Speech to Dutch Economic Mission to New Zealand, 7 November 2016

REMARKS TO DUTCH ECONOMIC MISSION TO NEW ZEALAND (AGRI AND FOOD)

AUCKLAND, 7 NOVEMBER 2016

STEPHANIE HONEY, ASSOCIATE DIRECTOR

NEW ZEALAND INTERNATIONAL BUSINESS FORUM

Good morning, and welcome to New Zealand!

It is an honour and a pleasure to be here with you this morning.

My name is Stephanie Honey. I am the Associate Director of the NZ International Business Forum.

NZIBF brings together the leaders of some of the country’s largest and most internationally-oriented companies, mostly from the primary sector.

Our key concern is the way in which New Zealand connects and integrates with the rest of the world.

Clearly, that interest in global connections is one which you all share – otherwise, of course, you would not have made that gruelling trip here in what sometimes feels like a sardine can!

I’m going to talk about that issue of connectedness throughout my remarks this morning.   It is clear that how and why we pursue global connections is one of the burning issues of our time.

I’d like to start by giving you a quick briefing on New Zealand trade policy – to put it another way, why New Zealand wants to connect with the world.

I will then talk about what it is that makes New Zealand an attractive trade and investment partner – in other words, why the world should want to connect with us.

Of course, such a discussion would not be complete without talking about the prospects for an FTA between the EU and New Zealand.

Finally, I will finish by touching briefly on the current wave of regional economic integration underway in the Asia Pacific.

New Zealand trade policy

Let me start by giving a quick introduction to New Zealand trade policy.

New Zealand is a little like that great seafaring mercantile nation, the Netherlands. We have been built on trade and openness to the world.

Our domestic market is small, our access to local capital is limited, and we are a long way from anywhere. So we need to look externally for growth and development. And coincidentally we are great at producing lots of things that consumers in other countries want to buy.

Yet international markets have not always been kind to New Zealand.

New Zealand exports, particularly in the agriculture sector, continue to face very high tariffs and other barriers in a number of markets – including, I regret to say, in Europe.

In New Zealand we learned a generation ago that protectionism is the worst enemy of innovation and competitiveness. The process of economic reform we went through back then was painful, but you would not find anyone in New Zealand who would want to turn back the clock.

Instead we are an open and outward-looking market.   We are very active in seeking to get our exports onto a level playing field by reducing tariffs and non-tariff barriers around the world.

We pursue this through multiple tracks, including not only the World Trade Organisation, but also bilateral, plurilateral and regional FTAs.

Another fundamental element in our trade policy is the recognition that business is changing.

Old models based on import/export are giving way to increasingly complex global value chains and networks. Products are being made “in the world”, not just in one country.   And increasingly they incorporate goods, services and intellectual property, as well as investment across markets.

A new world of e-commerce and digital technology is also upon us.

Today more than ever before doing business needs to be faster, lower cost and seamless across multiple jurisdictions.

This gives rise to an urgent new agenda based on market integration rather than market access.

Policy-makers are moving beyond “border” issues like tariffs to “behind the border” issues like regulatory coherence, economic connectivity and innovation.

The world economy is changing too. There is a huge new middle class in Asia with a vast appetite for new products and services.

And customers want to know increasingly more about the provenance and quality of the products that they buy.

Finally, markets are changing. For New Zealand, Asia-Pacific markets are now dwarfing our traditional trading partners.

Back before 1972, when the UK joined the EEC – perhaps we should call it “Brentry”! – the vast majority our exports went to Britain.

But these days, China is our single biggest trading partner.

If you look at the ASEAN group of South-East Asian countries as a single trading destination, it is nearly as large as the EU or the US.

Overall, last year APEC countries accounted for nearly three-quarters of all of our trade. By contrast, the EU accounted for 14 percent.

The WTO

 The WTO remains important to New Zealand as the setter of rules and arbiter of global commerce.

But alas the WTO’s trade-liberalising function is today much diminished.

New Zealand’s FTAs

Increasingly as a consequence countries are looking to the bilateral and plurilateral route for trade and investment growth.

Over the last 15 years, New Zealand has been an enthusiastic participant in this, especially as progress in the WTO has stalled.

Connecting more with the world – individual countries, and groups of countries – is at the heart of our trade policy.

As you can see from this slide, we have negotiated and are continuing to negotiate a wide and deep set of FTAs covering virtually all of our important trading partners.

Now let me turn to a question that I’m sure is top of your mind: New Zealand wants to connect better with the world, but why should the world want to connect with us?

New Zealand as a trade and investment partner

To put it succinctly: New Zealand is a great trade and investment partner.

The World Bank has recently ranked New Zealand as the top country in the world for doing business, and the easiest place to start a business.

We have also just been named the top of the Legatum world prosperity index for the third year running.

We have a flexible labour market and good infrastructure.

We also need and want foreign investment.

New Zealand enjoys a robust economic outlook. We are in the top quartile of economies globally and our economic growth rate is one of the highest in the OECD.

The New Zealand market is rich with investment opportunities, particularly in areas likely to be of interest to Dutch business.

Examples include agriculture and horticulture, seeds and bulbs, agri-tech and agricultural machinery, niche manufacturing such as medical devices, and services sectors including tourism, ICT, education, logistics and environmental services.

We think there is great potential to develop ideas and markets together.

In fact, Dutch companies have already invested in New Zealand in the food and beverage sector, and have interests in the manufacturing, electronics, and energy sectors.

In the other direction, some New Zealand’s largest companies in the agriculture and logistics sectors have made substantial investments in the Netherlands.

Of course, these two-way links are made easier by the fact that we have a similar outlook and culture.   Dutch explorer Abel Tasman was the first European to reach New Zealand, back in 1642.   Today it is estimated that around 150,000 people living in New Zealand have Dutch ancestry. So we have common history and perspectives as a basis on which to do business.

And it’s not just about the New Zealand market.

New Zealand can serve as a springboard into other markets.   Together, we can potentially link into value chains and networks spanning from the wider Europe through New Zealand and out across the vast Pacific Ocean.

New Zealand has signed FTAs with all major partners in Asia except India. We are still one of the few countries to have agreed FTAs with China as well as Hong Kong and Taiwan.   With the TPP that reach broadens into the Americas.

By contrast, Europe still does not have trade agreements with many of those key markets.

Imagine what we could achieve together, combining the best resources, technology, know-how and capacity from each side!

EU-NZ FTA

That brings me to the prospects for an EU/New Zealand FTA.

Europe is already a very significant trade and investment partner for New Zealand. It is our fourth-largest export market for goods, second for services and our second-largest source of investment.

The Netherlands alone is our 15th-largest trading partner.

While Europe is a relatively open market for services and manufactured goods, some New Zealand exports, especially in the primary sector, still face barriers.

It is also increasingly hard for New Zealand to compete within Europe against others who already have preferential access arrangements.

In terms of missed opportunities, New Zealand companies are beginning to engage in strategic partnerships in Europe. But there is scope to do so much more.

So the case is clear for New Zealand.   But what is in it for Europe?

As I have just been discussing, New Zealand already has a lot to offer as an export and investment destination.   Europe is our largest source of imports of goods and services.

But New Zealand may not even be on the radar for European companies and investors.   An FTA would help to raise profiles, bring partners together, and provide strong, predictable and secure links.

As business people, we have the luxury of not needing to involve ourselves too deeply in the bigger geostrategic picture.

But it is also the case that an FTA would round out the FTA portfolio for both sides, and act as a hedge for both of our economies by linking across hemispheres rather than just within one region.

It would allow us jointly to develop rules for new trade issues in a way that suits us best and can serve as a model for others.

Finally, I don’t want to wax too philosophical first thing on a Monday morning! But an FTA would also be an important affirmation of the benefits of globalization at a time when anti-trade sentiment has never been more hostile.

Regional Economic Integration

I’d like to finish by talking briefly about some of the broader regional economic integration that is taking place in the Asia-Pacific.

Like the EU, New Zealand was an early adopter of the concept of economic integration back in 1983 when we struck a “Closer Economic Relations” agreement with Australia. This is still one of the world’s most comprehensive and successful trade agreements.

CER not only grew our economy significantly. It also enabled us to conclude a regional integration agreement jointly with Australia and the ten economies of ASEAN in 2010.

We have obviously not been alone in trying to broaden and deepen economic integration in the region. Gradually we are seeing a move to negotiate so-called ‘mega-regional’ deals like TPP or the Regional Comprehensive Economic Partnership (RCEP).

TPP

TPP is a very important trade agreement with a very uncertain future. As you can see from the slide, it is potentially a huge deal, embracing 810 million people and over one-third of the world’s GDP.

In fact, my remarks are rather timely – the next 48 hours may well determine the fortunes of TPP, as the US goes to the polls. Depending on the outcome, it seems likely that President Obama will try to pass the TPP legislation during the ‘lame duck’ period.   This will be critical to its region-wide entry into force.

NZIBF has been a strong advocate for the TPP so we have our fingers crossed.

The Agreement is truly a 21st-century agreement which is aimed at creating an environment that fosters global value chains and deeper economic integration.

RCEP

We are also engaged on the Regional Comprehensive Economic Partnership negotiations, or RCEP.   This is a little-known negotiation between the ten ASEAN countries plus China, Japan, Korea, Australia, New Zealand and India.

RCEP will cover a market of over 3 billion people. Over half of New Zealand’s exports go to RCEP markets.

In TPP all of the parties have been basically aligned on the merits of pursuing freer trade; in RCEP, somewhat less so. The negotiations have been complicated by disparities of economic development and diverse trade interests.

But the negotiators seem optimistic about the prospects for concluding a deal next year.

FTAAP

Both TPP and RCEP are seen as pathways to a wider agreement among all 21 member economies of APEC.

The Asia-Pacific has often been labelled as a “noodle bowl” of overlapping agreements.

The vision for the Free Trade Area of the Asia Pacific, or FTAAP, is that we would eventually arrive at something far more unified, and less tangled, than the current noodle bowl.

Business could operate in a truly regional way without seeing their margins eroded and huge complexity and uncertainty.

Conclusions

Obviously there is a very long way to go before we reach a comprehensive region-wide free trade area. Negotiators on this side of the world have watched with some dismay the difficult time that Europe has had recently, as another region-wide free trade area, and looking to negotiate its own mega-regional deal with the US.

But it would be a serious mistake to resile from our efforts towards deeper economic integration.   The world economy is shaky, and world trade growth rates are now lower than they were before the global financial crisis of 2008.   That raises a sobering question for all of us about how we best future-proof our prosperity. In the view of the NZIBF, developing strong and market-oriented trade relationships and pursuing deeper global integration is a key way to do that.

Public understanding and support for these efforts remains critical. That is where all of us as business leaders have a key role to play, in advocating for the value of trade and in trying to support efforts to deepen links among economies for the benefit of all.

We at NZIBF remain very optimistic about the trade relationship between our two great countries, and our two regions.

And in the meanwhile, we trust that you will have an interesting and profitable visit to New Zealand – and hope that it will be the first of many.

Thank you.