Hon Dr Michael Cullen
Deputy Prime Minister, Attorney-General, Minister of Finance, Minister for Tertiary Education, Leader of the House

21 March 2007 Speech Notes

Embargoed until: 3.40pm
Building on our long links with Europe

Speech Notes for the Institute of International Affairs function on the 50th anniversary of the signing of the Treaty of Rome, Auditorium, National Library, Molesworth St.

Your session is on political ties with the EU.

The starting point for political ties with the EU is the nature of the European Union itself.

It is a modern political triumph. With Bulgaria and Romania joining this year it now extends across twenty-seven countries and more than four hundred and fifty million people.

And yet consider Europe fifty years ago when the Treaty of Rome was signed.

The foundations were laid in a continent ravaged by the most bitter and destructive wars in human history.

Yet the subsequent five decades witnessed unbroken peace and prosperity in those countries within the Union, whereas outside of it in Europe strife remained all too common.

But the European Union also showed the world the huge advantages for populations when partnerships between countries are built on co-operation and mutual advantage, and when there is democratic input and responsiveness.

Think of the Balkan states that as recently as the nineties were locked in brutal wars and savage ethnic killing. Now those same states are seeking to enter Europe under a common umbrella committing them to respect for their neighbours and to human rights.

Europe is a formidable achievement.

So when New Zealand looks at our political ties with Europe, we should start by looking at what we have in common and what we can be inspired by:
Europe's democracies;

- The vibrancy of its multilateral institutions;

- The value and potential of trade agreements that both created a common market and added higher social, environmental and labour standards; and

- The vibrancy of industrial development that underpinned some of the highest living standards in the world.

The most important political tie New Zealand has with Europe is not our trade or our large historical links, neither our shared cultural roots nor our shared status as developed countries.

Our most important political link is our shared commitment to democracy, to human rights, to international law and to robust international institutions.

Today we co-operate with the European Union and with members in many different forums, and the platform is laid by these shared values.

We grew our relationship in 1999 through our political declaration formalising consultative arrangements.

And our co-operation around dialogue, international law, and human rights in international relations will grow in future as the EU formalises a stronger foreign policy voice.

A united European voice is likely to play a larger role in international affairs in future.

The constitutional development of a common foreign policy approach may have withered for now, but the momentum remains strong.

The EU is likely to base its foreign policy around peaceful, lawful solutions to crises and the promotion of human rights and institutions.

New Zealand has almost always sided with the guys in the white hats when it comes to democracy and international law.

So we can expect to spend a lot more time in Europe's corner on these issues.

Europe is already a very important united voice in global trade.

On that score, we often have less in common with Europe.

It has been a chief defender of protectionist privilege for the developed countries of Europe; we have called for freer international trade.

But even in the trade area we can notice that Europe was an early example of the benefits of free trade in practice.

There are other lessons the world can learn from Europe's development of a common market.

It recognised that trade and economic issues do not stand alone; they are underpinned by social and environmental factors and they affect workplace conditions.

Europe solved this by extending its trade co-operation into these many other areas. Other trade agreements around the world are also increasingly coming up against the need to take into account the well being of people in terms that are not strictly economic.

The success of the European trade area might also inspire us in other ways.

Europe has proven it is possible for very different economies to come together. Europe today includes very small economies like that of Luxembourg and very large ones like Germany, the world's largest exporter. It spans high income countries such as the UK and modest income ones such as Poland.

New Zealand also has come to see the value of agreements with countries very different to us.

Our first comprehensive trade deal, CER with Australia, was with an economy very similar to ours, and though it was larger it was not dramatically so.

Today we are negotiating a trade agreement with very different economies, such as China - some time in the next twenty years to be the world's largest.

Europe has already shown it is possible for a small economy to work well in partnership with very large ones.

But the very fact we are looking to an Asian powerhouse economy for a major economic agreement also tells us a lot about the future direction of our political and economic ties with Europe.

Europe remains a crucially important partner for us. It is New Zealand's second largest trading partner after Australia.

Having said that, if North Asia were taken as a single bloc, then trade with that region would considerably outweigh our trade with EU members.

We have added a new focus outside Europe ironically because the UK recognised the potential of the European market for it.

At the time the Treaty of Rome was signed, our economy was narrowly based on the export of a small range of products to very few countries. Eighty percent of our exports went to the UK.

We did very well out of it for a long time, but when our major market changed we needed to respond.

Today our two-way trade with Europe totals nearly $12 billion (Year to June 2006). The UK and Germany are our fifth and sixth largest trading partners, with France, Italy Belgium and the Netherlands also in our top twenty.

The nature of our trade with Europe is a study in where we the potential for New Zealand's economy lies.

There is a view of Europe you sometimes hear repeated that says it is struggling.
Indeed, our growth rate since the start of the millenium has been much better than the European average. But the new EU member states have grown even faster. Per capita incomes in the countries that first formed the European community are a quarter to a third higher than ours.

Fortune magazine reports that half the world's largest thirty companies by revenue are European. They include oil giants like Shell and BP and Total, financial companies like ING and AXA and also Carrefour - the retailer with operations in more countries than any other.

Europe's large firms are strikingly well integrated into the global economy.

Take a single manufacturer like Seimens. In 1865, around the time New Zealand was beginning to send meaningful exports to the UK, Seimens opened shop there too. Today it is Europe's largest engineering firm, operating in 190 countries with revenue last year about the size of New Zealand's GDP: €87 billion, or nearly NZ$170 billion. Eighty percent of its sales, three quarters of its factories and two thirds of its workforce of nearly half a million people are outside its German homeland.

Though we have a number of successful New Zealand companies with operations throughout the world - led by Fonterra, of course - none are as global in scope and integration as the European leaders.

This is important because it tells a story about the way we earn our living and our ability to earn high value returns.

Consider a humble beer: We grow hops in New Zealand, we can process it into a fine lager, bottle it here and serve it in an Auckland pub, and yet someone in Europe gets a cut from the sale. That's because Europe has sold us the recipe and brand behind beers like Heineken and Stella Artois.

When we look the other way there are few examples of New Zealand similarly profiting. There are not many examples of, say, New Zealand getting a cut from wheat grown and milled in Europe, transformed into cereals and eaten at an Amsterdam or Milan breakfast table.

We have not been as good as Europe at capturing value created by others or at capturing the high value part of the production process.

Doing better at earning from our knowledge is a top priority for this government.

We are seeing some examples that are exciting.

For example, merino wool clothing from Icebreaker is being manufactured in China and then exported to Europe. We retain high value parts of the production process such as marketing and design.

In recent years we've also been earning as much in Europe from our screen production industry - from productions like The Lord of the Rings trilogy and from The Lion, the Witch and the Wardrobe - as from forestry and horticulture.

Europe is also a very important source of tourism to New Zealand. 450,000 EU visitors arrived last year and the UK is our third largest tourism market. They are not coming here because it is cheap; they are coming here because it is a high quality experience. Condé Nast Traveller magazine readers' survey judged New Zealand the second most preferred tourist destination in the world.

Our largest export to Europe remains sheepmeat. Europe takes half of our sheepmeat, 40 percent of our wool and 29 percent of our butter. But we are adding to those staples. New Zealand lamb cutlets might now be enjoyed with a side dish of olives, 100 percent pure fresh fruit and vegetables and fine cheeses - all accompanied by a sauvignon blanc or pinot noir.

Our increasing global integration is paying dividends.

The world prices New Zealand gets for non-commodity manufactured goods has been rising since the 1990s.

We are getting much better at earning a premium in offshore markets.

International connections like those we have with Europe are essential for New Zealand.

We are a small, open economy.

Linking into global markets deepens our exposure to competition and our access to capital.

It gives New Zealand a two-way flow of new ideas, fresh skills and leading technology.

It provides our businesses with vital opportunities to diversify their products and services, and establish and build on their presence in an expanding range of export destinations.

The significance of international connections for our economic performance means we remain committed to further breaking down unreasonable barriers to cross-border trade and investment flows.

The best outcome for New Zealand will be progress within the framework of a comprehensive, multilateral rules-based global trading system.

But we are realistic enough to know that waiting for the next World Trade Organisation breakthrough is like watching our cricketers at the World Cup: there is always hope, but you have to accept that there is a chance that you will be disappointed.

So we are developing our economic partnerships with new regions.

For example, we secured a closer economic partnership deal with Singapore in 2001, negotiated the Trans-Pacific Strategic Economic Partnership linking Brunei, Chile, New Zealand and Singapore last year and signed a free trade agreement with Thailand in 2005.

I’ve mentioned China and we are also currently in trade access negotiations with Malaysia and six key Gulf states that currently provide New Zealand with an export market the size of Germany's.

We also need to be vigilant in protecting our existing markets.

We share with Europe deep concern about climate change; In fact the issue potentially affects us more because we are more exposed to climate through our greater dependency on agriculture.

So we have seen the rise of issues like 'food miles'; Taxes are being applied to airline travel that impact most on the longest flights - no flight is longer than the flight to New Zealand.

Spurious though the food miles issue may be, it also highlights that there is an enormous opportunity for us. Europe is demanding more environmentally responsible production. If New Zealand can realise our vision of becoming carbon neutral and the first truly sustain able country, then we will be able to make a stronger case for expanded trade access and a premium at the shopping counter.

Climate change provides an opportunity to deepen our links with Europe, if we handle the issue the right way.
This may be one of the defining political issues of this century. We are likely to work with Europe on climate change issues both directly in terms of our trade access, and multilaterally in global forums.

Our relationship with Europe is going to evolve. It will not wither as our ties with Asia grow, but it will change. We are deepening our connections all over the globe. And we can expect to deepen our connections with Europe too, at political and economic levels.

Thank you.

ENDS

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