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Jim Sutton Speech In Kuala Lumpur

Economic And Trade Policy Priorities: Linkages With South East Asia

Kuala Lumpur, 4 September 2000

I am grateful for the opportunity to be able to speak to you today about New Zealand’s trade and economic policies.

I am also pleased to be here in this impressive and exciting metropolis of Kuala Lumpur. The city is clearly a symbol of the profound economic changes that have occurred in Malaysia over the past 20 or so years and of your country’s vision and drive.

It is worth noting at the outset what an important partner Malaysia is for New Zealand. Total trade between us is worth 2 billion ringgit. Malaysia is New Zealand's 10th biggest export market and our seventh most important source of imports.

Education is also an important linkage between us. Malaysia is one of the largest sources of overseas fulltime university students. Over the years, tens of thousands of Malaysians have been educated in New Zealand, enriching the cultural lives of our campuses.

Now, New Zealand universities are also involved in teaching courses here in Malaysian institutions.

These links are of immense value to us.

New Zealand?s relations with Malaysia are long standing and cordial, based on Commonwealth connections, an honourable history of defence cooperation and extensive people-to-people linkages. New Zealanders feel comfortable and welcomed in Malaysia. I certainly do.

And it is my task to ensure we develop our relations further, on a mutually beneficial basis. We too are interested in win/win relations with our neighbours.

I would like, first of all, to say a few words about the New Zealand economy.

It is nine months since the Ministers in our new coalition government formally took up responsibility for their portfolios. We are now a quarter of the way through a three year term.

When the government took office, it had two key objectives. The first was to develop a new direction for New Zealand and a new role for government in the 21st century. We were determined to move New Zealand away from the policy extremes which had characterised the previous decade.

The second task was to restore public faith in the democratic process, so that the way people vote really does determine the direction the country takes.

The Labour-Alliance Government has made a number of moderate and achievable core commitments, set within an overall vision. We want a growing economy capable of producing sophisticated goods and services which will deliver rising standards of living.

We need that stronger economy to support better health and education services, a first-class infrastructure, a clean, green environment and to underpin our arts, culture and sense of unique national identity. And we seek greater equality of opportunity.

We have moved quickly in key areas such as tax, accident compensation insurance and rebalancing labour law as well as in social policy.

None of the changes we have made should have come as a surprise to anyone who followed the political process in New Zealand. They were clearly signalled before the last election.

It is important to remember what has not changed: the Reserve Bank Act is unchanged. This provides for an independent Reserve Bank with prime responsibility for monetary policy. The government is running a tight fiscal policy and budgeting for good surpluses. Government spending is actually decreasing as a proportion of GDP. The government continues to welcome foreign investment to grow the New Zealand economy and we are committed to open world trade.

I will try not to bore you with too many figures but current statistical indicators are mostly quite positive: GDP growth - 4.4% year ending March 2000 inflation - 2.0% unemployment - 6.1% (and trending down) fiscal position - a budget surplus of 1.2 billion Ringgit to June 2000

There are much less positive figures as well. The worst are our current account deficit (14 billion Ringgit) and the low value of the New Zealand dollar.

There are both cyclical and structural reasons why our external accounts are in negative territory.

Cyclical reasons include two years of severe drought and the impact of the Asian economic crisis which had the effect of reducing our exports of goods and services to Asia while at the same time imports grew rapidly, including from Malaysia. Malaysia now exports more to New Zealand than we export to you.

Structural reasons include the still important contribution primary products play in the export sector. Here in Malaysia for example, 54 percent of our exports are dairy products.

Speaking as both Minister for Trade Negotiations and as Minister of Agriculture, I make no apology for New Zealand?s continuing reliance on agriculture-based exports. That is our comparative advantage. We can produce milk, meat, wool, timber products, certain varieties of fruit and vegetables, cheaper and better than anyone else in the world.

Since we removed all protection and price support from agriculture in the mid 80s, its contribution to our GNP has actually risen significantly, from 14% to 16%.

But we also need to get smarter at adding value to our primary products. I understand that Malaysia has ambitious plans to add value to its agricultural sector. The application of new technologies in both our countries is an area where there may well be scope for partnerships.

The other point is that we need to reduce barriers to trade, especially on agricultural products.

Because of the technical barriers to agricultural trade so prevalent in world trade, agriculture has also been at the heart of the New Zealand government?s trade liberalisation focus. This is something I know we share with Malaysia, a fellow member of the Cairns Group.

But whether it is manufacturing, agriculture, or services, I like to think that New Zealand is becoming smarter in our approach to trade liberalisation. That means taking a hard-headed look at what our interests actually are and taking practical and realistic steps to pursue them.

So what does a hard-headed assessment of our interests tell us?

It tells us that our interests are strongly in favour of opening up markets for our exports - markets that are currently massively protected. It means strengthening the rule of international law - the only thing that stands between us and the law of the jungle on the world economic stage. Countries such as Malaysia and New Zealand rely on robust trade rules, fairly administered.

It means ensuring that our citizens see the trading system as part of a balanced approach that serves their interests and deserves their support. Too often, the only voices the people hear are the voices of commercial or other interests who want to reserve existing privileges.

It is pretty clear that there is an enormous amount at stake. It is also clear that the reason why there is such a huge potential for gain is because our agriculture and resource-based industries are at a disadvantage right now due to huge distorting interventions by our trading partners.

Last year developed countries gave away US$361 billion to their farmers. That?s enough money to pay for every one of the 56 million cows in the OECD to fly around the world first class with 1500 dollars spending money thrown in.

New Zealand exports face tariffs of well over 100 percent in many markets. Not, I hasten to add, in Malaysia.

For 15 years we have been leading the world in unilateral tariff liberalisation. New Zealand has few tariffs left. At present, 95 percent by value of our imports enter duty free.

We are not going to backtrack from that.

However, we have announced a tariff freeze on the few remaining tariffs. The current applied rates will be held for a period of five years, and a tariff review to be completed at the end of 2001 will consider the future course of our tariff policy in the context of the government?s broader economic strategy. This will give the few industries that still have a small level of tariff protection a little more time to adjust.

More importantly, the tariff freeze will also enable us to undertake further tariff reductions on the basis of properly structured trade negotiations, which are mutually beneficial and under which our trading partners are also making reductions.

This government is taking an approach based on reciprocity, but fully in keeping with the APEC Bogor Goals - which means free trade by 2010 in New Zealand?s case. It is a commitment on the part of all APEC economies to open up. It meets our test of everybody playing their part in a balanced outcome.

It is argued that the best way to reduce barriers to trade is through the World Trade Organisation. But regional arrangements can be stepping stones to that. They can also play an important part in encouraging others to get into the game. At the very least, they can be pursued in parallel with multilateral negotiations in the WTO.

Either way, New Zealand remains absolutely committed to working closely with WTO members on the new agricultural and services negotiations already under way. And, of course, we want to see that folded into a broader negotiating Round. A Round that also responds to the needs of developing countries.

The new Labour-Alliance government also believes that legitimate issues of labour standards and environmental concerns should be better integrated with multilateral trade agreements. We are equally determined that these concerns should not be used as protectionist devices.

Any responsible government whether developed or less developed wants to improve the welfare of its people. That is after all what trade liberalisation is about. It is not there for its own sake.

Given the sensitivity of these issues, we do not expect ageement to be reached easily or quickly.

It is also my Government?s firm opinion that to make any progress at all on these two important issues, it will be critical to ensure full engagement by all countries. It is the multilateral track therefore which will remain the focus of our activity.

New Zealand believes all nations must share in the wealth that trade can generate.

There are a number of studies which suggest that even a halving of trade barriers around the world could add gains of three to four percent to the GDP of developing countries. Even if that is not mathematically precise I think it gives a pretty good idea of what is broadly at stake.

Of course, that does assume that all countries are prepared to dismantle their trade barriers - and smaller countries such as us know how difficult it is to get the large developed economies to agree to do that. But the lesson I draw from that is that we have to keep the maximum pressure on. This is one area where I think both Malaysia and New Zealand have a very strong common strategic interest.

New Zealand and allies in the Cairns Group, such as Malaysia have a clear set of objectives on agriculture. We will pursue the elimination of export subsidies, deep cuts in agricultural tariffs, large increases in tariff quotas, and an end to trade distorting domestic support. And we need a Round to make it happen.

A couple of months back, APEC trade ministers meeting in Darwin in northern Australia agreed on the need to launch a new Round as soon as possible.

I left Darwin convinced that APEC can make a real difference in terms of building an open and dynamic regional economy. I also think that APEC can push forward the WTO agenda.

Similarly, agreement at Darwin to continue the moratorium on e-commerce duties, and support for preparatory work in Geneva on industrial tariffs, puts pressure on the wider WTO membership.

I am sure that when the Bogor Goals were agreed the 2010/2020 deadlines seemed a long way away, but year by year APEC members have taken tangible steps to realise the vision of open and free trade and investment in the Asia-Pacific region. We know that this poses real challenges but we believe that the Asia/Pacific region as a whole will gain.

We have also made it clear that we are ready and willing to negotiate economic partnerships with other countries - or regions - where that is to our mutual advantage. Which brings me on to focusing on New Zealand?s linkages with South East Asia.

Before 1997 ASEAN was New Zealand’s fastest growing economic partner. The economic crisis which hit us all in mid 1997 put a bit of a dent in that. But the recovery which is now underway is restoring past levels of growth.

In any event I don’t think we should be too much diverted by temporary upturns or downturns – it’s the long term trends which are important. By any reckoning, ASEAN as a group and the countries of South East Asia individually remain highly important partners for New Zealand.

This is underlined by the announcement ten days ago of agreement on a closer economic partnership (CEP) between New Zealand and Singapore. The CEP is important for a number of reasons. It is a comprehensive ?state of the art? arrangement which covers trade in goods, services and investment. It goes beyond what has been achieved in the WTO and is, we think, something of a trail blazing exercise in trade liberalisation.

It will certainly have a positive impact on New Zealand/Singapore trade in goods and services and will encourage investment in both directions. We also hope it might also prove to be a catalyst for other agreements of a similar kind.

For example, as you are no doubt aware, another proposal being given serious thought at the moment by countries in the region is the idea of linking of CER with AFTA. I have just been talking to your Minister of Trade and Industry, Dato Seri Rafidah Aziz on this very subject.

As background, the original objective of what is called the AFTA/CER process was to reduce barriers to two-way trade and investment between ASEAN and CER. It was, essentially, a trade facilitation process. Last year Ministers from the countries concerned agreed to set up a Task Force to look into the feasibility of a Free Trade Arrangement between the two areas. I am informed that the Task Force sees considerable merit in the idea.

The Australian Centre for International Economics has estimated that an AFTA/CER FTA would be a win-win proposition for both groupings of countries. The overall gains from forming such a free trade area could be in the region of US$50 billion over the period 2000-2020, shared between AFTA and CER.

I am personally excited by the idea of a trade agreement linking CER with ASEAN. It would have political as well as economic advantages. It would cement in the very close relationship New Zealand and Australia enjoy with ASEAN and would link our economic futures even more closely with yours. We like to think it would bring New Zealand and Malaysia even closer together.

A stable and prosperous South East Asia is good news for New Zealand. We think AFTA/CER has a contribution to make here. We hope that it will come to fruition in the not too far distant future.

Office of Hon Jim Sutton

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