Progress and success in the Japan NZ relationship Address by Stephen Jacobi to the 37th Joint Meeting of the Japan New Zealand Business Council NZIBF – 7 October 2010

It’s a pleasure to be in Tauranga and to have this opportunity to address the 37th annual joint meeting of the Japan NZ Business Council.

I would like to welcome our Japanese friends to New Zealand and to congratulate the organizers of this event for their hard work in preparing this important conference.

When we met in this format two years ago we were celebrating the fiftieth anniversary of the signing of the Treaty of Commerce.

Last year we had the occasion of Prime Minister Key’s first official visit to Japan, not to mention a Bledisloe Cup match and a giant rugby ball to enliven the proceedings !

This year we have no such landmark events ? although that there have been 37 meetings such as this is a milestone in itself !

But this is not to say that 2010 is without significance.

2010 is significant because this year Japan holds the Chair of APEC.

It is significant also because 2010 is the year which was set in the Bogor goals as being the target date for the achievement of free and open trade and investment between industrialized economies in the region.

Later this year in Yokohama APEC Economic Leaders will be gathering under the chairmanship of Prime Minister Kan to assess just how far we have come towards achieving the Bogor goals and to chart a future path for economic integration in the region.

I am here today representing the NZ International Business Forum, which brings together some of the largest players in the New Zealand economy.

We in the International Business Forum believe that the relationship between Japan and New Zealand has an important role to play in this wider regional context.

At a time when the global economy shows signs of tepid recovery but also continuing weakness, the need for leadership in opening new markets and for an effective template for building sustainable economic growth in the region have never been more important.

This afternoon I’d like to look at how Japan and New Zealand can meet both these aims by continuing in a deliberate way to expand the economic relationship between us.

Regional context

There can be no doubt that the regional economic environment has improved considerably since the Business Council met in Tokyo in October last year.

But if the worst of the global financial crisis is behind us, the economic situation remains difficult.

This is true both for Japan and New Zealand.

Neither of us were directly involved in the disastrous lending that gave rise to the crisis but both of us continue to be affected by its fall out.

In both countries economic growth is weak and a high exchange rate hurts exporters.

Most of you will be aware that in 2008 we set up the Japan NZ Partnership Forum as a mechanism working alongside the Business Council as a means for further enhancing the economic relationship.

The Forum brings together high level government, business and community leaders and focuses on big picture strategic issues in the partnership between the two countries.

The theme of the second Japan NZ Partnership Forum held in Tokyo on the day following last year’s Business Council meeting was “Partnership and the Real Economy”.

That theme, and the discussion at Forum, emphasized that the path back to sustainable economic growth lay in focusing on what needs to be done to remain competitive and to prepare the ground for future expansion.

The Forum looked at practical areas for co-operation like paying attention to meeting the needs of consumers, responding to demographic change, addressing customer concerns about environmental responsibility and product safety.

I’ll talk more about the Partnership Forum in just a minute but I think these practical areas of co-operation remain fundamental to the future of the relationship and I am delighted to see them feature in the agenda for this meeting.

What the discussion at the last Forum seemed to indicate was a need to return to the basics of what companies do well.

The same can be said of governments.

In the current economic climate we talk a lot about “better government” and sometimes even of “less government”.

One thing that governments can do is improve the climate for trade and investment and when they do that well they create the conditions for new business growth.

This is where that review of the Bogor goals comes in.

Back in 1994 APEC Leaders meeting in Bogor, Indonesia, adopted the goal of free and open trade in the region by 2010 for developed economies and 2020 for developing economies.

How far have we come since then ?

A study undertaken by the APEC Business Advisory Council, led by ABAC New Zealand. suggests that a lot has been achieved to make the region more open, that trade and investment have grown as a large number of free trade agreements and other economic instruments have been negotiated.

Both New Zealand and Japan have negotiated agreements with ASEAN and New Zealand has concluded a ground breaking agreement with China.

The study also found that a lot more needs to be achieved to deliver on the Bogor vision.

The study shows for example that Japan’s average “mfn” tariff (the one applied generally to WTO members) has fallen from 9 percent in 1996 to around 5.4 percent today.

Japan’s agricultural tariffs are higher ? 23.6 percent compared to 2.6 percent for manufactured products.

Under Japan’s FTAs average tariffs are around 2 percent.

New Zealand’s tariff on the other hand fell from 5.9 percent to just 1.4 percent. Agricultural tariffs are slightly lower than manufactured products tariffs at 2.2 percent and 2.3 percent respectively.
Under New Zealand’s FTAs average tariffs are between 0 and 0.6%.

APEC as a whole shows a similar picture ? declining tariffs, greater intra APEC trade but not quite free and open trade in the sense of zero tariffs across the board.

This year’s APEC Economic Leaders meeting in Yokohama in November will focus on how the move towards a more free and open trade and investment environment can be accelerated and how this can contribute to some new goals for economic growth in the region ? growth that is balanced, inclusive, sustainable, innovative and secure.

And I hope, from a commercial perspective, growth that is both business led and focused on opening up new opportunities in the real economy.

Trans Pacific Partnership

One exciting new vehicle for expanding trade and investment and fostering sustainable growth in the region are negotiations underway amongst eight APEC member economies to negotiate a new Trans Pacific Strategic Economic Partnership or TPP.

The Trans Pacific Partnership is an existing free trade agreement between Brunei, Chile, New Zealand and Singapore which Australia, Peru, the United States and Viet Nam would like to expand.

As a model for free trade in the region TPP presents many advantages in that it is a comprehensive agreement, includes both developed and developing economies, links both sides of the Pacific and is open to new members.

There is considerable interest in TPP around the region at present for at least three reasons.

First, the United States is a serious party to the negotiations.

TPP is the only new trade negotiation the Obama Administration has underway and US Trade Representative Ron Kirk is aiming to finish the negotiations by the time President Obama chairs APEC in Honolulu in November 2011.

Second, there are several other economies expressing interest in joining the eight negotiating parties.

Malaysia looks likely to be the next member with Canada also expressing strong interest.

And third, TPP is being seen as a means of addressing new generation issues such as regulatory coherence, environment, labour, SME and new economy issues.

Increasingly TPP is being advanced as a 21st century agreement, a trade agreement for our times, perhaps even a trade agreement we can believe in.

The ambition is high ? deliberately so, because nothing less than a new generation agreement will serve to build an effective template for an instrument capable of meeting the vision set by the Bogor goals.

In the absence of an over-arching framework for regional economic integration we have instead a “noodle bowl” of proliferating and sometimes conflicting FTAs in the region.

While these FTAs serve to free up trade and investment between the parties, they are a headache for businesses which are developing ever more complex value and supply chains.

TPP presents an effective way of untangling those noodles.

TPP is not the only potential vehicle for this.

The Comprehensive Economic Partnership in East Asia (CEPEA) is another example but one which has yet to become a real negotiation between the parties and which does not include the United States or other Latin American parties.

TPP on the other hand already exists as an FTA between the four founders.

Two rounds of negotiations have already been held amongst the eight; a third round is taking place in Brunei this week, the fourth round will take place in New Zealand in early December and further rounds have been scheduled up until November 2011.

While we are still at the beginning of a complex and possibly lengthy journey the TPP train has definitely left the station.

And what of Japan?

Japan is not yet a party to TPP but we understand the Japanese Government is following negotiations with interest.

Japan can of course be expected to be wary about future liberalization of agriculture in a comprehensive agreement of this type.

But comments from newly appointed Japanese Ministers in recent weeks suggest that consideration of the strategic merits of joining TPP while it is still under negotiation are generating significant consideration in Tokyo.

From a New Zealand business perspective we would like to see further parties to the TPP negotiation provided they are all willing to commit to the same ambitious goals for the agreement.

I would like to suggest that this Business Council meeting, in addition to its already stated position in favour of a future economic partnership agreement (EPA) between Japan and New Zealand, should urge the two Governments to develop their dialogue on TPP developments with a view to preparing for Japan’s entry into the negotiation at the earliest possible moment.

Japanese involvement in TPP could demonstrate the sort of leadership required to develop that  template for future sustainable economic growth in the region.

TPP would also provide the appropriate context in which Japan and New Zealand could realize their own ambitions for an expanded partnership in trade and investment.

Japan NZ Partnership Forum

This brings me back to the bilateral relationship and to the Japan NZ Partnership Forum which I mentioned earlier.

I want to thank the Business Council and many business leaders here today for the support they have given to the Partnership Forum as a means for developing some new momentum in the relationship.

We have been delighted that our two Partnership Forum events have been well attended at senior levels, have been widely supported including by this Council and by economic organizations including the Keidanren, JCCI and by the two governments.

I am particularly grateful for the support which former Japanese Ambassador Takahashi and current New Zealand Ambassador Ian Kennedy and their staff have given to our initiative.

Our Forum in May 2008 was the occasion for the announcement by former Prime Minister Helen Clark that the two countries would start to study the basis for a future EPA.

Our second Forum in October 2009 provided an important platform for incoming Prime Minister John Key to outline his vision for the relationship during his first official visit to Japan.

Today I am pleased to announce that a third Japan NZ Partnership Forum will be held in Tokyo on 11-12 May 2011.

Once again Mr Yohsihiko Miyauchi, Chairman and CEO of ORIX, and Hon Philip Burdon, Chairman of the Asia New Zealand Foundation, have agreed to co-chair the event.

The Partnership Forum will be held for the first time in the conference centre of the Keidanren in central Tokyo.

We will aim to reconvene the high level group of government, business and community representatives and to consider the future development of the relationship in its broadest sense.

A good place to start will be the developments I have been speaking about today ? the emerging but shaky recovery, the new agenda for trade and investment liberalization, the opportunities of an expanded Trans Pacific Partnership that could include both New Zealand and Japan.

Conclusion

In an inspirational address at last year’s Partnership Forum Saatchi and Saatchi global CEO Kevin Roberts urged us to “dream together, work together, inspire each other and make a difference”.

For the last 37 years this Business Council has been working to expand the economic relationship – that is a good thing and should be celebrated.

Useful work also continues by officials to build the basis for a future economic partnership agreement.

I hope our but government colleagues will forgive us if as business people we are never satisfied with the pace.

The fact of the matter is that the challenging economic times in which we find ourselves demand something more than incremental progress.

Business models are changing rapidly; trade and investment needs to expand to enable us to respond to consumers’ needs; a new generation of trade agreements is today in the making.

I need hardly remind this audience of the growing importance for New Zealand of our links with China and ASEAN fuelled by important new free trade agreements.

What is clear is that business needs to continue to play a strong role in moving the agenda between our two countries forward.

A further opportunity to do this will take place at the third Japan NZ Partnership Forum in Tokyo next May.

In the meantime 2010 is the year that Japan is in the Chair of APEC and when significant attention is being placed on how to meet the Bogor vision for free and open trade and investment.

What better time than now for this Business Council to endorse the concept of Japanese involvement in the TPP and thereby affirm the importance of a future economic partnership agreement between Japan and New Zealand.