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Sutton: Spech to Chinese Entrepreneur Seminar

Hon Jim Sutton Member of Parliament for Aoraki

Minister of Agriculture, Minister for Trade Negotiations, Minister for Biosecurity, and Associate Minister for Rural Affairs

Speech Notes

11 August 2005

Chinese entrepreneur seminar,

Auckland

Ladies and Gentlemen: I have visited China officially more than fourteen times since becoming a member of parliament and as a tourist back in the early 1980s.

What I have learnt is that there is always something more to learn.

The pace of change in China, including in the regulatory environment, almost defies belief, particularly given the size of the country.

China's economic transformation has been one of the most rapid and far reaching in human history. It will excite the interest and admiration of historians, both economic and political, for years to come.

Here in New Zealand we also know something about change. The past twenty years have seen a huge transformation of our economy.

In 1984 the budget deficit stood at around nine percent of GDP. Inflation was high, agricultural export sectors heavily subsidised, and there were high levels of protection for our manufacturing industries.

The then-Government embarked on an ambitious programme of change, including slashing subsidies and tariffs. Change did not come without pain.There was high unemployment, some businesses folded and some farmers were forced to walk off their land.

But eventually a reformed and more competitive economy began to take shape.For the past five years the New Zealand economy has grown at an annual average rate of 3.8 percent. Unemployment is the second lowest in the OECD, at 3.9 percent. Inflation is less than three percent. The Government runs a healthy budget surplus.

New Zealanders are determined not to let our size, or our distance from our main markets, hamper our economic progress. We know we need to be constantly reviewing progress, looking for new markets, and capitalising on our talented, innovative, enterprising and skilled workforce.

We aim to create an environment in which innovation can flourish, and where new thinking and new ideas are encouraged.

New Zealand has particular skills in agricultural technology and research. In fact, we are world leaders in this sphere.

We have also demonstrated our innovation and expertise in areas such as aircraft engine maintenance, informationand communications technologies, film production, biotechnology, medical research and applications, structural design using timber, and food technology.

New Zealanders designed the baggage handling systems at some of China's newest airports.

At present our trade statistics show that two-way merchandise trade between New Zealand and China is 3 to 1 in China's favour. This reflects recognition of what China can offer New Zealand, but it underscores a lack of understanding in China of what New Zealand has to offer.

We need to make ourselves better known in the Chinese market. Seminars such as today's will help in that regard, as will the proposed New Zealand/China Free Trade Agreement.

The sheer economic significance of China cannot be denied. It is already the world's second largest economy - in purchasing power parity terms - and can boast around 100 million people who can be classified as middle class. This figure will surely grow much larger.

It's not just a global story.

China is an important driver of our own economic well-being too. It is ourfourth largest trading partner; one of our fastest growing international markets; and our largest customer for some dairy, wood and wool products.In many areas we are still just scratching the surface of a potentially huge and lucrative market.

The significance extends beyond goods.We have strong tourism and education links. Since 1997, when New Zealand was granted approved destination status, visitor arrivals have increased five-fold to 84,000. We also continue to welcome healthy numbers of Chinese students - across all levels of study.

China itself is emerging as an international trade heavyweight.

It too has turned its attention to making headway on FTA negotiations and has concluded deals with Hong Kong and Macau, and with ASEAN on goods.Its current list of negotiating partners is extensive and includes some of New Zealand's global competitors such as Australia, Chile and South Africa.

China is also discussing a services and investment deal with ASEAN members.

Amidst all this activity New Zealand has been given a privileged position on China's busy FTA dance card.To shy away from this opportunity would not only throw away the potential economic gains, it would risk New Zealand being left out in the cold, forced to compete with other countries' exporters enjoying the benefits of preferential access in the Chinese market.

The potential benefits of an FTA were confirmed by the results of the Joint Feasibility Study released last year. It concluded a high quality deal would benefit both countries - with exporters leveraging off complementary economic structures and improved market access conditions to secure trade outcomes that would be of mutual benefit.

New Zealand stands to gain much from a high quality and ambitious deal. The removal of China's relatively high levels of protection - an average tariff of 9.5% at the Chinese border versus 3.6% in New Zealand - and other non-tariff barriers is expected to see New Zealand exports grow between $260 and $400 million a year above what would otherwise be the case.

The removal of restrictions in the areas of services and investment would also deliver gains to New Zealand business.

A high quality deal would deliver positive benefits to China too.

Its exporters would see an increase in trade with New Zealand - albeit on a smaller scale given New Zealand's relatively open economy. But the majority of benefits for China are expected to flow from efficiency gains in its domestic economy. And Chinese traders would also stand to benefit from the adoption of international best-practice of the type New Zealand is looking to promote in all areas under the FTA.

While on balance the FTA will benefit both countries, the study did recognise there may be a downside for some. Some sectors in both countries face potential adjustment impacts. But the study concluded that these should be manageable and recommended negotiators from both sides take these into account during negotiations - just as we have in other FTA processes.

New Zealand's approach in such cases is to negotiate agreed phasing of tariff reductions - giving the affected industries time to adjust to the fact that relevant tariffs will be eliminated by date certain. That was the approach we took in our recent negotiations with Thailand and with our 'P4' partners, Chile, Singapore and Brunei. It is also the approach we will be looking to take with China.

Four rounds of negotiations have been completed, the latest taking place just over two weeks ago, in Xian, China.

We've made a productive and constructive start to negotiations - with negotiators covering all the areas discussed in the Joint Study. In a range of technical areas, our experts have met to discuss our respective systems and policy approaches.

From these exchanges, a good level of mutual understanding has developed - an initial step in the process, but an important one to prepare the ground before negotiations enter the challenging decision-making phases ahead.

We look forward to the next round in October, where we will once again welcome the China team to New Zealand.

I am convinced, even more so following my recent trip to China, that both sides share a strong commitment at the highest political levels to securing a high quality outcome.

But despite this positive start one can't predict how long negotiations may take.

From New Zealand's standpoint, the key point is securing the best deal for our businesses and economy - an objective that I'm sure is shared by our negotiating partner from their perspective.

So we're looking for a good deal - one that provides significant opportunities for our exporters. But ultimately an FTA only provides a framework for businesses to operate within. It is up to exporters and importers to take advantage of the opportunities afforded by any agreement to forge closer trading links. This is where implementation and harvest strategies kick in.

Forging a positive and constructive relationship with the world's fastest growing economy is a smart move. If we are going to cut it in the Chinese market we need to play to our strengths. We need to be innovative and smart.That's the way to deliver more jobs, more opportunities, and higher living standards.

But we can't do all this through a trade deal alone. We want to be ready to take full advantage of the opportunities the FTA can bring us. But we also need to prepare for the longer haul - to ensure we can reap benefits beyond those such an agreement can deliver upfront.

How do we do this?

We need to be strategic.We need to think now about how we will implement the FTA.Together, the government and the private sector should develop a shared vision of New Zealand's place in the China market over the next five to ten years and beyond.

In some more complex areas we need to drill down and find out exactly how Chinese systems operate and who are the right people to talk to. Government to government relationships are critical given the lead role of the state in market development.

We need to keep building the wider relationships ? between leaders, ministers, business, academics and ordinary New Zealanders and Chinese. This will help us find the synergies and opportunities for mutual benefit.

Business involvement is crucial to ensuring that both sides make the most of these opportunities. We need to stay engaged with each other. We need to continue to hear from the business community, particularly in respect of the questions I'm about to ask.

* Should we target particular sectors?

* Do we want to concentrate on specific provinces or specific products?

* Where would a whole of government effort yield the best returns?

* What mechanisms could we establish to deal with issues that might not be able to be dealt with in the FTA?

The Trade and Economic Cooperation Framework agreed in May last year sets out a cooperative agenda across a wide range of sectors including, agriculture, forestry, education, tourism, professional services, science and technology and biotech, among others. Officials in New Zealand and China are already working together in these areas to improve cooperation, remove barriers that may exist, and open up new opportunities.

Our trade promotion activities need to be closely aligned to government/private sector partnership objectives for China. We want to direct efforts to get the most mileage - whether it be well-targeted trade missions to China or export seminars in New Zealand.

Earlier this year I led a dairy industry delegation to Beijing and Inner Mongolia.Another trade mission is scheduled for the last week of October and the first week of November. It will focus on opportunities in the food and beverage and building and construction sectors in Hong Kong,marine products and ICT in Macao, and wood products in Shanghai, and possibly on some other sectors as well.

In conclusion, ladies and gentlemen, China and New Zealand have both embarked on paths of rapid growth and modernisation. We have a lot to offer each other. Let's work together to make sure we make the most of the opportunities.


ENDS

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