New Zealand & Thailand: APEC Partners

  • Dr Lockwood Smith
Foreign Affairs and Trade

Breakfast Meeting
Thai/New Zealand Chamber of Commerce

The Thai/New Zealand Chamber of Commerce is the organisation behind the substance of the relationship between our two APEC economies. I'm pleased it has proven possible for me to meet with you here in Bangkok this morning.

Thailand is an important market for New Zealand - our 17th largest in global terms. We're also an economy that is open to Thailand, as we are to all trading partners. While the Asian Economic Crisis has meant our exports to Thailand have declined, your exports to New Zealand have increased by a third.

We're perfectly happy to see your exports to New Zealand continue to grow, taking advantage of the lower baht, because it shows you can produce goods that New Zealanders value, at the right price. We're a fully open economy, because we believe New Zealanders benefit from that.

Of course, we would like our exports to Thailand to fully recover too - and grow. We are already seeing a strengthening of education linkages, with our universities and polytechnics developing linkages with their counterparts throughout ASEAN. New visa regulations for foreign students will make it easier for Thai students to study in New Zealand. As a former Minister of Education, I can assure you that our schools, universities and polytechnics are world class.

There are other areas where we see particular potential, such as food processing, forestry, pulp and paper, environmental engineering and telecommunications. In all these areas, and others, New Zealand offers

the finest expertise and knowledge in the world. We look forward to working with Thailand.

The speed with which those linkages grow will depend on the speed with which Thailand and the region recovers from the current difficulties.

With the Asian Economic Crisis, the people of New Zealand have a great deal of sympathy with the people of Thailand and elsewhere in the region. The contagion effects of the crisis mean that we have experienced a small recession in the first two quarters of this year, which has caused some hardship. We know the effects have been far, far worse here. We have provided some assistance with public sector reform.

But we also admire how Thailand is courageously tackling the crisis, while also maintaining your commitment to further opening markets. We look forward to being able to make progress on access issues of particular interest to New Zealand, such as kiwifruit, skim milk powder and cheese.

New Zealand holds the view strongly that trade benefits people, and the more trade the better. In the last decade, countries which have had open economies have achieved double the annual growth rates of others.

The world has moved towards more and more trade. Since 1950, world trade volumes have increased by 16 times, while production has increased by only six times. Just between 1994 and 1997, trade volumes grew by an average of 9% a year.

Here in the Asia Pacific we experienced a quarter century which has generally been peaceful. It's led to huge growth in regional consultation, cooperation and trade. It has meant that more people have risen out of poverty in a shorter period and on a greater scale than at any other place or time in human history.

We in New Zealand believe strongly that should and must continue. It is why we are such strong proponents of further liberalisation. We believe it is a vital component to achieve recovery from the current crisis. We're pleased that Thailand remains committed to reform. We're pleased that, in general, all Asia Pacific economies are committed to reform.

Over the weekend in Kuala Lumpur, APEC Trade Ministers from sixteen economies reached agreement on early voluntary liberalisation of trade in nine sectors. The sixteen economies include Thailand and New Zealand, and also the world's two biggest economies, the US and Japan.

Among the nine sectors are two of vital importance to New Zealand, fish and forest products. The other seven sectors are chemicals, energy, environmental goods and services, gems and jewellery, medical equipment, toys and a telecommunications mutual recognition agreement. It was a balanced package designed to provide immediate benefits to each APEC economy.

In each of the sectors, tariff end-rates and end-dates were specified for every product line by Trade Ministers earlier this year.

What was agreed was that APEC economies may immediately implement the tariff components of a voluntary basis. There will be implementation of facilitation, ECOTECH and other initiatives in all nine sectors.

Even more significantly, it was agreed that a WTO process will be initiated immediately on the basis of the framework established in Kuching. All participating economies - including the economic superpowers, the US and Japan - have agreed to work constructively to conclude the agreement in all nine sectors in 1999 at the WTO.

It means that we now have agreement at APEC to achieve rules-based liberalisation in those nine sectors next year. It means that WTO members that are not members of APEC will have the option of joining up.

I am confident that positive statement of support for trade liberalisation in the region will contribute to restoring business confidence. Economies such as Thailand - and also Indonesia, Korea and Malaysia - facing tremendous difficulties, deserve commendation for their courage and commitment in signing up.

Obviously, I believe the deal will help create growth and jobs in New Zealand's fisheries and forestry sectors. It will mean we will have much better access to some of our most important markets for some of our most important products. But, just as importantly to New Zealand and the region, I believe it will be good for all participating economies. It will help to get growth back into the region. I don 't base that opinion on theory. I base it on New Zealand's experience over the last 14 years.

I don't want to suggest that what New Zealand has done can be directly translated to any other economy, including Thailand. Thailand's destiny is for Thailand to choose. But I do believe an understanding of New Zealand's experience could be useful as a case study as you plan the next phase of your economic comeback.

Back in 1984, New Zealand's economy was a basket-case. We subsidised our main industry of agriculture. We had strict capital controls. We protected our manufacturing sector, with import controls. Unions dominated our labour market. Big, incompetent Government dominated the economy. We had extraordinarily high levels of direct taxation, with a top rate of 66%. Despite that, we had budget deficits of up to 8% of GDP. Inflation was controlled only because the Government made price and wage increases illegal. None of this was sustainable. Our living standards were plunging down the OECD league tables.

In 1984, an incoming Labour Government began the process of turning that around. In 1990, the incoming National Government - of which I was a part - continued with the programme and refined it. Combined, our two main political parties have contributed to turning New Zealand around.

We abolished all our agricultural subsidies in one year. We free floated our dollar. We lifted almost all our import controls. We now have a flexible labour market, based on cooperation between employers and employees under simple contract law. State assets were privatised, including our airline and our rail and telecommunications industries. We controlled Government spending, cut taxes, and our debt has fallen from over half of GDP to around a quarter. We have no net foreign public debt. Inflation in our economy is controlled by the Governor of our independent Reserve Bank being fired if it goes above 3%.

The transition was not easy. When we abolished agriculture subsidies, around 1% of our farmers had to stop farming. Unemployment rose for a time, as inefficient, import substitution industries found they couldn't compete. But the returns have come. Around a quarter of a million new jobs have been created this decade in an economy with a population of fewer than 4 million. Our living standards have risen with take home pay packets in our economy increasing faster than prices. We're now able to compete with the rest of the world and succeed.

What's more, further liberalisation is continuing. Already, 95% of imports enter New Zealand under a zero tariff. The tariffs on the remaining 5% are also very low. By 2006, we will have abolished all our tariffs. One hundred percent of imports from Thailand or anywhere else will be entirely tariff-free.

At the same time, we are making it easier for businesspeople from overseas to obtain long-term multiple-entry business visas. We've made it easier for such people to later obtain permanent residence. And we've made it easier for overseas companies to relocate in New Zealand and bring employees with them. We encourage investment from overseas.

Domestically, we've reformed our electricity industry, and already consumer prices have started to fall significantly. We're preparing to sell our second largest electricity generator. We're seeking a simpler system of paying for our roading network. Our key piece of environmental legislation will be reformed to speed up economic development, while still protecting our environment.

What we are aiming to be is the most efficient and open economy in the world, because we believe that will lead to higher and higher living standards for New Zealanders.

Each Asia Pacific economy will want to respond to the Asian Economic Crisis differently. What New Zealand provides is a case study of how one Asia Pacific economy responded to our economic crisis in 1984. We may provide some ideas of what to do, and what not to do - for example, we got some of the phasing of our reforms wrong.

Next year, New Zealand will chair APEC. It will be our biggest trade and economic policy challenge ever. We're determined to use our year in the chair constructively to help the process of putting the region back on a growth path.

We'll be developing initiatives around three key themes:

trade and investment liberalisation and facilitation
strengthening markets, and
broadening support for APEC
We look forward to working with Thailand through our year in the APEC chair, to progress this vital work. And we look forward to working with you at the WTO, both on the APEC deal and on a new Round.

New Zealand admires Thailand's courage at this difficult time, as you continue to reform and liberalise your economy. We have every confidence you will recover and come back stronger than before. We maintain our strong belief that the 21st Century will be the Asia Pacific Century.