Gateway to America: NZ's perspective

Thank you for your invitation to give the opening address this morning.

I would like to congratulate the organisers of the Gateway to America Summit and welcome the opportunity it offers to explore ways to strengthen the business and trading relationships between our two countries.

My comments today focus on the importance of, and opportunities in, the United States market. I also want to examine what New Zealand's approach has been to a Free Trade Agreement with the United States.

The US has by far the largest, most diverse and sophisticated economy in the world.

Its importance to New Zealand is obvious. The US is our second largest market after Australia with exports of goods worth $4.4 billion last year. That is almost 15 per cent of our total exports. And, despite our strong dollar, exports grew by seven per cent last year. The US is the fastest growing of our top three markets.

But the untapped potential is still huge. Our exports to the US, while large from our perspective, provide less than half a per cent of the US's imports.

In 2003, the US bought 17 per cent of the world’s exports. This is the same as the sum of goods purchased by China, France and the UK combined.

The US has generally low trade barriers, although we’d obviously be keen to see greater access for some of our agricultural products, where quotas and high tariffs still exist.

The US is a wealthy country. Per capita GDP is around $US40,000, the second highest globally. With only four per cent of the world’s population, the US accounts for 25 per cent of global GDP. Americans consume, for example, almost one in every five bottles of the world’s wine. They use almost a third of the world’s paper. And they eat 380 semi-truck loads of onions a day!

In investment too, the US is a leader in the global economy. The US invests an amount equivalent to one and a half times the size of New Zealand's economy each year.

In the first three months of this year alone, United States venture capitalists invested over $US4.5 billion in almost 700 companies.

Also supporting the US’s leading edge in the world economy is a huge amount of research and development. Almost three per cent of gross domestic expenditure goes on research and development in the United States.

The US plays a major role in global innovation and in best business practices.

Some states in the US compare internationally to the wealthiest countries. California, with a GDP of $US1.4 trillion, would rank as the fifth-largest economy in the world if it were a nation.

Last year we sent more dairy, beef and seafood to the US than to anywhere else.
It is probably less well known that the United States is the second largest purchaser of New Zealand non-agricultural goods overall, including textiles, clothing and footwear, machinery and aluminum. It is also among our top five markets for sheepmeat, forestry, fruit and vegetables.

The US is also a vital supplier of goods and services into New Zealand. In 2004 New Zealand imported NZ$3.9 billion worth of merchandise goods from the US.

Controls on the movement of people and goods caused by the threat of terrorism have also posed a challenge for New Zealand trade into the US. However, significant progress has been made in ensuring controls have not become an obstacle to trade.

New Zealand and US Customs agreed last December to a comprehensive security arrangement.

The two customs services have agreed to implement comprehensive supply chain security measures for shipments between the US and New Zealand. Both sides will work closely together to identify and intercept high-risk containers as early in the supply chain as possible. Any consignments identified for more detailed security scrutiny will be inspected using non-invasive x-ray or physical examination prior to loading.

This means security issues are reconciled prior to loading giving our exporters greater confidence that their goods will be cleared expeditiously at the US border.

The US is also an important source of investment. Almost 12 per cent of foreign direct investment in New Zealand in 2004 came from the United States. That was worth nearly $US7.5 billion to us.

US corporate investment in sectors including forestry, aviation, energy and food processing has given several US firms a direct stake in New Zealand, and contributed to closer business linkages. And US investments usually bring not just funding, but access to innovative business practice as well as access to larger marketing and distribution channels.

New Zealand and the United States share very similar perspectives on trade policy. We both want to open up markets, encourage international trade and accord the WTO multilateral negotiations the highest priority. We are close allies in this area.

Both countries are also using bilateral and regional free trade agreements to complement the ongoing Doha Development Agenda negotiations.

Given the importance of the US for New Zealand, it is evident why negotiating a Free Trade Agreement with the United States has been a long-term objective for New Zealand.

Obtaining trade promotion authority in 2001 made it easier for the US to increase the number of its FTA partners. The latest agreement, CAFTA, was recently approved by the House of Representatives, albeit with a slim two-vote majority.
The decision to negotiate rests with the US administration, but obviously it takes account of pressure for and against such an agreement in the business world, and the prospects of an agreement passing in Congress.

So where are we at?

In Washington in May I emphasised to the Administration that an FTA with the United States remains an important objective for New Zealand, and the support we had for it in the corporate world and in Congress.

Jim Sutton has given the same message to the new US Trade Representative Rob Portman, who as a congressman was a foundation member of the Friends of New Zealand Congressional Caucus. It's good to have a USTR who is known to be a friend of New Zealand.

The Congressional Caucus was initiated last year with one of its key objectives being a free trade agreement with New Zealand. It has a large membership – around 65 members.

Our Embassy in Washington has continued to be very active building congressional and business support and I know a number of you here today also work to build support and awareness of New Zealand’s FTA ambition.

I am confident a vote in the US Congress on a NZ-US FTA would not present the same difficulties as CAFTA.

We have strong support for the initiation of negotiations from Congressional representatives in both the House and Senate and from Republicans and Democrats.

These representatives would need to see a final agreement before committing to vote for it but many of the issues of sensitivity in previous agreements – like labour and sugar – would not be issues in an agreement with New Zealand. In fact the AFL-CIO has said it is supportive of an FTA with New Zealand.

An FTA would be good for the United States as well as New Zealand. The Institute of International Economics in Washington estimated US exports could rise by 25 per cent and virtually every US export sector would benefit.

Earlier this year the National Association of Manufacturers selected New Zealand as one of five partners it recommended to the Administration for FTA negotiations. It has pointed out that not only would the US have more to gain than NZ in terms of reduced tariffs, but that the US would also stand to gain from substitution possibilities for its manufactures if it had the comparative advantage of an FTA over current major suppliers to the New Zealand market, like the European Union.

It is no wonder then that we have strong support from US business, which is also active in pushing for negotiations. The US Chamber of Commerce President, Tom Donohue, has been a strong public advocate.

The government will continue to place a high priority on getting an FTA with the US and is working closely with business groups, particularly the NZ/US Council and the American Chamber of Commerce to this end.

New Zealand and the United States have much in common. We have a shared history and language. We have shared commitments to democratic institutions, and values in areas such as human rights and justice. We work closely with each other on information sharing and in the campaign against international terrorism. Our defence force personnel work alongside each other in Afghanistan.

But as sovereign and independent countries there are, unsurprisingly, areas of policy difference, for example on our nuclear free policy, Iraq and the International Criminal Court. The nuclear policy, in particular, remains for the US an area of what it terms "unfinished business."

Do these stand in the way of a Free Trade Agreement?

The consistent answer from the US is that such differences do not constitute insuperable obstacles. But obviously New Zealand's desire for a Free Trade Agreement creates the opportunity for the US to raise issues of concern to it in discussions surrounding free trade negotiations.

The US administration has never, however, made a formal linkage between our FTA aspirations and policy differences we may have.

Nor does the New Zealand government see one as a trade off against the other.

There are relatively few trade barriers between New Zealand and the US compared to many countries. There are also fewer bilateral trade irritants between us than in the past. We have for example no outstanding WTO cases and no anti-dumping or countervailing duties.

But clearly we would like to see tariffs further reduced, and more generous or no quotas.

The existence of the Australia/US FTA, because of our CER relationship, does create the imperative for New Zealand to gain similar access, to avoid the risk of trade or investment diversion.

To get an FTA launched the most difficult challenges we have to deal with include the perception of New Zealand as a small market that already has few barriers to entry, and sensitive product areas such as dairy.

To conclude, the Government attaches great importance to the economic relationship with the United States. We shall continue to support efforts to start negotiations on an FTA.

As I have outlined, we have taken initiatives to build greater linkages with the world’s most dynamic economy. We will continue to commit resources to developing these further.

Jim Sutton, Jim Anderton and Pete Hodgson regularly visit the US to give support to direct business links and to further develop people to people links that will lay the foundations for future partnerships.

But ultimately it is the actions of the many businesses in New Zealand and the United States that give the economic relationship its strength.

At today’s conference you will hear from many of the successful companies. I congratulate those who are doing well and encourage others to work to exploit the opportunities that exist.

I am sure that the summit today will highlight these opportunities. I wish you well for a productive conference and a successful outcome.