The Importance of North AmericaInternational Trade
New Zealand Canada Business Association
My apologies for not having been able to make this breakfast last Friday. When it comes to efficiency, parliament still has a lot to learn from the private sector. The entire parliament was stuck in the House passing the electricity reform legislation. The upside is that that reform will lead to efficiencies in the economy as the price of power falls.
Last September, I entitled my speech to your association The Importance of North America. With the Asian Crisis making our performance in other markets even more important, I've done so again this year.
Over all, New Zealand's export performance this year has been better than could have been expected. Despite the Asian Crisis, the latest trade statistics showed an increase in exports of 3%. The private sector can take credit for that. But I would like to see our exports to Canada increase from the current level of only $300 million last year. We certainly have the necessary contacts in Canada, as our much stronger investment relationship shows.
The active cooperation between the New Zealand High Commission in Ottawa and the Canada/New Zealand Business Association is positive. I want to see it continue. With agriculture proving to be an almost impossible sticking point in any talk of a free trade agreement with Canada, it is also good to see the business sector taking the initiative in improving our links with Canada. For as long as the Canadians are unable to move on agriculture, the prospect of a bilateral free trade agreement is, frankly, nil.
The Asian Crisis also makes our relationship with the United States even more important. It is our third largest export destination and one of our two biggest sources of investment. The US is a good friend of New Zealand at international forums such as APEC and the WTO.
Right now, parallel importing is an issue between our two countries. Other countries such as Singapore allow parallel importing. The EU allows it amongst member states. The American concern is for intellectual property to be respected. They don't want fake or stolen Nike shoes coming into New Zealand to compete with the real thing. Nor do we. Fines for importing pirated goods were tripled at the same time as the parallel importing decision was implemented. What we do want, however, is that when New Zealanders buy Nike shoes or other imported products - including many of your business inputs - they pay the world price, not an artificially high New Zealand price. Our stand is fully consistent with our international obligations and our commitment to freeing up global trade.
The US administration has been keen to work on a free trade deal with New Zealand. But the question of fast track negotiating authority, to allow negotiations to go ahead, remains. An alliance of union-backed Democrats and anti-abortionist Republicans held it up last year. Nevertheless, the Speaker of the House has recently said that he will put the issue to a vote this September. I'm not going to speculate from this distance on his chances of success. Who knows what political calculations are going on? And despite the prospect of a vote, my advice to you would be very strongly not to base any business decisions on the immediate prospect of a free trade agreement. If and when it is possible for a free trade deal to be negotiated, then that will be the time to count the chickens.
More immediate prospects of better access to Canada and North America will come through APEC and the WTO. Impressive progress is being made. When I spoke to you last year, I would have not have anticipated that in less than a year we would have achieved agreement at APEC to work on free trade for 15 sectors, including fish and forest products and food. But in Vancouver last year, that was what was achieved.
The first nine of the 15 sectors are being worked on and finalised this year. As well as forest and fish products, they are the energy sector, toys, gems and jewellery, chemicals, medical equipment and instruments, telecommunications, and environmental goods and services. The idea was to get a balanced package that each APEC economy would see immediate benefits from.
Getting the initial agreement in Vancouver was difficult enough. When the New Zealand team and I arrived in Canada, I was not optimistic that we would achieve a credible deal. We were looking at a much smaller package which would hardly have captured the imagination of the business sector of the region. Economies like New Zealand, Canada and the United States worked hard to ensure that the much more comprehensive package which ensured APEC's credibility.
The details of the first nine sectors were the main focus of last month's APEC trade ministers' meeting in Kuching. And, again, because of the Asian Crisis, and having visited Japan the week before, I feared we may not make the progress necessary for APEC's credibility. The Japanese delegation - with an election this Sunday - was unable to fully commit to the package. But Korea and China were prepared to sign up. Economies like Thailand and Indonesia - with their tremendous problems right now - showed enormous vision and courage, and signed up. At the end of the meeting, the deal was as good as finalised, with only the details of the flexibilities allowed still to be decided. When we next meet in November this year, I'm confident that the deal will be fully finalised, and that Japan - with its election long gone - will be fully involved. That will mean free trade in nine sectors around the Pacific Rim - trade which is worth $3 trillion a year.
What that will also mean is that when New Zealand takes the chair of APEC next year, we can focus on the remaining six sectors: natural and synthetic rubber, fertilisers, automobiles, civil aircraft, oilseeds and oilseed products, and the all important food. Next year's APEC meetings are going to impose extraordinary disruption on this city. The presence of the presidents of the United States, Russia and China does not help with everyday life in a city. And they'll be joined by the leaders of all other APEC economies. But if we can use our year in the chair to progress the liberalisation of trade in food more than would be possible otherwise, that disruption will be worth it - ten times over.
In our strategy to make progress, the role of the private sector will be critical. One of the beauties of APEC is that it is private sector driven. We politicians don't want to waste our time and energy on issues which are not important to business. We want to be working on your priorities. In Vancouver, it was the private sector - represented by the APEC Business Advisory Council - which gave the politicians the push to include all 15 sectors in the liberalisation package.
It is important that the private sector continues to be involved in that way. For me to be telling a trade minister from another economy that they should liberalise a particular sector may have some effect. For me to be backed up by that minister's own private sector is enormously powerful. Any work the New Zealand private sector can do with your colleagues around APEC is tremendously valuable to the process.
That help is especially important given the Asian Crisis. Politicians tend to act in one of two ways when faced with external difficulties like the Asian Crisis. They either look inwards and start to be all protectionist. Or they recognise that trade and investment are the engines of growth, and look outwards.
In New Zealand - uninformed media speculation aside - I'm confident we are taking the right path. We may well suffer a small recession. But proceeding with the tax cuts will help encourage economic activity. The $300 million in savings will protect the surplus and hold back interest rates. We remain committed to reducing the cost of doing business in New Zealand through microeconomic reform in areas like roading, electricity, ACC, compliance costs, producer boards and the Resource Management Act.
It is uncertain whether all other Asian governments will respond to the extent necessary, but there are positive signs. For economies like Thailand and Indonesia to have been prepared to sign up to the APEC deal, despite the extent of their problems, demonstrates that they are committed to liberalisation of their economies. Korea is committed to reform. In Japan, the general population does not have the same sense of crisis, making the politics of reform more difficult. But many of the key decision-makers are aware of the need for reform. I'm confident they will commit to it, particularly once this weekend's election is out of the way.
The only upside to the Asian Crisis from an exporters' point of view has been its contribution to the recent fall in the dollar. Our dollar tends to follow the yen, given the extent of our exports to Japan, and also Australia - Japan being Australia's biggest export destination. The fact is that our dollar has been over-valued for some time, given our current account deficit. That it has fallen to correct that problem is neither surprising nor unwelcome. It should spur an export-led recovery. The fall against the US and Canadian dollars can only help you in your efforts to increase your exports.
The New Zealand Government is determined to help you. Not with old fashioned assistance that you neither want nor need. But by maintaining our current economic framework, undertaking comprehensive microeconomic reform, and by negotiating better access for your products.
I look forward to hearing your ideas this morning, and to working with you for the next year and a half and beyond.