Speech to Auckland Trade and Economic Policy School
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Thank you for the opportunity to speak today. I want to recognise the hard work of the University of Auckland’s Public Policy Institute in putting on this event. Bringing together internationally recognised leaders and thinkers on trade and economic policy, with exporters, business leaders, diplomats, economists, academics, and government is essential to ensuring New Zealand’s trade policy is benefitting all New Zealanders and is constructively debated. I’m looking forward to a stimulating discussion here today.
The Government’s Priorities
I want to begin by emphasising the central role of trade in the Government’s wider work programme over this coming term.
We find ourselves at a time of unparalleled international crisis. The world faces the greatest public health emergency since the global flu pandemic a century ago. The ensuing economic shock represents the largest global downturn since the Great Depression.
In the face of this, the Prime Minister recently laid out our three overarching objectives as a Government:
- To keep New Zealanders safe from COVID-19
- To accelerate our economic recovery; and
- To lay the foundations for a better future.
Trade is crucial to our success in meeting all three of these objectives.
We are a global exporter, based at the bottom of the world. Imports and exports are our lifeblood – essential to our quality of life and our wellbeing.
Prior to the pandemic, about half of all New Zealand jobs came from the tradeable sector. Firms in the tradeable sector are 54% more productive; they employ more New Zealanders when they start exporting; and they pay more compared to firms in the non-tradeable sector.
The pandemic has also brought into stark relief just how essential imports are to New Zealand’s economic success and wellbeing. Imports of COVID-19 testing kits and PPE; and imports as inputs in to our own production processes are critical. New Zealand businesses operate as part of complex international supply chains, and the risk that a loss of air connectivity posed to our people, and our economy, during COVID-19 underscores how vital trade is to New Zealand.
But throughout this pandemic, our trade has held up remarkably well. Merchandise exports have largely kept pace with, or exceeded, last year’s, which is incredible during one of the biggest recessions the global economy has seen.
And just as we have seen exports lead us through the worst of this crisis, it’s my intention that exports will lead our recovery from it.
Our successful response to COVID-19 provides New Zealand with a unique opportunity to position ourselves globally as a safe and secure place to trade with, to invest in, and eventually, to visit again.
That’s why we’ve developed our Trade Recovery Strategy and our Trade for All Agenda, to seize this opportunity, accelerate New Zealand’s economic recovery, and lay the foundations for a better future.
But make no mistake, New Zealand faces a very challenging global trade landscape today. Even before the COVID-19 pandemic, New Zealand faced significant headwinds in global trade.
The World Trade Organisation, and its system of trade rules which puts small countries like ours on an even footing with global powers, has been under growing pressure on a number of fronts.
Protectionism and strategic competition, most notably between China and the US, has threatened the stability of international trade. The escalating tariff disputes between the US and China caused trade to fall sharply, with global ramifications.
As a small, export-oriented economy, it is hard to overstate the importance to New Zealand of a trading system underpinned by rules rather than economic influence – or an economic ‘might is right’ attitude.
The COVID-19 Pandemic
COVID-19 has unfortunately exacerbated many of the international challenges that we already faced.
COVID-19 responses around the globe have disappointingly been accompanied by a sharp increase in trade distortions - most commonly increases in subsidies. These make it harder for New Zealand to compete fairly.
We have seen the effect of these distortions in global trade flows. Initial estimates for the second quarter of 2020 - when the virus and lockdowns spread around the world - indicated a year‑on‑year drop of around 18.5% in the volume of global merchandise trade.
New Zealand GDP contracted by 2.0 percent in the June 2020 year. This was a much better economic performance than many expected back in February and March. Indeed, since June we’ve seen our economic performance continue to outstrip expectations, with measures such as the Treasury’s New Zealand Activity Index showing economic activity levels in October higher than the same time last year.
However, given recent second waves of COVID-19 in many parts of the world, Treasury now expects the global impacts of COVID-19 to weigh on us for longer, and is forecasting a contraction of 0.5% in 2021.
In the face of these challenges we have been clear that the COVID-19 response and recovery is our top priority for New Zealand.
New Zealand’s health approach has been world-leading, and we can see the benefits of the ‘team of 5 million’ going hard, and going early.
As much of the rest of the world goes back in to hard lockdown, we are largely free to meet, to do business, to see our whanau, and to attend events like this in person. This is proof that the best economic response has been a public health response.
It is clear that trade has the potential to drive our broader economic recovery from COVID-19. That is why we are implementing our Trade Recovery Strategy.
Trade Recovery Strategy
Our Trade Recovery Strategy consists of four pillars of work – the four ‘R’s’ - to position New Zealand to recover from the economic impacts of the pandemic.
Retooling Support for exporters
First, we need to put New Zealand companies in the best possible position to recover markets quickly, and to seize new opportunities.
The Government is providing the tools, support, and market intelligence to allow those businesses that are thriving through the pandemic to build on this success, whilst giving those that have endured harsh market shocks the information and tools to rebuild and find new opportunities.
We have already rolled out a significant amount of support, including:
- NZTE more than doubling the number of ‘Focus’ companies it works with, and providing support to many more businesses through the new ‘My NZTE’ online portal for support.
- Over 9,000 companies, including over 800 Māori businesses, have received COVID-19 Business Advisory Support worth around $30 million, through the regional business partner network.
- NZTE has significantly built up its in-market team to provide greater support to exporters who are not able to travel. And MFAT has published over 100 market intelligence reports providing insights on COVID-19 developments in a range of countries.
- MFAT has also established a Trade Recovery Unit dedicated to supporting the COVID-19 trade recovery, by resolving trade barriers that businesses are finding; working to ensure the security of supply chains and address COVID‑19 disruptions to trade; and launching a new tool to help services exporters navigate off-shore markets.
Reinvigorating the international trade architecture
The second pillar of the Trade Recovery Strategy is reinvigorating the international trade architecture, which we are doing through a number of avenues.
One such avenue is of course the WTO, which remains the premier institution through which we can influence international trade rules.
Another is through Free Trade Agreements, which build our international connectivity. Just last month I signed the Regional Comprehensive Economic Partnership Agreement for New Zealand - an agreement between 15 economies that are home to almost a third of the world’s population and take over half of New Zealand’s exports. RCEP is estimated to add $186 billion to the world economy, and increase New Zealand’s GDP by around $2 billion once fully implemented.
New Zealand also recently signed the Digital Economy Partnership Agreement with Singapore and Chile. COVID-19 has demonstrated the value of our digital economy, and the DEPA will encourage further growth of our digital trading relationships.
We have launched FTA negotiations with the UK, and already held two rounds of negotiations. We are also continuing negotiations with the EU, New Zealand’s third largest export market; and we hope to sign an upgrade to New Zealand’s FTA with China soon.
If all of New Zealand’s current FTA negotiations are successfully concluded, and enter into force, they will cover around 76% of our exports of goods and services.
To support the international trade architecture we are also developing what are termed ‘open plurilateral agreements’, such as the DEPA and the Agreement on Climate Change, Trade and Sustainability, or ACCTS. The ACCTS was launched last year by our Prime Minister and it is a trade agreement that will drive the reform of fossil fuels subsidies and lower the cost of environmental goods and services.
These are agreements in areas important to New Zealand, which sustain and build upon existing trade rules. They are also designed as vehicles that other countries can join on to in future.
Our hosting of APEC in 2021 is also a key component of our trade recovery. I will touch on this in greater detail later.
Refreshing key trade relationships
Refreshing key trade relationships is the third pillar of the Trade Recovery Strategy. This means furthering trade diversification to provide exporters with more options, building our national brand and reputation, and providing new and strengthened FTAs.
It also involves me getting on ‘Zoom’ and connecting with my counterparts internationally. I am doing a lot of these meetings at all hours of the day and night!
Resilience: Building New Zealand’s Strategic Economic Resilience
The final pillar of the strategy is to build New Zealand’s resilience to future global disruptions.
New Zealand is dependent on foreign suppliers for many critical products. This puts us at risk in situations that impact our connectivity – as we have seen. This thinking is not about wholesale on-shoring of production, or stockpiling, but about what New Zealand, and the New Zealand economy, needs to keep working.
These four R’s are the heart of our strategy to put New Zealand exporters in the best possible position to build back better in this challenging time.
Looking out beyond COVID-19 and the immediate impacts on the New Zealand economy, trade will remain absolutely crucial to building the New Zealand economy, and to improving the well-being of all New Zealanders.
The challenges that we faced before COVID-19 will not disappear overnight. New Zealand has a six part strategic framework to tackle these systemic challenges, which builds off many of the strands of New Zealand’s trade recovery that I have mentioned here.
In the medium term we need to continue to:
- support the WTO;
- embed New Zealand in key economic architecture through FTAs;
- pursue a programme of concerted open plurilateralism;
- support global public goods that enable trade norms – such as APEC and the OECD;
- support New Zealand businesses to succeed offshore; and
- enhance our engagement with the public on trade, so trade policy reflects the needs and views of New Zealanders.
Continuing this important work is central to maintaining a global trading system that is fair, and provides opportunities for New Zealand businesses to thrive. But the immediate focus of this Government remains COVID-19 – our health response, and our work to drive the economic recovery.
What Next? Making Trade for All Real
The other critical piece in thinking about ‘where to next’ for New Zealand trade policy is our work to ensure that trade delivers for all New Zealanders. What we call our ‘Trade for All’ agenda is foundational - it underpins all of our trade policy, and is essential if trade is to be successful and sustainable.
The Trade for All process involved extensive consultation around the country, culminating in recommendations from an advisory board on the future of New Zealand trade policy. Cabinet agreed earlier this year to implement them in three tranches - short, medium and longer term actions. We immediately began work to do so.
With COVID-19 having since intervened, we were clear that whatever was done to drive our trade and economic recovery must be underpinned by the principles of Trade for All.
The sum of the Trade for All process is a trade policy that recognises and respects those things that are important to New Zealand - that is more consultative and that shares the benefits of trade more widely so that they are felt amongst all New Zealanders.
It is a trade policy that supports greater engagement and inclusion. And one that ensures that the things that New Zealanders care about – like the environment; labour rights; and gender equality – are reflected in our trade policy.
It is a trade policy that fundamentally recognises the role and voice of Māori as treaty partners. We need to ensure the strength of the Māori economy and its trade and investment potential are supported, and that trade delivers for Māori.
It is a trade policy that supports those institutions and mechanisms that are central to New Zealand’s prosperity through trade - the WTO and its rules-based system, FTAs and regional trade architecture, and open plurilateralism.
It is a trade policy that supports New Zealand companies to internationalise.
And it is a trade policy that works to ensure that the benefits from trade are being shared more evenly to all New Zealanders.
Our goal is a trade policy that works to support sustainable and inclusive economic development – a ‘triple bottom line’ approach of social, economic and environmental wellbeing. This work is absolutely fundamental and the Government is committed to taking it forward.
Now I want to talk specifically about New Zealand’s hosting of APEC in 2021. APEC is hugely relevant to both our trade recovery, and our efforts to make sure trade is delivering for more people.
Hosting APEC is a once in a generation chance to be a regional leader on trade and economic integration. It’s an opportunity that is occurring at an incredibly important juncture for New Zealand, and for global trade.
The impact of COVID-19 on the Asia-Pacific’s people and economy, coupled with the decision to host an entirely virtual year, makes APEC 2021 an ambitious exercise in digital diplomacy.
As New Zealand takes on the Chair of APEC – and our first meeting will be happening next week - we will be asking three things of APEC economies:
- To join together: that is to reignite growth and plan for a long-lasting economic recovery.
- To work together: so we can show leadership and innovation to work for the collective good; and
- To grow together: so we will foster prosperity and well-being that is sustainable, inclusive and digitally-enabled.
APEC’s strength has always been in its ability to bring people together, to share experiences and ideas, and to test practical solutions to shared economic and human challenges.
The response to COVID-19, and all the economic disruption that it brings, necessitates a coordinated response in the Asia-Pacific region. In the context of unprecedented economic challenges, and growing friction among participants, APEC’s core role as a non-binding ”incubator” of ideas, and regional trade and economic norms, is more important ever.
We want to continue APEC's work on digital; on regional integration; on economic policies that are inclusive of women, SMEs and indigenous business; and of course on sustainability. We are also placing our focus on ensuring trade benefits all people at the heart of our APEC work.
The disruptions caused by COVID-19 – through strained supply chains; export restrictions; and an increase in trade barriers – have also increased food security challenges in the region, and globally. Trade allows economies to focus on their areas of comparative advantage - to produce food where it is most efficient, and transport it to where it is needed. As a net food exporter New Zealand has an important role to play.
As part of our APEC host year, New Zealand will lead the task of developing APEC’s new post-2020 Food Security Roadmap. Our goal for this work will be to support a robust, well-functioning and sustainable food system for the Asia-Pacific.
We expect the Roadmap to guide APEC economies to leverage structural reforms in order to help re-tool food producers to engage in trade recovery; to promote the deployment of digital tools to enhance supply chain efficiency; and to address trade barriers and other trade-distorting practices faced by food exporters in the region.
Given all that is going on in the world, there could hardly be a more important time to reinvigorate APEC’s work, and build on APEC’s brand new 20-year Vision, and that is precisely what we plan to do in hosting APEC 2021.
I want to conclude by reiterating that while New Zealand faces a challenging and turbulent time in our trade policy, COVID-19 remains this Government’s top priority and trade will be at the forefront of our economic recovery.
We are committed to working closely with exporters to provide the support they need to navigate these unprecedented challenges, and to recover and grow. And we will defend those international institutions and structures that allow a small country like ours to trade fairly.
We will implement our significant agenda of work to ensure that trade, going forward, delivers for more New Zealanders; recognises those things that we as New Zealanders hold dear; and reflects the viewpoints of Māori as our Treaty partners.
This work will help ensure that New Zealand emerges from COVID-19 better than before, and can continue to address the longer term challenges to global trade that we face.