Trade strategy for the recovery from the impacts of Covid-19

  • Hon David Parker
Trade and Export Growth

Launch of the Government’s Trade Recovery Strategy - June 8, 2020

Welcome everyone here today and watching online.

Before I get to our Trade Recovery Strategy, I want to begin by telling you a bit about the work we did when the crisis hit us and how New Zealand trade policy responded.

As the crisis unfolded internationally, I was alarmed at the sudden uptick in protectionist measures. At one point nearly 80 WTO Members had more than 100 new restrictions or other barriers in place. To make matters worse, some of the major economies began to introduce subsidies for their farmers. The direction of travel was worrying.

As the crisis unfolded, we were intensely focused on protecting New Zealand trade and supply links. This was to ensure that New Zealanders could continue to access essential goods – medicines, PPE, COVID-19 testing kits and so on - as well as keeping New Zealand goods flowing to our trading partners.  For example, the New Zealand – Singapore Air Freight Project is one example. It has helped with access to essential medical supplies brought in through Singapore, while at the same time meeting Singapore’s food security needs with New Zealand agricultural exports.

In terms of wider trade policy, our immediate response to this crisis has been a combination of energetic trade diplomacy and reform. One of my first phone calls was to my Singaporean colleagues. Together we agreed that as small, trade-dependent countries we couldn’t stand by as the old certainties about the benefits of trade were washed away. We committed to push back together on what we were seeing internationally.

Within 24 hours, we had a bilateral statement issued and three working days later, seven other countries, including our closest partner Australia. And other P4 partners Brunei and Chile joined us, along with G7 economy Canada and others. We all agreed to sustain trade and supply chain connectivity, particularly for essential medical goods and food. The Statement now has 11 participants.

This Joint Statement was important because it sent a signal about the contribution international trade can make to address the challenges we face with COVID-19. In short, we were making real my firm belief that international cooperation – not national protectionism - is the best way to address a global challenge. With signatories to the statement growing in both numbers and collective economic heft, we’re also demonstrating that New Zealand is not alone in this belief.

In practical terms, New Zealand also immediately gave effect to this statement by unilaterally suspending tariffs on medical and PPE-related goods. In some countries, tariffs on imported medical equipment and supplies will be hindering their Covid response by increasing the cost of the goods through tariffs.

Alongside this unilateral action, and in parallel with the Joint Ministerial Statement, we also concluded a negotiation on essential COVID-19 goods with Singapore. 

The New Zealand-Singapore Declaration on Trade in Essential Goods removes tariffs and expedites trade flows on a wide range of COVID-19 response-related products. Again, this gives real substance to the objectives of the Joint Statement.

We also joined another Ministerial Statement together with Singapore, Canada, Korea and Australia, aimed at facilitating the flow of goods and services as well as the essential movement of people. In addition to reiterating our commitment to avoiding supply chain disruptions and protectionist trade measures, we also opened the door to working together to eventually facilitate the resumption of essential cross-border travel, while still of course safeguarding public health goals.

These initiatives are an important counterpoint to the array of restrictions we’ve seen some countries rush to implement.

And while we were doing all this, we also worked on the nuts and bolts of international trade – by looking to resuscitate our air links and connectivity by standing up an air freight facility to support trade flows.

This followed on from ministers’ calls to various airlines and countries as the crisis unfolded, when we discussed the desirability of all countries doing their bit to sustain air and sea transport links.

 In addition to meeting New Zealand’s critical trade needs, as the crisis unfolded, it was about laying the foundation stones for our short to medium term trade recovery strategy, which involves a significant recalibration of our approach to trade policy.

In my opinion most countries will consider whether increased stockpiles or local manufacturing capacity of some medicines, PCR testing reagents and PPE is needed. This is already provided for under our trade agreements. That does not mean we will manufacture cars or computers. We will remain reliant on trade to export what we produce well in order to fund the imports we need.

There is no question that trade will be a critical enabler of economic recovery post COVID-19.  Who it is with depends upon reciprocal relations.

With one in four New Zealanders’ jobs dependent on exports; and our knowledge that exporting firms are more productive, employ more staff and pay better wages; it is clear that rebuilding our international connectivity in general, and our tradeable sector in particular, can help drive our recovery, including an expansion in employment, incomes, innovation and productivity.

The Trade Recovery Strategy I’m outlining today sets out how we’re going to achieve that, from helping businesses get through the disruption of a global pandemic to recalibrating trade policy to navigate a turbulent environment. We want to protect the global trade systems and rules that have served New Zealand so well over many years and ensure we are best placed to seize new opportunities for exports and investment.

None of us are under any illusions about the scale of the task. The current global shock from COVID-19 is both a demand and a supply-side shock and that makes it particularly challenging for New Zealand; an open and internationally-connected economy.

The World Trade Organisation’s Trade Forecast predicts that world merchandise trade will reduce by between 13 and 32% in 2020. The OECD estimated in April that on average the drop in economic output in each country caused by Covid-19 is equivalent to a decline in GDP of 2% for each month that strict virus containment measures continue.

The trade challenges caused by Covid-19 are occurring against a backdrop of what were already turbulent times.

Even before COVID-19 hit, the “Golden Weather” for New Zealand trade policy – which we enjoyed between 1995 and 2019 – had well and truly ended. Our long-term trade strategy was designed to be able to adapt – by shifting our points of emphasis - for precisely the kinds of challenges we see ahead of us today.

Now we face greater headwinds as nationalism and protectionism become more pervasive and entrenched, global demand drops, businesses look to shorten supply chains and travel restrictions affect tourism and education.

Looking at our own statistics we can see there are challenges ahead, but with the right trade recovery strategy, and by working closely with exporters to ensure that strategy reflects their needs and priorities, we can navigate through this.

Our overall goods exports, concentrated in the primary sector, have remained largely steady throughout the pandemic, although there was a 4% dip for the month of April, compared to the previous year. According to provisional figures from 1 February to 13 May, goods exports were valued at $18.1 billion, only slightly down on $18.3 billion for the same period in 2019 and still at record levels compared to all other years. 

By contrast, goods imports have dropped significantly during the same time period from $17 billion to $15.7 billion – the decline is accounted for predominantly by non-agricultural goods. 

Our key exporting services sectors – education and tourism have been very hard hit by our necessary border restrictions. Overseas visitor arrivals in April were virtually zero while 307,000 people arrived in April last year.   

A 2021 global trade recovery is predicted and I am optimistic that this will be the case for New Zealand as well.

Much hinges though on the duration of the pandemic internationally and how effective trading nations are in responding to it.

For New Zealand’s part, we will be implementing our new Trade Recovery Strategy, designed to get our export sector back up and running and contributing to wider economic recovery.

There are three inter-related elements to the Strategy. I would be happy to go in to further detail about any of these, but briefly, they are:

  • Supporting exporters;

An additional $216 million over four years allocated to NZTE in last month’s Budget will enable them to offer in-market services to twice as many exporters. They currently focus on 700 high growth firms. That is doubled to 1400 with improved internet-based services to other exporters. Combined with increased emphasis on cross-agency support to businesses both offshore and in New Zealand from MFAT and other agencies, this will help the export sector to weather the disruptions brought on by the COVID-19 pandemic and strengthen its role as a driver of economic growth.

  • Reinvigorating international trade architecture;

COVID-19, and the worrying trend towards protectionism that it has exacerbated, have reinforced New Zealand’s need for a functioning, rules-based international trading system. We will be working to shore up the World Trade Organisation, as well as expanding and developing our network of regional and bilateral FTAs

Speaking of bilateral negotiations I want to mention recent news of a supposedly leaked agricultural access offer on the EU FTA negotiations. I am disappointed by the leak and am even more disappointed by the quality of what we are being offered. Let me be very clear - this latest offer reflects agricultural protectionism in the EU. It is a very negative signal especially at a time when we are working together in the WTO and elsewhere encouraging countries not to be protectionist and to ensure trade can flow freely between us. For NZ exporters to face an “unlevel playing field” in the EU is unacceptable. To take one example in terms of the recent leaked offer – in 2019 the EU exported to us here – tariff free – the equivalent of just under a kilogram of cheese per New Zealander to New Zealand. By comparison the EU is offering access for just over 3 grams of New Zealand cheese per EU citizen – and even that is subject to volume restrictions and a prohibitively high tariff. This is not a workable way to conclude our long-running negotiations.

As a country we cannot afford for that situation to remain.

It is clear that the EU will need to address this imbalance. How else, post-Covid, would New Zealand maintain a social licence for trade? I am speaking tonight with my counterpart EU Trade Commissioner Hogan to register very clearly my dissatisfaction and disappointment with this offer, as well as the fact of its leak.  

  • Refreshing key trade relationships

The disruptions caused by COVID-19 have highlighted the importance of providing our exporters with access to a wide range of markets. While the decisions about where to export and how to diversify are ultimately down to them, providing new or expanded access through our forward pipeline of FTA negotiations to markets like the EU, UK and South America will give them more options to work with.

Finally, our Trade Recovery Strategy is underpinned by our Trade for All agenda, as we respond to the social and economic impacts of COVID-19. 

Late last year the Trade For All Advisory Board presented a series of recommendations on how New Zealand trade policy can better deliver for all New Zealanders.  The work that we were doing to respond to these recommendations just before the lock down is reflected in how we’re approaching the trade recovery strategy.

While I strongly believe that we need trade to get us through this crisis, I also believe that trade must work for all New Zealanders.