Time for manufacturers to go on a war footing
9 August 2005
"It's time for manufacturers to go on a war footing"
Speech by Rod Donald, Canterbury Manufacturers Association AGM, 8 August 2005
Thank you for inviting me to be the guest speaker at your 126th AGM this evening. I appreciate the honour of addressing such a prestigious business audience.
I would like to make clear at the outset that the Green Party recognises successful businesses are crucial to a thriving economy. We believe the government's contribution to its partnership with the business community should include: creating a stable macro-economic environment; providing essential infrastructure; establishing the right tax and regulatory framework; and ensuring we have a healthy, productive workforce; so that businesses can get on with their business.
Our attitude to the business community shouldn't come as a surprise. After all, many of our MPs were in business before coming to Parliament. My dad was the manager of DA Lewis & Co for over 30 years and I used to work in their furniture factory during my school holidays when it was just down the road, so I have manufacturing in my blood. And my first business venture, Piko Wholefoods Co-operative, is still going strong 25 years on, just around the corner in Kilmore Street.
Hands up who saw the Sunday Star-Times article headlined "Enter the Dragon"? The sub-heading was "So what makes little New Zealand think it can stroll into a free-trade agreement with a giant, without getting eaten up?"
Good question, and one I know you have been grappling with for some time. More to the point, you have been struggling to convince the Labour Government that there are real problems with giving China preferential trade access to New Zealand. Can I congratulate you for not towing the 'free trade' party line, especially in the face of Business New Zealand's virtually uncritical stance on an issue that is so vital to the survival of manufacturing in our country.
I admire your President, Rex William's challenge to Prime Minister Helen Clark when she spoke at your recent function. You were right to raise your very real concerns about the impact of FTA's on your sector. I'm afraid to say that I found Helen's answers less than convincing. She was right to say that in the past, New Zealand governments, both Labour and National, had unilaterally cut tariffs, to the detriment of both jobs and businesses. I liken that to turning up to a strip poker game in the middle of winter in your underwear. You are bound to lose, and suffer from exposure along the way, while everyone else enjoys the joke at your expense.
But Clark is wrong to chant the mantra that New Zealand only needs to move up the value chain and shift into elaborately transformed manufacturing to do well under FTA's. For a start, there is a real misnomer that low-wage work is low-skilled work. Tell that to anyone who works at LWR or Swanndri! Secondly, most of you appreciate, unlike the government, that even, for example, the fashion clothing industry needs a strong manufacturing infrastructure to underpin it. And, thirdly, you need to make underwear between the high fashion jobs to stay in business.
I couldn't describe the situation better than your chief executive, John Walley, has in numerous articles: for example, in the Sunday Star-Times, where he said "manufacturing looks likely to be 'road kill' enroute to the government getting a good deal on primary produce". I even take the liberty of quoting John from time to time.
I do the same with Fisher & Paykel chief executive John Bongard, who I had the pleasure of meeting with at some length recently. It would not be appropriate to reveal everything he had to say about the government's attitude to the manufacturing sector or its fixation with free trade agreements. In any case, he is on the record in the same article as saying that a free trade agreement with China "isn't going to be in manufacturing's interests in New Zealand".
The Green Party is here to help. We are extremely sceptical about the benefits of FTAs and we believe the Labour Government's trade strategy - if it deserves that title - is fundamentally flawed. So my key message to you is that it's time for manufacturers to go on a war footing.
Your very survival is at stake and you must do everything in your power to survive, not just for your own sake, but also for the sake of all the people who work for you and for the country as a whole. In our view, New Zealand needs a strong manufacturing capability to survive the difficult times ahead. There is an election only a few weeks away. You need to get the message through to your staff, your customers, your suppliers, your local councillors and your parliamentary candidates that our manufacturing sector is worth protecting.
I've just returned from five days in Australia where I launched the Green party's campaign for the expat-Kiwi vote. During my travels I took the time to read The Australian newspaper. Two articles were particularly disturbing. The first was an opinion column by Paul Dibb, a former Deputy Secretary of the Australian Department of Defence and Director of the Defence Intelligence Organisation. Here is some of what he said:
"It is not necessary to portray China as an expansionist or aggressive power to understand that it will become the predominant influence in our region .... [including] in the South Pacific, where Chinese diplomats, businessmen and criminal money are making worrying inroads in our neighbourhood.
"We would do well to remember that despite its adoption of the capitalist road to business, the leadership in Beijing is illegitimate. A small clique in the Communist Party of China continues to repress any challenges to its monopoly on political power. Freedom of speech and the right to demonstrate against or criticise the Government remain heavily circumscribed in today's China."
Referring to a recent Pentagon report, he says: "China deploys more than 650 short-range ballistic missiles opposite Taiwan and is developing submarine capabilities that would strengthen its hand in imposing a blockade on Taiwan and countering intervention by US aircraft carriers."
I don't agree with with everything Dibb says, but I share his concern that countries such as ours, which care about freedom and openness, should not succumb to the temptation of believing that we are better off with a China without organised dissent or without troublesome things such as opposition parties or a free press.
He poses the question "do we really want to have a strategic partnership with that kind of country?" and he responds "hopefully, China's rise will indeed be peaceful. But history suggests otherwise. We need to be alert to the risk that Beijing's growing economic and military influence may come to be applied less benignly in our region."
The next day The Australian's Tokyo correspondent reported that the Japanese government is trying to bring forward by up to a year the deployment of a ballistic missile defence shield against the threat of North Korean and Chinese attacks.
You may now be wondering what all this has got to do with manufacturing in Canterbury? I am not suggesting that you need to go on a war footing any time soon, certainly not to manufacture goods for such a conflict, but could you make the enormous range and quantity of products that we currently import from China if trade was disrupted with that country? Could you meet that challenge?
In the panic that ensued when New Zealand's record $5,176 million June year trade deficit was announced two weeks ago, an equally disturbing event passed by unnoticed. China has now eclipsed the USA as New Zealand's third largest supplier of imported goods. In the last year, imports from China rose 19.9% to $3,678 million while imports from the USA declined by 7.3% to $3,642 million.
I predicted this eventuality back in April, in an issue of JustTRADE - our fortnightly email newsletter on trade and investment matters which you are all welcome to receive - but I thought it would take five months to eclipse the USA and a further seven months to leapfrog Japan. At the current growth rate China will be our second last source of imported goods by Christmas.
China's stars are definitely rising while the USA's stars are waning. Incidentally, you may not know that the big golden yellow star on the Chinese flag symbolises the Communist party while the four smaller stars represent the people of China. This is clearly a case where symbolism reflects reality.
The Chinese regime's military build up and expansionist signals increase the chance of regional conflict that could have significant economic consequences for New Zealand, given our growing dependence on China for a wide range of everyday products. Were supply lines to be cut or disrupted for any length of time I believe New Zealand would struggle to rebuild our manufacturing capacity because we lack both the machinery and the skilled tradespeople to operate them as well as the entrepreneurs willing to invest in both.
China's willingness to export to us is not reciprocal. In fact, for the year to June, New Zealand's exports there were down $1.8% to $1,589 million, resulting in a $2,000 million, yes, a $2 billion trade deficit, up $500 million on the year before.
That $2 billion deficit has been at the expense of your businesses and the people who work in them. According to Ministry of Economic Development figures, we lose 16 jobs for every one million dollars of unnecessary imports. On that basis, just the increase in our trade deficit with China has cost us 8000 real jobs in the last year and the total deficit equates to 32,000 jobs that we have effectively exported to China.
The strategic trade question that the Government has failed to answer honestly is what will happen to our trading relationship with China if we remove the last remaining tariffs on imports from that country. The flood gates are already wide open in the textile, clothing and footwear sector, although the last 19% tariff may be helping the likes of LWR to hang on by their fingernails. And that last 5% tariff on whiteware is certainly what's saving elaborately transformed manufacturers such as Scope and Fisher & Paykel from being forced to shift production off-shore.
But the China debate is more complicated than just tariffs. There are issues around ineffective border control, illegal dumping, the absence of decent energy efficiency standards on appliances, which means imported products that would be illegal to sell in Australia are competing against quality New Zealand whiteware, and, of course, the big questions around the wages, working conditions, environmental standards and human rights abuses in China.
The Green Party position is unequivocal. New Zealand should not give any country preferential trade access to our market that has not ratified and does not enforce core ILO standards such as the abolition of child and forced labour and the right to organise. And we are adamant that our border control needs to be improved to ensure that imported goods meet our sanitary and phyto-sanitary requirements. We want Customs and the Ministry of Commerce to be pro-active rather than reactive in enforcing New Zealand laws. Companies such as yourselves certainly shouldn't have to go the expense of having to prove that a foreign competitor is dumping their product on our market or failing to comply with our environmental standards. That's the Government's job.
The experience of other free trade agreements does not fill me with confidence that they are beneficial for our economy. Since New Zealand's FTA with Singapore took effect our exports to that country have actually shrunk by $60 million to $420 million and our trade deficit has rocketed from $58 million to $690 million. The situation with Australia is even worse. New Zealand's trade deficit with our closest neighbour has just hit a new all time record of $1,438 million.
So it won't surprise you that one of our top business priorities is to end the government's fixations with free trade and foreign ownership and replace them with a strong "Buy NZ Made" campaign and tighter foreign investment rules.
New Zealand's lopsided international trading and investment relationship with the rest of the world is not only the root cause of our record $5.2 billion trade deficit, our unsustainable $10.2 billion current account deficit and the 1-2% "risk premium" we are paying on bank interest rates as a result, but it is also the reason why our lean, mean manufacturing businesses are struggling to survive.
The Green Party wants Kiwi businesses to pay your workers at least $12 an hour, as well as meet OSH standards and comply with the RMA but you shouldn't then be forced to compete against sweatshop imports where third world workers, including children and forced labour, have been paid less than $1 an hour and made to work in inhumane conditions.
Neither should Kiwi businesses be expected to look after the environment if we don't ensure that imports meet the same energy efficiency and environmental standards you have to. We would protect you from unfair competition, and steer our economy towards sustainability and self reliance, through a combination of tariffs, import controls and international rules and standards.
Getting the New Zealand dollar down to where it belongs is another one of our top business priorities if we are in government after the election. Exporters, domestic manufacturers and tourism operators are all hurting because our dollar is overvalued but this transition will need to be managed carefully to ensure that inflation remains under control.
A third business priority is a targeted support package for companies to help you achieve improved energy efficiency, waste reduction and pollution control, through such mechanisms as accelerated depreciation for appropriate investment. This would be accompanied by a suite of eco-taxes, including a carbon tax, a levy on hazardous substances, and a waste tax, designed to reward those companies that reduce their ecological footprint.
Our goal is not only to get our economy out of the red and back in the black. We want to green it as well. A green economy is not about doing without, it's about being more productive and less wasteful - making better, more durable products that last longer and consume less resources. It's about creating more real, satisfying jobs. And it's about investing in the right infrastructure, such as solar hot water and wind energy generation and a high quality passenger transport and rail freight network.
Which brings me to the third "war footing" you need to be on. In a Press article last month headlined "Black gold running out" a Texan oil banker, Matt Simmons, compared complacency about future energy supplies to the atmosphere in the summer of 1939, before World War 2 broke out. He is urging the world to put itself on a "war footing" and start to reduce its dependence on oil. He incidentally stars in 'The End of Suburbia - oil depletion and the collapse of the American dream' - a film I would be happy to show you.
With oil prices reaching new peaks of $US61 a barrel for Brent crude in the last few days, Simmons is right to - in his words - "scare people to death". The Green Party certainly believes that the increasing impact of climate change and the rapidly rising price of oil are both warnings that we need to make fundamental changes to how we do business and how we live our lives.
New Zealand has a small window of opportunity to transform our economy from one that depletes and wastes resources and pollutes the environment into one that is genuinely clean and green, and we believe the government has the responsibility to lead the way.
Unfortunately the Labour Government does not yet share our sense of urgency. Worse, it has been caught napping. Despite international oil prices exceeding three times what Treasury predicted last year they would be now, the Government is still planning to build more motorways instead of supporting our plan to invest heavily in public transport.
If you are thinking "this is just the Greens scaremongering again", please think again. Even Treasury acknowledges that world oil production will peak and then decline - they say it won't happen until 2030, some experts predict 2010, others say we are there now.
Whether or not you accept this "production peak" scenario, we have clearly reached the end of cheap oil, significantly because of rapidly rising demand in China and India on top of the high per capita consumption in western countries, particularly the USA and New Zealand. In last year's Budget, Treasury predicted oil would be back to US$19 by now. In this year's Budget, it conceded that oil is unlikely to fall below US$47 for 5 years. As I said, it is now $US61 a barrel and showing no sign of falling substantially.
These prices aren't yet reflected at the pump in New Zealand because of the high valve of our dollar. When it settles, unleaded 91 octane will increase to NZ$1.51 (@US60c/NZ$) and NZ$1.67 (@US50c/NZ$).
Oil is not easy to replace so we need to reduce our consumption. We can do that without reducing our quality of life. In fact, our quality of life might improve if we can reduce traffic congestion at the same time. More and better public transport is a big part of the solution, rather than building more motorways. So is living closer to work and walking or cycling. Introducing fuel efficiency standards for cars and trucks, getting freight off roads and back on track, electrifying the main trunk line, expanding passenger rail services and more coastal shipping would all help.
You can play your part by encouraging your staff to use public transport, setting an example yourself, switching to rail for freighting your products, and, where possible, producing your products closer to both their market and the source of raw materials.
A green economy offers tremendous opportunities for good businesses to flourish. And a Green Government would make it possible for that to happen. We want to build a strong, stable economy, not a "growth at all costs" one that leaves nothing left for future generations. That means working in partnership with you to steer the economy towards sustainability and self reliance.
We have had a significant influence in this Parliamentary term - on transport policy and on legislation. 17 bills, from climate change to care of children, Supreme Court to OSH, Maori TV to ACC have only passed with our support. And it is our goal to have more influence in the next Parliament.
We have already declared which side of the fence we are on - a party vote for the Greens is a vote for a Labour-led government. But that is no blank cheque. We will drive a hard bargain in policy terms - we will need a comprehensive policy agreement with Labour to join them in coalition or work with them on confidence and supply. There will be points of difference - trade and investment, the super fund and genetic engineering - but we can agree to disagree without the relationship falling apart.
We have matured as a party - in '99 we were sexy, in '02 we were scary but this year we are serious - and we are a strong team. Our eight returning MP have 48 years' Parliamentary experience between us and we have lots of new talent waiting in the wings.
We take a professional approach to our work because the stakes are too high to do otherwise - not just for our future, but for the future of this planet and all its people.