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Cosgrove: Trade Liberalisat'n Network Speech

25 October 2006

Hon Clayton Cosgrove

Speech to the New Zealand Trade Liberalisation Network Annual General Meeting
Venue: Tambourini Room, Museum Hotel, 90 Cable Street, Wellington
Time: 4.20pm,

Chairman of the New Zealand Trade Liberalisation Network Philip Lewin; former Prime Minister, the Right Honourable Jim Bolger; my parliamentary colleague the Honourable Murray McCully; network members; ladies and gentlemen.

I would like to thank Phil Lewin for the invitation to address your Annual General Meeting today, in my capacity as Associate Finance Minister. Ironically I am also Acting Trade Minister today as my Cabinet colleague, the Honourable Phil Goff, is away overseas. I would like to pass on his best wishes for the success of your AGM today.

It is no exaggeration to say that today we are truly part of a global economy – from the food and beverages we consume, through to the cars we drive, the clothes and shoes we wear, and even the programmes we watch either on the television or on the Internet. We can even consider ourselves to be a microcosm of world trade. For example your jewellery may be crafted in New Zealand from imported gold, your shoes made in Italy, your shirt imported from the United States and your New Zealand merino wool suit may have been sewn in China.

Trade benefits New Zealand and the rest of the world. Not only does it give us greater choice, it is also the bedrock of many economies, especially a country like ours which is so dependent on exports and which is looking to increase its export returns.

Exports of goods provided NZ$29.2 billion of income to New Zealand in the year to June 2005. Exports of services (mainly tourism and education) accounted for a further $11.8 billion. To put all this in perspective, New Zealand's total exports of goods and services accounted for 29 percent of New Zealand's Gross Domestic Product during this period.

Trade is the lifeblood of our overall economic growth. Exporting enables New Zealand firms to expand their customer base, particularly in high-value niche markets that can increase productivity and profit.

As well as providing direct income to exporters, trade delivers considerable flow-on benefits for the rest of the economy. As the demand for quality New Zealand exports rise, exporting firms need to increase their output and therefore their demands on other New Zealand producers. In other words it leads to reinvesting in the New Zealand economy. This can lead to more employment and higher incomes across the whole economy. As many as one in five jobs in New Zealand are dependent on trade.

Export sales also provide New Zealand with the money to import goods at a cheaper price than it would cost to produce here. This increases the purchasing power of New Zealanders. For example – and I am speaking in my capacity Minister of Statistics for a moment – the average New Zealand household spent $700 less in 2001 on clothing than in the mid 1980's, when tariffs were at their height. It is an interesting point to note given that today we have an unemployment rate which is the second lowest in the OECD (Organisation for Economic Co-operation and Development).

This Government has been, and is continuing to work hard to secure New Zealand's place in the global economy. And I say we are working hard because you of all people know how tough the global market is because there is not a level playing field. Not yet anyway.

Protectionist policies such as agricultural subsidies that are adopted by some countries create an artificial pricing environment in which poor countries especially cannot compete. And when we talk about subsidies, we are talking about a huge amount of money. For example in 2003, OECD member countries were responsible for US$340 billion worth of agricultural subsidies.

The resulting surpluses are dumped on world markets, undermining the livelihoods of millions of small scale farmers in poor countries and therefore closing the door on an escape route from poverty.

These subsidies also damage the prices our farmers in New Zealand receive as well. To give you a picture of how the removal or reduction of tariffs and subsidies helps this country, consider this: the New Zealand economy is estimated to have gained around NZ$9 billion from the Uruguay Round between 1995 and 2004 through greater market access and lower trade-distorting subsidies. Nearly 18,000 jobs were created as a result.

Before the World Trade Organisation's (WTO) Doha Development Agenda Round of trade negotiations were suspended in July this year, it was estimated that New Zealand could make comparable gains to Uruguay from the further multilateral liberalisation.

As you will know, the negotiations were suspended because the key players (the United States, the European Union, Brazil and India) failed to reach agreement on three critical issues - real gains in market access for agriculture and industrials, and real cuts to farm subsidies.

If we cannot resume and conclude the Doha Round there will be large costs for developed countries like New Zealand, not to mention the developing nations as well. These costs will obviously be economic, as countries miss out on the gains to be made from further liberalised global trade. But the costs will also be political – the credibility of the whole global trading system could be undermined. As the WTO Director General Pascal Lamy has pointed out, we are all losers if the Round does not reach a conclusion.

The critical question is whether the major players –the US, the EU and the large developing countries Brazil and India – have the political flexibility and will, to make the necessary compromises.

New Zealand is committed to doing all it can to get the negotiations back on track.
My colleague, Trade Minister Phil Goff is continuing to keep in close touch with key WTO players. What we are hearing from those discussions is that, despite the difficulties, there remains a sense of continued commitment to the process.

However let us not forget the big picture. While the Government recognises that the WTO offers the best hope of reducing distortions to trade at the global level, there is plenty of other trade related work going on alongside. The Free Trade Agreements and Closer Economic Partnerships on New Zealand's regional and bilateral agenda also have the potential to deliver considerable economic gains.

It is basically about not putting all our eggs in one basket. We have a multi-pronged approach, which includes the WTO, pursing economic integration through for instance, the Asia-Pacific Economic Co-operation (APEC) Forum and the East Asia Summit process, as well as through our ongoing Free Trade Agreement negotiations with the giant in the region, China.

Currently Chinese tariffs on New Zealand products cost exporters more than NZ$110 million a year. It is estimated that a proposed New Zealand-China Free Trade Agreement that removes these tariffs at their border could lift this country's exports of goods and services to China by NZ$260 million to $400 million a year.

This year has seen the visits of both the Chinese Premier and the Commerce Minister who agree that negotiations should be wrapped up within two years. Significant progress has been made but a lot more work is still required at the negotiating table if we are to deliver an agreement consistent with our objectives.

Likewise, work is ongoing to achieve a free trade agreement with the Association of Southeast Asian Nations, in conjunction with Australia. Despite encountering difficulties in finalising a Free Trade Agreement with Malaysia, New Zealand will continue its efforts to reach agreement as soon as this is feasible.

We are also continuing our work to deepen our trade relationship with Australia through CER (Closer Economic Relations), which is the most comprehensive free trade agreement in the world.

Other trade deals already in action are with Singapore and Thailand. Then there is the Trans-Pacific Strategic Economic Partnership that links Asia, the Pacific and Latin America with a commitment to eliminate tariffs on all traded goods.

New Zealand will shortly begin negotiations for a free trade agreement with members of the Gulf Cooperation Council, which includes Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the United Arab Emirates.

On top of this, we continue to talk to our major partners about the possibility of strengthening our trade and economic relationships, particularly with Japan and Korea. This is supplemented by intensive trade and investment promotion to attract more business for New Zealand exporters.

Clearly, the Government is working hard to secure New Zealand an even better future through trade. In fact "Export Year" will be launched at the end of next month at the 2006 Export Awards ceremony. More details will be revealed at that time, but suffice to say, the success of Export Year will depend in large part on how business and the Government work together to improve New Zealand's export performance. This is part of the Government's broader economic transformation agenda, to transform the New Zealand economy.

Our goals are clear. We need to reduce or eliminate trade barriers in New Zealand's key markets via multilateral, regional and bilateral trade liberalisation. We need to encourage New Zealand firms to be outward looking and "think global", and to add value to their products, as part of the ongoing move to compliment commodity production. And we need to maximise the benefits from international connections between New Zealand firms and Government agencies, and the global marketplace.

The Trade Liberalisation Network has been a key player and a relentless campaigner for the cause of free trade. You have spelt out to New Zealanders the importance of achieving free international trade, and what it will mean to them. If we are not thinking about it, talking about it, and keeping it on the public radar, we risk losing momentum and even losing some of the gains we have made.

So on that note, I would like to congratulate you on your achievements so far. Although the benefits of trade reform and closer economic integration are very obvious to we 'true believers' in this room, it is not always so well understood in the wider New Zealand or international community.

We need voices, as well as those of the Government, to promote the pro-liberalisation cause for the good of us all and the future well being of New Zealand and its people.

Thank you.

ENDS

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