Hon Phil Goff
Minister of Trade

10 April 2007

Address to Nelson Chamber of Commerce
Address to Nelson Chamber of Commerce luncheon, Trailways Motor Inn, Nelson

Paul Mathieson, Mayor of Nelson, John Hurley, Mayor of Tasman, Craig Dennis, President of the Nelson Chambers of Commerce, Ladies and Gentlemen.

Thank you for the invitation to speak at your luncheon today.

I had anticipated being refreshed and reinvigorated after a relaxing Easter break when I came to meet with you today.

However, as luck would have it, I got to spend Easter Sunday and Monday on a C-130 flight to the Solomon Islands, and back, to meet with disaster relief organisers and New Zealand Defence Force Personnel providing on-the-ground assistance there.

Having got home in the early hours of this morning and leaving shortly thereafter to fly South, I'm not quite as rested as I had hoped to be.

However one of the advantages of travelling to a place like the Solomon's is a better appreciation of the things about New Zealand which are often so easy to take for granted, and a realisation that the challenges and problems we face are manageable.

New Zealand through the 70s, 80s and 90s faced real adjustment problems in our economy as we were forced to diversify our products and our markets.

This was not helped in the 70s and early 80s by applying solutions from an earlier era, which inhibited change rather than encouraging adaptation to new global realities.

When we finally implemented a reform programme, the level of change imposed had dramatic and often painful social and economic effects.

However, we have emerged stronger as a country as a result, over the last eight years, our economy has grown by about 25%.

We have enjoyed strong job growth, creating an additional 330,000 jobs over the period, and our unemployment at 3.7% is one of the lowest in the OECD.

Business profits and household incomes have grown steadily over this time.

According to company tax returns, profit growth averaged over 20% a year in 2003, 2004 and 2005.

By comparison, the average for the previous eight years – which is about as long as we have comparable data for – was profit growth of 5-7% a year.

But we cannot be complacent about the ongoing challenges we need to meet.

In a rapidly globalising world economy, New Zealand must aim to be an innovative and creative, high-skill, high-wage economy.

There is no future in trying to compete as a low-skill and low-wage economy, we also need to focus on how we can grow our exports.

Our current high balance of payments deficit, at around 9% of GDP cannot be sustained.

And, our nominal exports – as a percentage of GDP – have not increased significantly over the past 20 years.

As a small and relatively isolated country, we need to overcome these disadvantages.

Exporting gives companies in a country of our size access to economies of scale, a chance to improve productivity and access to ideas and technology advances in the international market.

New Zealand exporting would of course gain an immediate boost from a fall in the exchange rate.

At just under 72 cents US, the current rate is above what nearly all forecasters have predicted and indeed are expecting it to be in the near to medium future.

High interest rates promoted by the Reserve Bank to lower inflationary pressures have been an obvious influence on our appreciating currency.

The high value of the Australian dollar, which is itself at a ten year high against the US dollar and high terms of trade have also been influences.

There is however no easy solution to addressing this problem, and a lower dollar itself has negative as well as positive effects.

A low dollar pushes up the price of capital goods and other imported materials used by NZ producers including oil.

It increases the cost of debt- servicing and makes the purchase of New Zealand assets cheaper for international buyers.

In the longer-term, we cannot build higher living standards simply by pushing down the value of the New Zealand dollar – though undoubtedly in the short term, it would promote export-led growth.

The Reserve Bank and Treasury continue to look at ways that the Official Cash Rate can be bolstered.

Encouraging a higher level of savings by New Zealanders in place of a propensity to borrow and spend is a necessary part of the solution.

Money being put aside under the New Zealand Superannuation Fund, and the new Kiwi Saver scheme will assist this also.

While we anticipate that the New Zealand dollar will come down to a more comfortable level, the current exchange rate makes it all the more important to work on other mechanism in improve our competitiveness in the global market place.

That is what Export Year, and other reforms to reduce the cost of doing business, such as lower business tax rates and compliance costs, are about.

Export Year 2007 is - in a sense - a misnomer.

It is not a one-off event, but rather than about building a platform or a foundation for ongoing efforts to build our export, trade.

It's about creating information about opportunities, raising awareness and aspirations, and building the capacity of New Zealand firms to take advantage of market opportunities.

Export Year is designed to be private sector-led, that is as it should be because the private sector, not the Government, exports.

However, the ideological purity of the 1990s – that Government has no role to play – is also clearly wrong.

Government can and should act to assist exporters to develop markets, and to remove barriers to trade.

New Zealand Trade and Enterprise is the Government's agency created to help business develop capacity and to assist in market development.

It operates a number of useful initiatives.

Support for "Incubator" programmes helps those with innovative and creative ideas to develop and commercialise them.

The Beachheads Programme has been effective in assisting business to fast-track their entry into export markets by giving them access to top quality connections they might otherwise on their own, have taken years to develop.

The Tokyo Beachhead for example, has helped the New Zealand Berry Fruit Group to develop strong marketing relationships in Japan.

The Market Development Assistance Scheme assists firms, which meet its criteria to invest in market development, matching expenditure dollar-for-dollar.

Funding available under this scheme has been increased by $34 million over the next two years.

The Path to Market scheme helps build the capability and export-readiness of companies.

The scheme provides a customised training course for companies working in specific markets and sectors.

Their sales pitch and marketing material are critiqued.

They are then supported to participate in an appropriate trade show and are assisted to prepare an in-market programme by one of NZTE's offshore offices.

NZTE does useful work in trade fairs such as the CEBIT Fair in Hanover, where we have showcased New Zealand's ICT innovation.

One company participating there last year, Next Windows, recently won a $9 million contract with Hewlett Packard against competition from international players such as 3M.

Throughout Export Year, NZTE is facilitating coordinated public/private sector exporter forums designed to build networks, improve capability of exporters and facilitate information-sharing on export opportunities.

The Exporter Education Programme has been expanded for Export Year. More than 150 education sessions have been planned across the country, provided by NZTE, Chambers of Commerce, Export New Zealand, Economic Development Associations and the Icehouse.

To raise awareness about the importance of exporting and to inspire younger people to become involved in it, schools have been provided with a new teaching resource called "Thinking Globally – New Zealand in the Economic World." Teachers use actual examples of successful exporters in their local communities.

To help build a workforce of people with export qualifications, NZTE is funding a pilot for a professional expert training programme developed by the Canadian based Forum for International Trade Training.

In another area, Government is looking to further assist exporters through developing a single window for export documentation to make it easier to find and process all the necessary paper work for exporting.

As well as working through NZTE to assist exporters, my other major challenge as Minister of Trade Negotiations is to seek removal of obstacles to trade and open up new markets.

In this, we work on a multi-track process. Our highest priority is multilateral reform of trade through the WTO.

Multilateralism is in fact the best way we can remove trade distorting domestic and export subsidies on which developed countries spend billions of dollars annually to disadvantage us, and developing countries.

We would also benefit from across the board tariff reductions, especially on agriculture, which countries are reluctant to negotiate with us bilaterally.

Finally as a small country, it is in our interests to have a rules-based trading system, backed by a disputes resolution process.

The WTO is currently making slow progress as the key G4 countries try to sort out bilaterally major differences between them.

As a small country, but one that in trade has punched above its weight, we will continue to push hard for as ambitious an outcome as possible.

The value of such an outcome for New Zealand, as with the Uruguay Round, could be as much as $1 billion a year.

Regionally, New Zealand will continue to support proposals that promote greater economic integration in Asia-Pacific.

Within APEC, a proposal for a Free Trade Agreement for Asia-Pacific appeared last year on the formal agenda for the first time.

Within the new East Asia Summit, New Zealand is supporting a proposal from Japan to establish a Free Trade Area for ASEAN, China, Japan, Korea, India, Australia and New Zealand.

Neither proposal is likely to be implemented in the short term, but it is strongly in our interests to be part of any agreement that may ultimately emerge.

Bilaterally, our most important current negotiation is with China, which is our fourth largest and fastest growing export market.

We will this month start our eleventh round of negotiations. New Zealand is seeking tariff elimination on all goods of trade interest over a reasonable time frame. This raises some areas of sensitivity for China such as dairy.

We are also looking for some advances in opening further areas of interest to us within services and investment.

We are drawing on commitments made to New Zealand for a high quality outcome by the Chinese leadership and hope to conclude an agreement over the next year.

This could be worth hundreds of millions to New Zealand in tariff saving and increased trade.

Other current bilateral negotiations include those with ASEAN and the Gulf Cooperation Council. We would also like to commence negotiations with other key trading partners including the US, Mexico, Korea, Japan and the European Union.

For many of those countries, sensitivity to our agricultural exports remains a problem, as does our status as a small and already open market.

However, initiatives are being taken to further develop our trading partnership with each, and we hope to be able to report progress in a number within the next 12-18 months.

In conclusion, I have focused today on initiatives we are taking to assist exporters to develop opportunities offshore and to remove barriers to trade such as tariffs through multilateral, regional and bilateral trade negotiations.

In diversifying its products and markets, New Zealand has come a long way over the last two decades. I am optimistic about our ability to further build the strength of our exporting sector.

We continue to produce quality food and beverages, with dairy commodity prices at record levels and areas like wine exports doing extraordinarily well. From an industry that was nearly in liquidation in the 1980s, it will reach $700 million in exports this year and a billion by 2010.

Tourism and education continue to be major earners, as do fisheries and forestry.

New areas are playing an increasing role. Biotechnology, agritechnology, environmental goods and services, ICT – like Nelson based Polymedia, the creative arts and niche manufacturing are all emerging as promising areas of high skill and high value exports.

At the same time, we will face new challenges to our exporting, with greater attention being paid in our markets to environmental sustainability.

The need to participate in a globalising and competitive international economy is a reality and a not a matter of choice for us.

We need more exporting firms, which are innovative and creative. For a small country, achieving that requires an effective partnership between government and the private sector.

I thank the Chamber in Nelson for the role it is playing and look forward to building on our constructive partnership this year.

ENDS

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