Trade works – linking New Zealand to the world Stephen Jacobi, NZIBF – 31 October 2012

Remarks to the Annual Global Symposium on Origin and Traceability, Hastings, 31 October 2012.

It’s a pleasure to be with you and to have this opportunity to offer some remarks at the close of your conference.

I can see you’ve had a busy day so I am tempted to preface my remarks with a health warning.

Talking about trade and especially about free trade seems to strike fear into the hearts of many, while lighting up the eyes of others.

There is no doubt that there is a lively and growing debate about the role of trade both here in New Zealand around the world.

I seem to spend a lot of time refuting doomsday predictions about the loss of sovereignty, the domination of global corporations, the challenges to sustainability that greater economic integration could bring about.

This is particularly true in the case of the Trans Pacific Partnership (TPP) negotiations which are now underway and coming to Auckland in early December.

A recent survey of the views of 1018 New Zealanders showed that over 60 percent thought New Zealand needed to do more to connect with the rest of the world.

I’d like to spend a few minutes with you reflecting about the importance of trade and investment and why New Zealand needs more of both to create growth and jobs.

I do so from the perspective of the NZ International Business Forum which brings together the leaders of New Zealand’s largest internationally oriented companies and leading business organizations.

The context

The survey I just mentioned threw up some interesting results.

Only 40.6 percent of those surveyed thought they knew a reasonable amount or quite a lot about how New Zealand trades with the rest of the world.

More opportunities for exporters and more jobs for Kiwis were top of the mind when it came to the benefits of free trade. But possible loss of jobs, increased competition for New Zealand businesses and possible loss of ability to make our own laws were the major concerns about free trade.

While 85.7 percent could not name the deal under negotiation with the United States and other Asia Pacific economies, when prompted 51.6 percent said they had heard of the Trans Pacific Partnership (TPP). 56.3 percent said they supported TPP while only 13.4 percent said they opposed it. 30.4 percent said they had no view or didn’t care.

However you analyse these results it seems that we in business need to do a lot more to explain to New Zealanders why trade is important for this country’s economy.

And we need to start with the big picture.

New Zealand sinks or swims in the global economy.

There’s no hiding the fact that while the global economy has successfully withdrawn from the brink of a financial crisis, a number of significant risks remain not the least ongoing instability in the Eurozone, a sluggish recovery at best in the United States, and some slowing growth, albeit from a very high base, in China.

Economies in the Asia Pacific region may have out-performed the rest of the world in recent years but today we find that persisting financial uncertainty, stubborn government deficits, continuing restrained spending by global consumers all translate into a sense of global unease which is generally bad for business.

Reflecting this unease the WTO is already predicting that world trade growth will slow to 3.7 percent this year, well below the twenty year average of 5.4 percent.

The reason growth features so prominently in the discussion is that it is growth which ultimately drives business confidence, investment and job creation.

As you know very well but which many commentators overlook, jobs are created when businesses take risks and invest their money to make a return.

Investment happens when the environment is right, when the rules are clear and there is a degree of certainty about the future ? the more uncertainty there is, and the harder the investment process, the less investment and fewer jobs there will be.

As I say, New Zealand’s economic success is driven by returns from overseas markets.

To put it very simply “we can’t eat all we produce and we can’t produce all we need”.

Or another way, “it takes a lot of kiwifruit to pay for a Boeing”.

Or even, as the Government said in a report on Building Export Markets issued recently, “we can’t get rich by selling to ourselves”.

According to BusinessNZ, two out of three jobs depend in some way on trade and investment.

Export income, capital inflows through foreign direct investment and the remittance of dividends from New Zealand’s offshore investments ? these are what plug the gap in domestic spending and government deficits.

Ultimately therefore the path to more and higher paying jobs, more hip operations, a world class education system and better infrastructure can only be found through greater integration in global markets.

That’s why in its Business Growth Agenda the Government is targeting an increase in the ratio of exports to GDP to 40 percent.

That’s why moves to expand trade and business are directly relevant to New Zealand’s future and why we must be involved at every level to eliminate trade barriers, reduce costs and make it easier to do business around the region.

Significance of TPP

This is where the Trans Pacific Partnership comes in.

TPP is one of the identified pathways to the ultimate goal of regional economic integration encapsulated in the concept of a Free Trade Area of the Asia Pacific (FTAAP) which has been endorsed by APEC Economic Leaders.

TPP is not the only such pathway nor may it yet prove to be the best but it is certainly the most advanced amongst the eleven members including New Zealand and the United States.

Some fourteen negotiating rounds have been held to date, with the next round scheduled for Auckland in early December.

Canada and Mexico are the newest members ? they will only formally join the negotiating process later in the year once domestic approval processes are completed in the United States where a 90 day consultation period is required with the Congress.

All members are united in their desire to conclude a high quality, comprehensive and ambitious agreement.

The negotiation is taking place across twenty five or so “chapters” reflecting the range of issues under discussion and covering all aspects of the commercial relationship between the participants.

This includes the more traditional issues of market access for goods and services, commitments relating to foreign investment and competition, undertakings on labour and the environment and a range of so-called “new generation” issues which are of particular relevance to small and medium size business and to the health of regional supply chains.

Of particular interest to this group is what is called the “regulatory coherence” agenda ? not an attempt to reduce regulation but to improve the way regulations are made and implemented and to promote co-operation between regulators.

Much of this work draws on learnings from New Zealand’s experience with CER with Australia and the operation of the Trans Tasman Mutual Recognition Agreement as well as understandings reached in the context of the NZ/China FTA.

While the aim is not “one size fits all” when it comes to regulation it is obvious that greater alignment of regulatory practice across the region could serve to improve regulatory outcomes for both consumers and business, reduce costs and make it easier and faster to do business.

Business interests in both New Zealand and the other TPP economies would like to see the negotiation concluded as soon as possible in 2013 but we realise that substance needs to drive the negotiating agenda.

For New Zealand of course “substance” means not only the new agenda I have just been talking about but also the full inclusion of agriculture, especially dairy and beef in the final agreement.

This is certainly implied by the description of TPP as a comprehensive agreement but thus far at least the United States has been slow to engage on a substantive discussion on agriculture or at least one that would satisfy Trade Minister Groser.

There is not time for me this evening to dwell on the sticking points in the negotiation ? believe me there are many.

On some ? such as intellectual property ? New Zealand has markedly different views from the United States; on others ? such as investment ? we are more aligned.

The point to remember is that this is a negotiation ? not everything anyone puts on the table, even the largest player, is going to get through to the final outcome.

That’s why the negotiating process is worth sticking with even if it is difficult and controversial.

The gains for growth and jobs from a successful conclusion to the negotiations are substantial ? independent and credible economic modelling suggests for New Zealand alone an indicative figure of NZ$2.1 billion economic gains by 2025, or growth of just under 1 percent of GDP.

These potential gains are simply too big to be left on the table.

Global standards for supply chain data

There is one other matter I wanted to mention before I close which should be of special interest to this group is an initiative within APEC, championed by the APEC Business Advisory Council (ABAC) and the global bar-coding company GS1.

This concerns an attempt to devise a new set of harmonized global standards for the use of bar code technology for tracking shipments within supply chains.

As you will know bar codes have the potential to capture a range of important and useful information about a product’s origin, safety and sustainability among other things.

Finding ways to use this data to track products as they move through the supply chain and to make it available to the relevant regulatory authorities could assist in increasing the speed of delivery and minimizing delay and cost.

We know that the economic gains from this sort of trade facilitation initiative are substantial- as great as the gains from trade liberalization.

We expect this initiative to capture increasing attention as it is developed.

Conclusion

To conclude, let me go back to the beginning.

Public debate around trade issues is a welcome and indeed necessary part of the process of negotiating new agreements.

Trade negotiations may raise blood pressure but they need not altogether be bad for health.

Trade negotiations are not just corporate dreams ? they are the art of the possible.

Freer trade does not provide all the answers but high quality and forward-looking agreements like TPP, and initiatives like global data standards for bar code technologies, are necessary for business to play its part in building a stronger and more resilient global economy on which New Zealand’s economic livelihood relies.

Trade works ? that’s the message we in business need to keep sending out to the public here in New Zealand.