National's Strategy For Exporters

  • Dr Lockwood Smith
International Trade

In the last 18 months, you've probably faced the most difficult international trading environment ever encountered by the modern New Zealand export sector. The Asian Economic Crisis has been described as the biggest world trading shock in 50 years.

It occurred in a region which took over 1/3rd of our exports, and supplied 22% of our tourists and over 10% of our external investment.

I'm under no illusions about how difficult the last 18 months have been for many of our exporters, big and small.

The good news is we're putting the Asian Economic Crisis behind us and we're growing again.

Business confidence is at a four year high.

Inflation and interest rates remain at thirty-year lows.

The ANZ tells us that the number of job advertisements in January was up over 2% compared with December.

The Government's books are back in the black.

It's interesting to compare the relative speed of our recovery to those from previous shocks.

After the Oil Shocks of the 1970s, we entered enter a cycle of deficit and debt from which we took 17 years to recover.

After the 1987 sharemarket crash, unemployment rose for four long years.

In contrast, we've bounced back from the Asian Economic Crisis relatively smoothly and in about a year.

The credit for that rests largely with our export sector.

In 1998, the value of our exports to Korea was down a massive 26%.

To Malaysia, we were down 23%.

The Philippines, down 18%; Thailand 11% and Russia 30%.

Indonesia no longer appears as one of our top 20 export destinations.

But to the United States, the value of our exports was up nearly a third.

To Europe, we were up 16%.

To Mexico, we climbed 31% and, even in Asia, to China we were up 11%. v Overall, the value of our exports was up 5% for the 12 months to December - an outstanding performance under the circumstances.

Michael Cullen has dismissed your performance, putting it all down to the change in the value of the dollar.

That has had an impact, of course.

It's the very reason we have a floating currency: to ensure it adjusts automatically as the global trading environment changes.

But I think it's pretty mean-spirited not to acknowledge the efforts of exporters in responding to the crisis and taking advantage of better opportunities in different markets.

I wish that just occasionally Michael Cullen would say something positive about our country.

It's my privilege this morning to kick off your political breakfast series.

I will outline what the National Party has to offer New Zealand and the export sector.

I can offer three commitments this morning:

mmitment to working to open up world markets. A commitment to maintaining the current economic framework. A commitment to work with the business sector to remove economic roadblocks which appear to be limiting our growth potential. These three broad commitments will help the export sector to continue driving our economic recovery.

You'll note they are not about scratching itches.

I don't believe in that kind of politics.

Increasingly, though, it's the Labour Party's game.

More and more, Labour's policies appear to be poll-driven, rather than based on any coherent set of principles.

It'll tell businesspeople what its research says is what businesspeople want to hear.

But you can guarantee it's also telling the unions what the unions want to hear.

You may want to bear that in mind over the month of your breakfast series.

By contrast, National's message is consistent.

We are committed to delivering security and prosperity.

An economic framework that allows our export sector to continue driving New Zealand's growth.

Opening world markets is central to this approach.

Open markets deliver improved economic returns. They deliver jobs and more wealth in New Zealand.

Let me give you one example.

Recent research carried out for the APEC Business Advisory Group suggests that liberalisation in the food sector alone could deliver gains of $100 billion dollars every year across the APEC region.

Open markets matter.

I've spoken many times about the unique convergence of events to progress trade liberalisation this year.

The possibility of a free trade agreement with the United States. New Zealand chairing APEC. And the launch of the WTO negotiations to liberalise agricultural trade.

Never before have we seen three such promising opportunities converge in just one year. It won't happen again.

I know there is a degree of cynicism in the business community about the prospect of a free trade agreement with the United States.

Some exporters point to a Washington that has been preoccupied with an impeachment trial.

Others point out that the last time President Clinton sought the necessary "fast-track" negotiating authority from Congress, not even billions of dollars of pork-barrelling delivered it.

And even were these matters sorted out, others ask, why on earth would the United States be interested in a free trade agreement with an economy as tiny as New Zealand?

And aren't the Americans trying to stop our lamb imports anyway?

I agree that if a free trade agreement were to be concluded with the US it would be an extraordinary achievement.

It is a long-shot.

But the last time the political conditions were right, President Clinton moved remarkably quickly sorting out the US's WTO legislation and the NAFTA Agreement.

He is a committed free-trader. I can assure you no one in his administration has had anything to do thus far with the lamb issue.

The US is hardly interested in the economic benefits of an FTA with New Zealand.

But it is interested in establishing a precedent for a new-generation FTA.

That could then be used as a model for other bigger free trade developments.

With our open economy, we're an economy with which it would be relatively easy for the US to complete a new generation FTA.

It would offer so many benefits to New Zealand that the fact it is a long-shot does nothing to reduce my commitment to progressing it.

New Zealand is also exploring opportunities to involve other like-minded economies.

I hope the concept develops to a point allowing us to make more information available later this year.

When it comes to APEC, our year in the chair gives us an opportunity to be at the heart of the most ambitious trade policy initiative in history.

The Asian Economic Crisis obviously slowed its progress last year.

But it maintained its general direction, and that was important.

APEC has shown it can make progress when times are not as good as they have been through most of its brief history.

This year we want to progress the forestry and fisheries deal in the World Trade Organisation, to make it a binding agreement with even broader participation than just APEC.

We will want to progress early liberalisation of the food sector and the proposed APEC Food System.

We will be wanting to progress work on harmonising standards and reducing paperwork associated with regional business and travel.

There is work to modernise Customs procedures and complete principles for free and fair government procurement.

And this year we will be assessing overall progress towards the goals of free and open trade and investment by 2010 for developed economies and 2020 for developing economies.

The work in the food sector is particularly important because it would set us up well for the launch of the WTO agriculture negotiations.

These offer us our best ever opportunity to eliminate export subsidies and tariff quotas, and make deep cuts in tariffs.

The likelihood of the agriculture negotiations being broadened to become a full Round also offers us a major opportunity to improve market access for our manufacturing sector.

Our manufacturing sector, for example, faces enormous barriers when trying to export to the two most populous nations on earth, China and India.

As exporters, all round the world you face closed markets.

Even when markets are open, you can face tariff barriers and high export costs.

There are product standards which can vary enormously from one economy to the next.

These, and complex, inefficient or corrupt customs procedures, can make it difficult or impossible to access new markets, even if they are technically open.

The more you study it the more surprised you become about how well our exporters do.

Opening markets, reducing barriers and export costs, harmonising product standards and customs procedures: these offer extraordinary rewards to exporters.

The Government is committed to progressing all this work through 1999 and beyond.

When it comes to trade liberalisation objectives, I can't claim huge differences in approach between National and Labour for as long as Mike Moore retains control over his party's trade policy.

But Mike is of course seeking to become Director-General of the World Trade Organisation.

And he remains only one voice in a caucus of teachers and unionists.

They can probably accept intellectually that trade liberalisation is good for New Zealand, but it just doesn't feel right in the gut.

Already, we've seen Helen Clark aligning herself with fringe academics, professional protestors and student politicians in opposing APEC's trade liberalisation agenda.

Helen is bright enough to know that APEC offers huge benefits to New Zealand exporters, but it just doesn't fit into her world-view from her university days.

It does not bode well.

Nor does it bode well that the Labour Party continues to want to debate the economic framework which has served New Zealand so well this decade.

The Five Fundamentals - the Reserve Bank Act, the Employment Contracts Act, the Fiscal Responsibility Act, the low-rate, broad-base tax system, and opening our economy - have delivered economic growth this decade of 37%.

They have given exporters the flexibility you have needed to respond to the Asian Economic Crisis, and largely put it behind us.

National has no intention of changing what works.

As new Finance Minister Bill English has said, debates about the economic framework are now a little old-hat.

It is a proven performer and accepted by the up and coming generation as middle of the road.

I agree with that.

Only a mean spirit could be behind Michael Cullen's desire, for example, to give more power to unions and raise tax.

Why, in 1999, would you want to repeal the Employment Contracts Act?

Under that act, an average of 600 new jobs have been created every week.

Working days lost to strikes have fallen from 905,900 between 1987 and 1990 to just 147,500 today over an equivalent time period.

And why would you increase tax?

Our tax-take is high by international standards, and a disincentive to invest and grow.

Cutting tax - including company tax and the top tax rate - would help stimulate the economy and create jobs.

It find it cynical in the extreme for people to suggest that cutting these taxes would be good only for high-income earners.

Cutting the top income tax rate and the company tax rate would be good for everyone earning over $38,000 a year.

It would be good for the currently unemployed who would fill the new jobs that tax cuts create.

The Government will not increase any taxes and will cut tax when the time is right. v Michael Cullen, of course, says he would not increase company tax, only the top income tax rate. v But it is almost a fundamental principle of tax policy that the two should be the same to stop avoidance.

In any case, I ask again, why would you want to increase any taxes?

One answer is for the Labour Party's old-fashioned $100 million a year risky industry policy.

A policy of 'Corporate Welfare' to put New Zealand businesses on the dole.

It's a policy about getting politicians and bureaucrats to make decisions about what industries to support.

That means advantaging some industries over others.

And the businesses to be advantaged with your tax dollars will inevitably be the ones whose ventures are judged too risky by banks and private investors.

Should those ventures be a priority over, say, raising the nation's skill levels?

I don't believe so.

I don't believe New Zealand businesses need to go on the dole.

Economic debate needs to move on from all this.

The general economic framework should remain in place, but there are things the Government can do to improve our growth potential.

As I said, the economy has grown 37% this decade.

But we have also seen through the 1990s a fairly clear limit to our growth levels.

Basically, it appears our economy struggles to sustainably grow by more than around 3-4% a year.

There have been exceptions.

In the year to March 1994, we grew 6.2%, and 5.4% the following year.

But many now argue that those growth levels were unsustainable and led to inflationary pressure.

The Government's key task this year is to look at ways - beyond the obvious of maintaining the economic framework - by which we can achieve sustainable economic growth above that apparent 3-4% limit.

As Max Bradford has said, our thinking is deliberately embryonic.

We need to consult with business extensively and are planning a nationwide roadshow for that purpose.

Our approach is based on the premise summed up by the World Bank: that the balance between knowledge and resources has shifted so that knowledge is now perhaps the more important driver of growth.

In the past, the more important resources were more fixed: physical resources often, such as minerals.

Even people were more tied to particular geographical areas than they are now. Transportation and communication were more difficult.

But, now, knowledge and skills are more important, and people with knowledge and skills can live and work anywhere in the world.

People can take today's important resources - their knowledge and skills, and their money - wherever they like.

It represents a challenge to New Zealand.

We need to develop knowledge, skills and innovation here in New Zealand, and we need to encourage them to stay here, or come to New Zealand.

The Government has therefore developed a five-point plan to respond:

ing New Zealander's skills and New Zealand's intellectual knowledge base, and leveraging off the success of winners Better focusing and directing the Government's efforts in R&D Improving access to capital, and especially international finance Ensuring regulations and laws support, and not frustrate, innovation, and Actively promoting success and helping build a culture supportive of innovation and enterprise. None of these are about hand-outs to businesses. They are principles on which to base practical, common sense initiatives to help New Zealand grow faster in the future.

I'll give you a taste of the sorts of initiatives that we believe will help achieve our goals.

To help lift the knowledge base of New Zealand, for example, we've reviewed tertiary education to make it more responsive to wider needs.

To attract additional expertise, new business-focused immigration policies were implemented last year.

At the small business level, we've modified our assistance programme away from being a grants scheme towards helping develop the management and financial skills of small and medium sized businesses.

We'll be examining how the concept of "industry clustering" can lift the performance of knowledge-based sectors with high growth potential.

The Government will also look at how better to align the $600 million the taxpayer spends on research, science and technology each year to the needs of knowledge-based businesses.

To encourage venture capital to support small and medium sized business development, we're exploring a Swedish "innovation sharemarket" concept.

We are developing a "New Zealand Inc" prospectus to attract investment to New Zealand, along with other initiatives.

Our work on laws and regulations is to be redoubled, to eliminate those getting in the way of growth.

The Ministry of Commerce advises that 20% of its regulations are redundant yet, presumably, some of you still have to comply with them.

We have therefore asked departments to review all the regulations they administer from scratch.

I stress again the Government's thinking is deliberately embryonic.

We need the input of business - small and medium businesses in particular - to develop our ideas further.

I urge you to get involved in the roadshow to be announced next month.

I urge you to be part of developing practical, common sense strategies so that New Zealand can achieve even higher levels of economic and job growth next decade than we've achieved through the 1990s.