Russia & New Zealand: New APEC Partners

Moscow

Chairman Yuri Dmitriyevich Maslyukov; Members of the Committee; Ladies and Gentlemen.

It is a great honour for me - as the trade minister of a small and geographically isolated nation - to have been asked to meet with the economic policy committee of the legislature of one of the world's most important countries.

New Zealand and Russia were allies in the war against fascism. Every New Zealander knows of the extraordinary courage and sacrifice of the Russian people during that most terrible of all wars. Without the Russian people's historically unparalleled sacrifice, victory over fascism would not have been achieved.

Today, New Zealand regards our relationship with Russia as very important, both politically and economically. In terms of trade, you are our fastest growing export market. Already, you are our 17th biggest trading partner. Our most important export industry right now - in terms of receipts - is our dairy industry. And already Russia has overtaken Japan as our largest market for dairy products by volume. You take more of our butter than any country, including our traditional market in the United Kingdom. We're keen to trade with you more. And we believe that your joining of APEC is an important catalyst for our relationship to grow still further.

One month after Russia formally joins APEC, New Zealand takes over the chair of the group. We're very much looking forward to hosting your ministers and your president in 1999. New Zealand is very supportive of the APEC process. We like to lead not follow APEC developments. APEC has been described as the biggest trade policy initiative in history. With your joining, that will indeed be so.

The APEC process is an entirely new approach to international economic cooperation. It's driven in many ways by the business sector. The APEC Business Advisory Council, or ABAC, is working constructively on identifying what business believes are the priorities. The Chair of ABAC will report to APEC trade ministers in Kuching next month. From there, APEC sets strategic goals for member economies. The main goal is for free trade by developed countries by 2010 and for developing countries by 2020. In addition to that, certain sectors are identified for early liberalisation. In Kuching, we'll be working on nine sectors with a further six to be considered for agreement later in the year.

The goal setting is not limited to trade and investment policy. The Osaka Action Agenda covers key areas of domestic policy such as competition policy, deregulation, standards and conformance, and intellectual property rights. APEC recognises that such policies which may have been seen as purely domestic in the past, have market access implications.

APEC is also working to make it easier and cheaper to trade and invest throughout the region, giving new entrants and consumers a better deal. We are working to reduce business costs in areas such as transportation and customs, particularly for the benefit of smaller and medium sized businesses.

Once APEC settles on a goal, it is for individual members to find the best way to meet it. It has been called "concerted unilateralism". And that system is working. APEC economies are by and large meeting the regional goals. Changes have been remarkably rapid and are starting to be reflected in Individual Action Plans. What's more, liberalisation amongst APEC economies also benefits non-member economies. As APEC economies open up to one another, they are also opening up to the rest of the world.

It is for that reason that developments at APEC often act as a catalyst for developments at the WTO, which New Zealand would like to see Russia join as soon as possible. When Russia does join the WTO, it is likely that all the great economies will then be part of the multilateral trading system. We are committed to working with you on your early accession which we believe is not out of reach.

Russia is relatively free of many of the anomalies which New Zealand has had to challenge in other recent accessions. In fact, I'd go further. Some of your significant economic reforms in recent years are useful examples for other WTO members such as the European Union countries. New Zealand is active in the Russia Working Party. You'll find there are issues on which we take a very strong line, particularly agriculture.

Our view - shared by other WTO members - is that such are the benefits of WTO membership, it is important that new members be required to fully implement existing WTO agreements. Reforming of an economy, and opening it to the world, can be difficult in the short term, as you well know. Meeting APEC goals and WTO rules may present you with some short term difficulties.

It is not for me to advise you on the speed with which you may choose to make the necessary changes. But it may be useful for me to describe the New Zealand experience. Prior to 1984, the New Zealand economy was tightly regulated and controlled by the state. We had high tariffs and import licensing. The Government owned and operated many of our productive assets.

By 1984, that degree of central planning had clearly failed. Over a period of 30 years, our growth had been so low that we had slipped from having one of the highest standards of living in the OECD to one of the lowest. Unemployment was high. Our debt was growing and becoming unsustainable. There was a "brain-drain" out of the country.

We were forced to take action. Both the main political parties in New Zealand contributed to establishing a better economic framework. We introduced macroeconomic stability through maintaining low inflation, controlling government spending and increasing the transparency of government decision making. We redefined the role of government. We agreed the primary role of government was not to be in business itself but to provide a light regulatory framework for competitive, private business activity to thrive. And we reformed different sectors of our economy. We introduced greater competition in all sectors, including competition from overseas. We unilaterally lowered tariffs and other import controls and made it easier for foreigners to invest in New Zealand.

Our tariff reduction programme continues, and not just because of the 2010 APEC goal. We believe we benefit first from removing our tariffs. Already, we have no tariff quotas at all, and over 90% of the value of our imports already enter New Zealand duty-free. Our average tariff rate will be approximately 3% in the year 2000, with no tariff higher than 15%. Next decade, all remaining tariffs will go to zero and we also have no other non-tariff barriers for protectionist purposes.

Our decade of macroeconomic reform and our continuing microeconomic reform were not always easy. The ministers who led the reforms became extremely unpopular. There was short term pain. For example, our total abolition of all farming subsidies meant that some of our farmers had to stop farming - but even then it was less than 1%. Unemployment rose in the short term as inefficient businesses went out of business.

But the returns have come through. We are now experiencing economic growth at the bottom of the business cycle of 2.3%. Our average economic growth has been around 3.5% since 1991. Over 200,000 new jobs have been created this decade in a country with a population significantly smaller than that of St Petersburg. We have rising living standards as we climb our way back from near the bottom of the OECD to where we believe we should be, closer to the top. What we have learnt is that there are no prizes for being at the back of the pack. Reform for us has worked best when we have moved fast and ahead of other countries. The transitional pain is shorter. The returns come faster.

Russia has a very different history and a very different economy from that of New Zealand. The lessons you have learnt from your experiences will undoubtedly be somewhat different. Russia is a major world power. It is for you to decide how best and exactly when to further integrate your economy with the rest of the world.

But from New Zealand's perspective, we are delighted that you have decided to join APEC and be part of our trade liberalisation agenda. We want you to be part of the WTO sooner rather than later. We look forward to working with you in APEC and the WTO, and to seeing many of you in Auckland in 1999.

It is a privilege to have had this opportunity to meet with you. I look forward to hearing how you see Russia moving forward into the 21st Century.