Asia & New Zealand's EconomyInternational Trade
Annual General Meeting
New Zealand Institute of International Affairs
Domestic politics have certainly been interesting over the last fortnight. Tomorrow, New Zealand's Government will formally change from the National/NZ First Coalition minority government to a National-led minority Government. It is nothing surprising under MMP that the Government can change without an election. It happens regularly in all proportional representation systems.
But one thing has not changed: the National Party is determined to deliver the good government that New Zealanders deserve. We have the support of 62 MPs on confidence and supply. That will allow us to deliver stable and constructive government for New Zealand. That is particularly important right now because of the Asian Economic Crisis.
No one in the Government has ever underestimated the seriousness of the turmoil in Asia. Asian economies account for half our top 20 export destinations. Japan alone takes 15% of our exports. Not only that, but we are also affected indirectly through Australia, our biggest export destination. The effect of the turmoil so far has been significant on key sectors. Our forestry exports to Japan and Korea over the past six months were $170 million down on the same time next year - a full third. According to the Reserve Bank, our GDP growth rate for 1998/1999 is now expected to be only 0.1%.
But the Reserve Bank also expects growth to strongly bounce back in 1999/2000 to 4%. And one of the key reasons for that is because of the way in which our economy has been restructured since 1984. We are now a flexible, innovative economy. Our dollar has automatically adjusted to take account of our balance of payments deficit, falling around 30% against the US dollar in the last year. According to Statistics New Zealand, our exports during the three months to March were up 11% compared with the same quarter in the previous year. The latest forecast for the June quarter is that exports will be down less than 1% compared with the very successful June quarter in 1997.
Clearly, New Zealand's economic framework is one which allows our exporters to respond and diversify quickly - with the US possibly set to shortly overtake Japan as our second biggest export market. That ability to respond shows the danger of any notion that we should return to the high-tax, protectionist, union-dominated New Zealand of the past. The Shipley-led Government is clear that we need to continue on our path of price stability, sensible spending policies, an innovative labour market, a low-rate, broad-base tax system and continual improvements to our competitiveness through microeconomic reform.
But none of this is to suggest that New Zealand should turn its back on Asia. To the contrary. Even now, economies like Japan still offer huge consumer markets. The East Asian market continues to import around NZ$3 trillion worth of merchandise each year. There continue to be good opportunities in services such as tourism and education. Longer-term, Asian markets will continue to be our natural trade, tourism and investment partners into the future. Even if they don't offer the levels of economic growth seen in the past, they will offer strong, more sustainable rates of growth in the future. New Zealand's growth and development will always be strongly linked with Asia.
And nothing is more certain than that Asia will recover. The only question is how long it will take. In the last part of this century, Asia has enjoyed the fastest economic transformation the world has ever witnessed. Many of the factors that made that possible remain entrenched - high savings rates, an increasingly skilled and educated workforce, a dynamic business environment and low rates of tax. What is now required is for Asian economies to implement the reforms necessary for speedy and sustainable recovery.
Most crucial is Japan. Because it is by far the wealthiest economy in the region, the Japanese people have not felt the same direct impact as those from other Asian economies. It means there is little sense of crisis on Japanese streets. That makes the necessary reforms more politically difficult. But Japan must show leadership, in reforming its banking sector, rationalising its public service and liberalising trade.
In the short-term, Japanese leadership will help to keep the yen above the level at which China would be forced to devalue the RMB. In the medium-term, Japanese leadership will be essential to restoring the business confidence that Asia needs, and engine to get Asian economies moving again. And, longer-term, reform will mean that the world's second largest economy will be on a much stronger footing.
The rest of APEC has a crucial role in encouraging Japan to take that leadership role. And, collectively, we have an important role in demonstrating that the problems we are facing in our region will not send us back down the dead-end road of protectionism. We need to continue to open and integrate our economies. That will help to build business confidence and spur economic growth.
APEC's key goal has been free trade and investment by developed economies by 2010 and by developing economies by 2020. We remain fully committed to those goals. At the same time, we have been working on early liberalisation of trade in certain sectors. Work will be completed this year on nine sectors: energy, toys, gemstones and jewellery, chemicals, medical equipment and instruments, telecommunications, environmental goods and services, and - of greatest importance to New Zealand - forest and fish products.
Getting agreement on that package was not easy. When I arrived in Vancouver in November last year, to consider the broad outline of the package, I was advised it was highly unlikely agreement would be reached on any but a handful of sectors. But the New Zealand team and I persisted and, working with our allies, we achieved agreement for the much more comprehensive package of nine sectors - a package which is balanced to ensure all economies see some immediate benefit.
The package again struck some problems in Kuching in June, mainly because Japan was about to hold Upper House elections. Economies like Thailand and Indonesia - with their problems - showed tremendous courage in remaining fully committed to the package of nine sectors. Korea and China also showed a tremendously constructive approach in being prepared to sign up.
The package remained intact, with only the last few details still to be decided in Kuala Lumpur in November. Should all APEC economies finally commit to the package, it will mean free trade in sectors already worth NZ$3 trillion in exports around the APEC region every year. It will go far beyond the elimination of quotas and tariffs, also dealing with standards recognition and other issues which can be used as de facto trade barriers.
The significance of that package alone would be enormous. First, it would show that APEC is working. There are a lot of naysayers around the world who are critical of APEC's goals-based approach, as opposed to the EU's rules-based system. This would be a clear demonstration that a goals-based system can work, and work well. Second, from New Zealand's perspective, the inclusion of forest and fish products would provide an opportunity for those industries to increase their exports of high value products into high value markets. They are major industries for us, but they are constrained by protectionism internationally. Third, it would be the first time a major international group had agreed to free trade in primary products. It would set the scene for further progress both through APEC and through the World Trade Organisation.
Next year, when New Zealand chairs APEC, we will consider a further six sectors for early liberalisation: natural and synthetic rubber, fertilisers, automobiles, civil aircraft, oilseeds and oilseed products, and food. Liberalisation of food will be on the APEC agenda when New Zealand is in the chair. It provides us with a unique opportunity. Already, we are working with the National Centre for APEC in Seattle on its Efficient Food System proposal. The idea is to design what an Efficient Food System - free trade in food - would look like.
We will be wanting to use our year in the chair to make as much progress as possible. All our best brains and most extensive experience will be necessary. With the taxpayer having spent hundreds of thousands of dollars on travel for me to meet and build relationships with all the key players, I have committed my life to ensuring they and New Zealand exporters get the best possible return from that investment. I am determined we will make progress.
What makes that APEC work even more important is that it will set the scene for the World Trade Organisation negotiations to liberalise agricultural trade, scheduled to be launched in the United States near the end of 1999. APEC covers half of world trade. If we can achieve progress towards liberalisation of trade in food around the APEC region, we will be half way towards a good outcome from the WTO, before negotiations have even begun.
One of the key issues which will determine our success in making progress through APEC and the WTO is the degree to which economies remain committed to globalisation following the turmoil in Asia. Since 1950, the world has generally moved towards freer and more open trade and investment regimes. According to the OECD, world production has increased sixfold since 1950, but world merchandise trade has increased by 16 times. Outflows of investment have increased by 25 times, in just 25 years. When comparing our relative performance through the 1970s and early '80s with our progress since then, we in New Zealand know full well the benefits of opening and liberalising our economy. And, despite its recent troubles, the performance of South Korea, compared with North Korea demonstrates the lesson even more clearly. OECD work makes clear that the more open an economy, the more likely it is to grow.
But globalisation also leads to a backlash, by those who feel threatened by it. Pauline Hanson's One Nation Party in Australia is a good example of that. Here in New Zealand, the Alliance is currently the vehicle for unthinking nationalist sentiment. Asian economies also risk a rise in that kind of thinking. In New Zealand we saw a totally irrational campaign against the idea of establishing clear rules for investment through the OECD's proposed Multilateral Agreement on Investment. Even the pause in negotiations hasn't stopped the conspiracy theorists from suggesting that the negotiations may secretly be transferred to the IMF. In Asian economies, the reality of IMF involvement may well fuel that kind of paranoia.
The reasons for these fears are simple. Globalisation does involve a reduction in national power. Through international agreements, New Zealand, for example, is not allowed to test nuclear weapons, recklessly use landmines, trade in endangered species, reintroduce a death penalty or introduce tariffs or quotas above our Uruguay Round commitments.
We need to demonstrate that losing these types of powers as a result of being involved with the rest of the world is far outweighed by the benefits from globalisation. Intellectually, it is not a difficult argument. Politically, it can be, because objections to globalisation are emotional, based on deeply-held fears of change and the outside world. These can not be arrogantly dismissed, and nor can they always be countered just by statistics. They can only be fully countered by careful explanation of New Zealand's place in the world and the opportunities globalisation provides to our people.
As people committed to involvement with the rest of the world, this institute has a role to play in that process. And, as a nation committed to globalisation, New Zealand has a role to play in leading the process internationally. That is the way for us to ensure that New Zealand takes our place as a dynamic, outward looking and growing economy, part of a dynamic, liberal and growing APEC region.