Opening of Apec Business Advisory Council, Auckland New Zealand
The need to rebuild a public consensus for trade
Thank you to ABAC for the invitation to speak today.
(Welcome to those who have travelled to the meeting and thanks for the words of introduction.)
I have just come from a meeting with Auckland Mayor Phil Goff who started the Trans-Pacific Partnership free trade talks and who spoke to a number of you last night.
He and I are trying to bring about the hosting of the next America’s Cup yacht race that New Zealand won last year and which, if all goes well, will be held in New Zealand in a couple of years’ time.
There’s some money to be spent and infrastructure to be built before that can happen.
I’m really pleased to have this opportunity to reflect on the current state of regional and global trade, and give you a flavour of what the new Labour-led Government’s trying to achieve; both prioritising trade and economic growth but also rebuilding a public consensus, which has been eroding in New Zealand and in many other parts of the World in relation to trade and trade agreements.
The Government I am part of remains committed to maintaining this country as an open, outward-looking trading nation, with public support for the liberal settings not just around trade but also liberal societal settings that we’ve been really privileged to maintain for many, many decades.
Our trade record includes forming the single market Closer Economic relations (CER) with Australia and negotiating a ground-breaking trade agreement with China which was their first with the western world.
That was negotiated by the previous Labour Government and it has been good for both of us.
However, it is no secret that we have also moved to push back on some aspects of the soon-to-be signed CPTPP – notably the ISDS provisions.
In that regard the Prime Minister has acknowledged that the deal to be inked in Chile in March is better than the original TPP in respect of ISDS clauses but from our perspective is not perfect.
And she made it clear at the recent Apec meeting in Da Nang that our trade negotiators had been told that they are to oppose ISDS clauses in future trade deals.
Our reasons for that are to garner public support for trade more generally. We know as a matter of fact ISDS clauses have never once been used by a New Zealand company overseas.
And in the face of that, we just can’t sell to the New Zealand public the idea that a multinational corporation investing in New Zealand needs greater rights to sue the Government through an ISDS tribunal rather than through New Zealand courts or through government to government enforcement of trade agreements.
While we welcome the benefits of CPTPP – and they are substantial for us, particularly in our trading relationship with Japan – and look for other opportunities for free trade deals, we are saying to the public that we need to recognise that trade deals are not the be-all and end-all.
Nor are they reason to sit back and feel the work of government has been done in relation to trade issues.
That’s evident in New Zealand given that our exports as a percentage of GDP have been decreasing despite some pretty good trade agreements.
If you want to weight your economy towards improved productivity, which drives the development of new products and services, you've got to direct more of your precious investment capital to those investment classes and the people will follow.
We as a country have a challenge, in that we over-invest in some land-based asset sectors.
The paradox we face is that like others around the Pacific Rim we have real challenges of declining home ownership rates and exploding housing costs.
The New Zealand Government is determined to address these.
Which is why, in parallel with our trade measures, we have taken the move to ban foreign buyers of existing residential homes, as well as tightening some other rules around property speculation.
We have carried the nation in rebuilding support for trade at the same time as expressing a view that we believe the market for existing homes ought to be for those who live in New Zealand and live in the homes.
These measures should be seen in a wider context, and one that was clearly shared by many of the other government and businesses leaders I met at the Davos World Economic Forum last week.
I believe strongly that if modern societies are to forestall public concerns about inequality, and lean against the sentiment that leads to rising opposition to trade and support for raising trade barriers, then we have got to both recognise and address these concerns.
There are many who feel left out by greater globalisation. They may confuse issues of technological change and they are forces that can’t be stopped.
But nevertheless they’re feeling left out by globalisation. They are worried by the concentration of wealth, and they feel the system’s stacked in favour of the super-wealthy.
And they’re right.
Renowned French Economist Thomas Piketty and others have shown that wealth is concentrated increasingly in the hands of the few.
It’s happening in New Zealand too.
The fruits of economic growth are being harvested disproportionately by capital as opposed to those who earn their living through labour.
At Apec last year the secretariat, responding to demands for a more inclusive growth model, presented evidence of the declining share of GDP going to labour compared to capital across developed and developing countries for the 10 years before the Global Financial Crisis and the 10 years post-GFC.
This inequality is not just a question of equity. It is also suffocating growth around the world.
According to Jonathan Ostry, the IMF’s Deputy Director of Research, “there is a direct economic cost to rising inequality – it leads to lower and less durable growth.”
As a government we don’t like these increasing extremes of wealth, nor their debilitating drag on the economy.
As Piketty says: “It’s time to change the political discourse on globalization: trade is a good thing, but fair and sustainable development also demands public services, infrastructure, health and education systems. In turn, these themselves demand fair taxation systems.”
Allied to this recalibration of trade, the new government is also looking for “gold standard” deals, with environmental and labour protections, such as we have in CPTPP, alongside lower tariffs and addressing non-tariff barriers.
Prime Minister Jacinda Ardern has identified climate change as the top challenge of this generation. That view colours our approach to trade and investment.
But to return to the point I made at the start, there is no doubt that fair free trade and economic growth have benefitted many.
Millions of people have been pulled out of crippling poverty in the Asia Pacific region because of the work that APEC and other organisations have been doing.
For the first time in history, New Zealand’s two-way trade with APEC reached over $100 billion in the year to last September.
I hold the Ministerial portfolios for the Environment, Trade and Export Growth, Economic Development, and Associate Finance, and my aim is to bring together these strands together so we have an integrated view of growth, trade, sustainability and shared prosperity. I and the government believe we need that to create a fairer and more inclusive New Zealand.
That is how we approach trade.
Yes, we will strive for a progressive and inclusive trade agenda through high quality, ambitious FTAs and trade relationships.
But that means we will not only tackling those issues I have touched on but also trade issues relating to SMEs, women’s economic empowerment, the economic well-being of indigenous peoples, and regional economic development.
We are trying to show that the benefits of trade are touching all parts of society.
The New Zealand Government’s vision is one of shared prosperity for all; an economy that serves the people, where everyone participates in the economy one way or another, and everyone has a stake in it.
Through that we will restore support for trade, and I believe we have been succeeding in our short time in Government.
That also helps preserve public support for our outward-looking democracy – which in a virtuous turn of the circle will lift support for trade as well as for those other liberal settings we wish to maintain.
There are challenges to those in other parts of the world that we are keen to avoid.
There are questions about how our regional and multilateral economic organisations can evolve to address these current and future challenges.
But it’s important that we not hide from these hard conversations, whether they are with our own communities or with other economies.
You will all be grappling in your own economies with many of the challenges I have highlighted today.
I look forward to hearing about the outcomes of your discussions.