BUSINESS SEMINAR ON 'BUSINESS AND INVESTMENTOPPORTUNITIES IN NEW ZEALAND AND ARGENTINA'International Trade
It is clear that economic relations between Argentina and New Zealand are being developed in what is a rapidly changing world. We are but two countries out of many that have adopted significant economic reform strategies.
What?s more, when we look at the elements of the strategies pursued by various governments, they show a remarkable consistency. Almost invariably, they have included such features as macroeconomic stability, trade liberalisation, domestic deregulation and a paring back and redefinition of the role of government.
These changes have at the same time driven, and are being driven by, the increasing globalisation of business. Never has it been so easy for firms to operate on a global basis in terms of securing markets, inputs and investment funds. This applies to even small and medium sized firms of which there are many in our two countries.
The globalisation of business has been greatly assisted by rapid technological improvements, particularly in the areas of transport, communications and information technology. In effect, technological advances have helped to overcome the natural barriers of space and time that separate national markets. They are likely to be of increasing significance in breaking down the natural barriers that exist to doing business between New Zealand and Argentina.
Viewed in this context, the current level of physical trade between New Zealand and Argentina seems surprisingly small. In 1997, for example, New Zealand exports to Argentina were worth $51 million while imports from Argentina were worth $14 million. In contrast we exported $2.044 billion and imported $3.6 billion from the United States. From what others have been saying today, it is likely that trade between us will increase over time. But there are also natural constraints to the growth of such trade. In particular, we both produce the same sorts of products for export including meat, wool and dairy products.
This focus on bilateral trade, however, obscures a number of important themes when it comes to looking at economic relations between Argentina and New Zealand. It is on these themes that I want to concentrate during the rest of this address.
Improving Markets for Primary Products
The first such theme is that we both share a strong common interest in ensuring that international markets for primary products function effectively. We have already co-operated extensively in this area through our mutual involvement in the Cairns Group and elsewhere.
We have worked hard to get across the messages that the potential benefits of globalisation apply equally strongly to primary industries as they do to manufacturing and that both producers and consumers will benefit from more open and competitive markets for agricultural products.
The agreement on agricultural trade that emerged out of the Uruguay Round was a first step but there is still a lot of work to do. In particular, we will need to continue to work together to get the most out of the agricultural negotiations that are mandated to start shortly in the World Trade Organisation.
While many of the problems facing markets for primary products lie offshore, there is still much that we can do to improve the functioning of these markets ourselves, particularly on the supply side. This is why I have been such a strong advocate of producer board reform in New Zealand.
I strongly believe that opening up those sectors of our economies that currently maintain restrictions to competition will bring benefits. These will be seen in terms of greater efficiencies, increased innovation and the ability of these sectors to draw on foreign investment for marketing purposes, something they are currently prevented from doing. In effect, by opening these sectors to competition, we will be allowing them to participate much more fully in the global economy.
We have, of course, already implemented significant reform of primary products markets in New Zealand and overall, our primary sector is probably the most open and competitive in the world. The types of regulatory systems that are put in place for agriculture are, I believe, critical to encouraging efficiency and innovation at the farm level, including the uptake of new technologies.
I would urge you to consider that the countries maintaining the highest barriers to trade in primary products - in North America, Japan and Europe - are the same where heavy subsidies have to be paid out to maintain their dairy and other farm production. New Zealand does not pay out any subsidies yet we are competitive in those affluent markets as far as they allow us access. The reasons why lie in the systems we use.
I suggest they may well help develop an improved cost-benefit model for farms in Argentina, especially for dairying, which I am told has significant potential.
One area I believe our reform efforts have been particularly successful is in the fisheries sector, which is a sector of particular interest to me given that I am also Minister of Fisheries.
Previously in New Zealand, we were increasingly facing the problems that beset other nations that operate open access, common property fisheries. These problems included deteriorating sustainability, increasing overcapacity and a growing pressure for subsidies to industry.
The main reform we implemented was to introduce a system of private property rights in the fishery in the form of the quota management system. This put in place incentives on the industry to harvest the resource in a sustainable fashion. The industry today is able to compete internationally without subsidies and in fact pays the government for the management costs of the fishery.
We have increasingly focused on unsustainable fishing practices and industry overcapacity in other countries. These are often supported by import barriers and massive levels of industry subsidies, which have created trading problems for New Zealand seafood exporters in overseas markets. As Argentina and New Zealand are both significant seafood exporters, this is an area where I believe that we can cooperate together in future.
Investment is as Important as Trade
My second theme concerns the fact in a globalising world economy, investment flows between nations are at least as important as trade. This is particularly the case between two economies with similar resource endowments such as New Zealand and Argentina. Many of the speakers today have emphasised the advantages of improved investment flows between our two countries, particularly in the area of joint ventures. Investment flows bring a two way advantage. They allow companies from one country to expand their operations and resource base in areas where they are internationally competitive. The other country, meanwhile, benefits from the injection of capital, skills and new technologies.
There is already a significant precedent for New Zealand in South America. Chile is not a large market for us in terms of exports but at around $7 billion, it is New Zealand?s second biggest destination for outward investment after Australia. Argentina is a market that is three times the size of Chile and can act as a gateway to all the countries that are members of Mercosur. Already, certain New Zealand companies have invested significant amounts in Argentina and I am sure there will be scope for more in future.
I would also urge our honoured guests from Argentina amongst us today to look seriously at New Zealand as an investment destination. We run an open economy with stable policy settings. We have enjoyed sustained growth levels for several years now, averaging 3 percent growth in GDP over the last 7 years, compared to less then 1% in the previous 15 years. There are many opportunities in New Zealand and it is easy to do business here.
The Need for Continued Reform
But we should not rest on our laurels. A third theme that I want to stress is that business contacts between our two countries in future will be facilitated by each of us keeping up our efforts to reduce business costs through regulatory reform and the streamlining of government activities.
It is a sad commentary on governments that despite recognition of the costs of excessive regulation on the economy, regulations that impinge on business continue to grow. While New Zealand has already embarked on a significant programme of deregulation and regulatory reform, it remains a fact that in the last ten years we have introduced 1600 pieces of new legislation and 3600 new regulations!
We need to confront this situation as a top priority to change incentives and to put disciplines on government.
The goal is not only to reduce regulation as far as sensible but to produce the highest quality government intervention. I would encourage you therefore, as business people, to identify the main areas in which regulation is hindering your activities, so that we can take a closer look.
These issues do not just face New Zealand but are apparent in many nations. I believe that those countries that respond most effectively to the challenge of reducing regulatory impediments will benefit most in a global economy. This is an area where both Argentina and New Zealand, with established track records and international recognition for regulatory reform, can show the way to the rest of the world.
There is a need for discussion of these issues in APEC and the WTO. I am sure that you too will be addressing these challenges as you expand the integration of South American economies through Mercosur and ALADI. It makes sense for us all to be comparing our experience so that we can increase our understanding of the issues and gain international acceptance of the underlying principles that provide for high quality regulatory reform.
In this context, New Zealand particularly values the CER/Mercosur dialogue, as I am sure does Australia. This complements what we are doing with our APEC and ASEAN partners.
In some ways the dialogue also mirrors the kinds of discussions that are taking place between the North Americans, and European on trade liberalisation and facilitation at present.
As we develop and deepen the trade facilitation agenda under CER/Mercosur, we are realising just how much we share in common. Perhaps in the future we could build on this co-operation to stimulate discussions in wider fora such as the WTO. This would usefully complement the work we are doing together in the Cairns Group on agricultural policy.
Let me conclude by saying how much we have enjoyed having you here for this significant visit. I am sure we will be working together more closely in future.