an important role in this region. We are world-class, highly-efficient food producers.
New Zealand expertise
The future for New Zealand – across all foods, not just dairy – is in partnering with other people and other countries in our region. We can offer the knowledge gained over years of experience in agriculture, horticulture, food science and technology.
And also in energy. It was New Zealand aid programme assistance that contributed towards the development of the first geothermal energy fields in the Philippines in the 1970s. Today, the Philippines is the second largest producer in the world of electricity from geothermal steam and New Zealand is also a major geothermal generator, with our companies looking for opportunities offshore.
Our companies, such as GNS here today, continue to maintain strong connections with the Philippine geothermal sector. And the expertise behind the New Zealand hydro-electricity sector is also at work here in the Philippines to help restore hydro-electric dams to full capacity.
New Zealand may be small, but where we have areas of expertise, we have very deep expertise.
It may come as surprise that New Zealand is home to a cluster of world class companies in the aviation sector, a couple of which are here today.
With visitor numbers between our countries growing fast – 12% last year - it can only be a matter of time before one of our airlines seizes the commercial opportunity to offer a direct service between Auckland and Manila that that would cut travel time from around 15 hours to less than 10. This will boost the exchange of people between our countries that will take our trade and tourism relationship to the next level.
New Zealand is also a high quality, safe, and reasonably priced education provider and we look forward to welcoming more young Filipinos to New Zealand. A Working Holiday Scheme that opened earlier this year is a very popular and innovative step in that direction.
New Zealand and Philippines in the wider region
I am very optimistic that New Zealand and the Philippines are well placed to take advantage of the opportunities that lie ahead of us in new and exciting ways. The evolution of global value chains is changing the way we do business.
Take the partnership between Prime Foods – a member of our delegation - and Alliant Select International. New Zealand king salmon exported to the Philippines for processing, smoking, and vacuum packing in General Santos City, Mindanao, and then exported throughout Asia.
Or a clutch of New Zealand IT companies taking advantage of the Philippines’ growing reputation as the back office of the world. A number of New Zealand IT companies have established businesses in the Philippines to target third country markets. These companies have recognised that by putting parts of their business here in the Philippines, they can grow businesses that wouldn't otherwise have the means to grow, create jobs that otherwise wouldn't exist, and pay wages that are higher than they would otherwise be.
A market of nearly 100 million people, with a young, educated, English-speaking and technology-savvy workforce offers New Zealand companies an opportunity to expand their reach.
When added to the trade in goods, the growth in trade in services means that our total two-way trade relationship is now at, or approaching, the NZ $1 billion mark.
Regional economic integration: Free Trade Agreements
As we look forward, the challenge for both New Zealand and the Philippines is to secure our place in the sophisticated network of regional production and investment networks that increasingly define Asia.
And as businesses position themselves to take advantage of these evolving value chains, so too must governments.
I have already talked about New Zealand’s close connections with ASEAN. Our own process of integration into the wider region started more than 30 years ago. Until we made a decision to open up the highly protected sectors of our economy, New Zealand adopted a highly defensive position in international trade negotiations. We protected almost all our industries and several of our then highly uncompetitive agriculture sectors behind the developed world's last remaining import licensing system, augmented by highest average tariffs in the developed world.
We needed reform, we needed structural adjustment, we needed to do something to improve our productivity and export performance in our highly protected sectors. Finally, we came to the conclusion that this would never be done unilaterally. We needed the impetus of external competition. We then began a long, slow process of opening up the protected sectors of our economy first with our then largest trading partner, Australia, later the world.
Fast forward 30 years, and we now have Free Trade Agreements covering over half of our total exports to the world, and that will rise to over 75% when we conclude pending FTA negotiations.
Rising Asia: The Era of Hyper Globalisation
Indeed, governments everywhere are responding by negotiating trade and investment integration agreements.
Three crucial mega-regional deals are also under negotiation globally. TTIP – the Trans-Atlantic Trade and Investment Partnership – is intended to unite the 28 Members of the EU with the United States. In our region, New Zealand and the Philippines are both part of the negotiations towards a Regional Comprehensive Economic Partnership, or RCEP.
And then there’s the Trans-Pacific Partnership.
Asia Pacific Integration
The TPP is by far the most mature negotiation of these mega-regional deals, but a word first on RCEP. This is a world of 'competitive liberalisation' and if TPP falters, RCEP, either in its current full form or some 'slimmed down' version is likely to take leadership of the process of Asia Pacific integration.
RCEP includes 16 countries, all but one (India) are APEC economies and they share the distinction of having an FTA with ASEAN. Crucially, RCEP does not include the United States but does include China and India. TPP is of course centred on the United States and Japan – respectively, the world's number one and number three economies. When you step back and try to make sense of this, what do you see?
First, and most obviously, an explosion of interest among Governments in negotiating new and binding international trade and investment agreements.
This is a little surprising at one level: conventional wisdom would have suggested there might be little appetite for liberalising trade as the world struggles to extract itself from the biggest global downturn in 70 years. I think Governments are simply rediscovering the old truth in the phrase 'trade is an engine of growth'. Further, the growth of regional and global value chains makes even small degrees of protectionism deeply counter-productive.
Second, and I say this with some regret, this explosion of interest in negotiating new liberalising agreements is not taking place in the World Trade Organisation. I have spent most of my professional life in the GATT and the WTO. We all agree that the global economy needs a global system of rules. That is still thankfully intact but the negotiating function of the WTO has still yet to prove it can find a political formula to advance the hard-core issues of liberalisation of international agriculture, non-agriculture or industrial goods and services.
Third, these new mega-regional agreements are not low-quality agreements including many exceptions to liberalisation. This is in sharp contrast to many poor quality FTAs of the 1990s.
Fourth, these are what I have called 'convergent' FTAs, collapsing existing bilateral agreements into broader agreements.
The Roots of TPP
TPP is in this mould. It started with a bilateral FTA between Singapore and New Zealand. We then invited Chile into the negotiation. The vision of the earlier Singapore-New Zealand FTA was to be a bridge to what we called 'P5', or 'Pacific Five'. For that, we needed a Latin American economy in the hope of capturing the interest of the United States. Eventually, Brunei asked to be included and we negotiated not P5, but P4 – four small APEC Economies. And then we waited.
Eventually, the United States, looking for a platform for the 'pivot' to Asia in the economic sphere, started to look to this interesting, but economically modest agreement of P4. After some time, President Obama decided to participate, using the P4 agreement as the legal base. Since New Zealand is the legal administrator, or 'Depository' of P4, we continue to be the Administrator of TPP.
As soon as the United States had made its move, others followed – including eventually, Mexico, Canada and Japan.
And of course others, including the Philippines, may follow.
Furthermore, if it succeeds, it will exercise a huge influence on an even broader and more ambitious goal – to be a decisive 'building block' to FTAAP – the 'Free Trade Area of the Asia Pacific'.
The State of TPP
TPP is now at a crucial stage. I think of it as a negotiation in two parts, though this is a bit of a simplification. The first part is a negotiation over rules designed to meet the realities of the 21st century. The second is a negotiation over market access. They are inextricably linked – we cannot sign off 21st century rules and ignore 20th century unresolved market access issues, of which deep pockets of high protection in agriculture (negotiators call this 'tariff peaks') are unaddressed.
The rules negotiations are extremely advanced. The rules negotiations cover matters such as Intellectual Property, E-Commerce, new rules for State Owned Enterprises, Competition Policy, Government Procurement, and the Movement of Business People as part of a Services outcome.
What may be of interest to you is that the 'TPP bus', if we complete the negotiation, will carry on to other destinations in the Asia Pacific. Though TPP may yet still stumble if Governments finally lack the courage to take the final decisive decisions to confront their highly protected sectors, there is every reason to believe TPP will be the decisive influence in creating the entire FTAAP or Free Trade Area in the Asia Pacific.