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Goff: Trade stock take

Hon Phil Goff

Minister of Trade

23 April 2008

Speech Notes

Trade stock take – speech to Wellington Regional Chamber of Commerce Luncheon


As a small country, we rely on exporting to make a living in the world.

The international market-place today is significantly different than in the past and presents us with new challenges.

Governments and businesses have to operate in a more complex, competitive and uncertain global environment.

New regional powers such as China, India and Brazil are industrialising, urbanizing and modernizing at a historically unprecedented rate.

A number of regional and sub-regional organisations are emerging, each progressively deepening their coverage and seeking wider membership.

In the Asia-Pacific region, APEC, ASEAN, Asean Regional Forum, and the East Asia Summit have emerged as key organisations for dealing with a variety of issues on a regional basis.

Simultaneously, countries are recognising that in a world in which commercial, trade and financial flows are globalising they cannot afford to become isolated.

This is evidenced by the trend towards more bilateral and regional FTAs. Countries in our region are becoming increasingly connected by a complex web of trading arrangements.

As of 2005, some 300 trade agreements were in place, or were being negotiated around the world. The Asian Development Bank has estimated that within a few years, there will be approximately 40 FTAs in Asia alone.

While multilateral trade liberalisation through the WTO remains our top priority we are also pursuing an active FTA agenda.

Offensive and defensive interests are at play for New Zealand. The patchwork of FTAs presents a significant risk to New Zealand if we are not included on comparable agreements.

Significant trade diversion and the potential for competitive disadvantage is a real threat for New Zealand, especially vis-à-vis Australia.

FTAs also present a danger of reduced ambition for the multilateral process and can set an unwelcome precedent with respect to levels of ambition and carve outs.

However, as the China FTA has demonstrated, bilateral FTAs can offer us significant benefits.


NZ - China FTA

Just over two weeks ago, in Beijing, we celebrated our historic “fourth first” by becoming the first developed country to sign a free trade agreement with China.

The NZ – China FTA is the biggest single event in our diplomatic relationship in 35 years, and our biggest bilateral trade deal since we established CER with Australia 25 years ago.

It has been a long and challenging path to get to the conclusion of a Free Trade Agreement.

On one side, China is the world’s most populous nation of 1.3 billion people. On the other, New Zealand is a small country in the South Pacific of just 4 million.

China is our fourth largest market. On the surface we would seem to be somewhat less important to China as its 50th- ranked market.

The advantage we had is that we had established ourselves as a useful and well-regarded partner, having been the first to negotiate an agreement with China for its accession to the WTO; and to recognising it as a market economy. That worked in our favour.

It was also an advantage that as countries, we are largely complementary in what we produce and specialise in.

Had we not seized it the opportunity to be the first developed country to negotiate with China we would likely have ended up some way down the list of its negotiating partners, which would have seen our exporters disadvantaged in respect to those from countries who negotiated FTAs before us.

Instead of this happening, we have achieved an FTA outcome which met our Leaders’ objective to achieve a comprehensive, high quality FTA which is of mutual benefit to both countries.


Goods outcome - NZ

On entry into force, which we will hope will be on 1 October 2008, an additional $200m of NZ exports (currently facing tariffs of 5% or less) will be duty free, bringing the total percentage of duty free exports to 35%.

From 1 Jan 2009, 75% of NZ’s wool exports will enter China duty free.

By 1 Jan 2012 around 70% of NZ exports to China will be tariff free.

Duties on $621m of current exports will be eliminated over five years. This will include tariffs on infant milk formula, yogurt, casein, frozen fish, methanol, animal fats and oils, apples and wine.

Over 9 years, duties on a further $77m of current exports will be eliminated. This includes beef and sheep meat, edible offals, sheepskins and kiwifruit.

Over 10-12 years duties on a further $355m of current exports will be eliminated. This will include tariffs on butter, cheese, liquid milk and whole and skim-milk.

By the end of the FTA tariff phase-out period, on 1Jan 2019, tariffs on 96% of New Zealand exports will have been eliminated.

The remaining 4% are some processed wood and paper products on which China did not make concessions, as it would have had to extend tariff reductions to all WTO members under its WTO accession agreement.


Goods Outcome - China

For China the FTA provides for elimination of all tariffs on China’s exports to NZ by 2016.

Tariffs in the 6% - 12.5% range will be phased out by 2012. This includes products such as whiteware, steel, plastics and furniture. Some less sensitive textile and clothing products are also included.

Slower phase outs have been agreed for our most highly traded clothing and footwear products and some textile products (tariff-free by 2016); and other clothing, footwear products and certain highly traded textile products (tariff-free by 2014).

These FTA tariff cuts are broadly consistent with phase outs under other FTAs. It is also important to note that New Zealand is currently implementing unilateral tariff cuts through to July 2009.

During this period the tariffs under the FTA in sensitive product areas will not, in the majority of cases, be lower than the tariff under the unilateral tariff cuts.


Services

For sectors listed in the services schedules - subject to restrictions specified in them - the FTA establishes a general obligation of National Treatment (service suppliers to be treated no less favourably than domestic suppliers) and market access (no quantitative restrictions).

China has also committed to provide National Treatment and market access beyond its WTO commitments in the following sectors: Computer and related services, management consulting services, Education, Environmental services, Sporting and other recreational services, Air transport services and Road Transport services.

The FTA also includes a reciprocal Most Favoured Nation (MFN) provision – whereby each country will receive the benefit of any more favourable treatment that the other negotiates in future FTAs - which applies in specified sectors.

Both countries have made MFN commitments in the following sectors: Construction Services, Environmental Services, Engineering and Integrated Engineering Services, Computer and related services, Tourism Services and Services incidental to forestry and agriculture


Temporary Entry

For New Zealand business visitors to China the FTA has resulted in facilitated and more transparent visa processing, with applications for temporary employment visas processed within ten working days of being received.

We have also agreed to an extended maximum stay for business visitors in specified sectors from 3 to 6 months.

For Chinese business visitors also, there will be an extended maximum stay for business visitors in specified sectors.


Education

In education, China has made a binding commitment to include a selected number of NZ tertiary and NZQA accredited education providers on the China Ministry of Education “Study Abroad” website.

These provisions will directly assist New Zealand education service providers by giving them a high degree of certainty that they cannot arbitrarily be removed from the website with the result that Chinese students are deterred from using them.

This addresses what has been a major problem in the past for NZ education service exporters to China.

We have also agreed to facilitated visa processing for Chinese students – which will ensure that visas will be processed in 10 working days subject to standard requirements.


Temporary Employment in NZ

In the area of temporary employment the FTA allows a maximum of 1,800 skilled Chinese workers to enter New Zealand at any one time, subject to skill-level requirements, and a bona fide job offer:

Of these, a maximum of 800 will be in specified occupations with Chinese characteristics: traditional Chinese medicine practitioners, Chinese chefs, Mandarin teaching aides, Chinese “Wushu” martial arts coaches or Chinese tour guides;

Provision is also made for a maximum of 1,000 people – with no more than 100 in any single sector - in 20 specified occupations included on our long term skills shortage list.

Putting this figure into context, currently there are approx 85,000 workers on temporary visas with work permits in NZ. Neither of these categories should result in the displacement of New Zealand workers and in all cases New Zealand minimum wage, working conditions and health and safety standards will apply.


Working Holiday Scheme

We have also agreed under the FTA to the creation of a Working Holiday Scheme, for a maximum of 1,000 young skilled Chinese per year to enter New Zealand and engage in tourism and temporary employment.

This is, for example, the same capped level currently applying to Chile, Argentina, Italy and the Czech Republic.

The WHS will, initially, be unilateral. China told us that its immigration laws currently would not allow for the creation of reciprocal Working Holiday Schemes. They have agreed, however, to look at the possibility of reciprocity should this situation change in future.


Investment

On entry into force established investments will be treated no less favourably than domestic investors in like circumstances (subject to existing non-conforming measures).

Benefits of commitments made in future FTAs will automatically be extended except in respect of fisheries and maritime sectors.

Additional protections, including access to third-party arbitration procedures, protections against expropriation and compensation for losses arising from armed conflict, will provide certainty for investors:

Subject to specific limitations, the FTA allows for the free transfer of all payments relating to an investment.

We have also ensured that the FTA includes safeguards to preserve New Zealand’s ‘right to regulate’ in the interests of public welfare, health, safety and the environment.

The FTA does not alter the provisions of the Overseas Investment Act 2005


Labour and the Environment

We negotiated binding agreements on labour and the environment in parallel with the FTA.

This was the first time that China has negotiated such agreements.

The Labour Memorandum of Understanding aims to improve understanding of labour matters, encouraging dialogue and cooperation, and promote sound labour policies and practices.

It also establishes a bilateral consultation mechanism.

An Environment Cooperation Agreement (ECA) was also negotiated in parallel with the FTA.

This aims to encourage sound environmental practices and improve the capacity of each country to address environmental matters through cooperation and dialogue.

As with the Labour MOU, the ECA establishes a bilateral consultation mechanism.


Other Areas

The FTA also includes measures designed to reduce barriers to doing business between New Zealand and China in areas such as: customs procedures and cooperation; SPS; technical barriers to trade; intellectual property and dispute settlement.

I do not have time to go into these provisions in detail, but if you are interested I would encourage you to go to the Government’s China FTA website at www.ChinaFTA.govt.nz, which has both the FTA and a national interest analysis of the FTA on it, and which provides a lot of detail on the Agreement and its implications for New Zealand.


Next Steps

Signature was a very important step in bringing the FTA into force, but it was not the final one.

The Agreement has now been submitted to Parliament for consideration. As part of this process, the Foreign Affairs, Defence and Trade Select Committee (FADTC) has called for public submissions on the FTA.

I would encourage you to make your views on the FTA known through this process.

Once FADTC has completed its consideration of the FTA and associated National Interest Analysis (NIA) implementing legislation will be required before the FTA can enter into force.

A “New Zealand Inc.” approach was central in getting us to this point. It will be important for Government and business to continue working closely together to make sure New Zealand businesses are able to maximise the opportunities created by the FTA.

The agreement opens the door for trade with China more widely that before and opens up big new opportunities.

But now the challenge shifts from being predominantly one for government, to a challenge facing business. Governments don’t trade. Businesses do.

Your willingness, commitment, and ability to create a product of service for which there is a demand, and to market it effectively will determine the extent to which New Zealand gains value from the FTA.

That, however, does not mean that you are on your own. The partnership and the “NZ Inc” approach that worked so well during the negotiations continues to be important.

A series of Roadshows which MFAT and NZTE have planned over the next few months, and which are being held in conjunction with the Chambers of Commerce in Auckland, Hamilton, Wellington, Christchurch and Dunedin, will be the first step in helping businesses come to grips with the content of the FTA and how to take advantage of what it offers.

The Government’s China FTA website has been designed to inform New Zealand stakeholders about the content of the FTA and how to take advantage of the opportunities it opens up.


WTO

Notwithstanding the importance of the NZ-China FTA, multilateral trade liberalisation through the World Trade Organisation (WTO) remains our top trade policy priority.

A multilateral, rules based system offers the best protection to our economic interests and the only option for removing trade barriers on a global basis.

New Zealand is committed to an ambitious outcome in the current Doha Round of WTO negotiations but this will be a significant challenge.

The Doha Round negotiations are hugely complex, requiring consensus from 151 members in a highly political environment where the vested interests with protectionist needs tend to fight harder and louder than the much wider group of future beneficiaries.

The outlook for a result from Doha continues to change on an almost daily basis.

Key players such as Brazil, the EU, the US and China have recently and publicly signalled their commitment to and expectation of a successful conclusion to the Round in 2008.

But the key for some time now has been for high-level political statements translated into action at the negotiator-level in Geneva.

Encouragingly, there has been solid progress in some areas, particularly in agriculture, which is chaired by our WTO Ambassador Crawford Falconer.

Even in agriculture, however, there remains protracted debate over the level of ambition and methodologies for so-called ‘sensitive products,’ which has been making it difficult for agricultural exporters like New Zealand to secure the market access outcomes that we need.

Debate also continues over the process and timetable for bringing the agriculture and “non-agricultural market access” or ‘NAMA’ negotiations together into a horizontal process such as a ministerial “Green Room”.

The initially-proposed Easter ministerial has now slipped to late May or June.

The scope of the package to be discussed at that point also remains unresolved.

Director-General Pascal Lamy has focused on agriculture and NAMA as the core of a deal, arguing that other issues such as services and anti-dumping should be dealt with through a “roadmap” setting out process for addressing them.

But there are some countries insisting on more than just a timetable for those other issues.

The other key blockage is in the NAMA negotiations, where lack of reciprocity from advanced developing countries poses risks to the wider process.

The EU, the US and Brazil appear to have generated some movement towards a new architecture for flexibilities for developing countries, but there are major unresolved issues over the specific formula numbers which might be included.

In short, there remains a lot to be done before we can be confident of concluding a Doha Round this year, but officials continue to work hard toward this goal and I still hope to be attending a ministerial Green Room by June.


Bilateral FTAs

With WTO future unclear, New Zealand and others are continuing to pursue an active bilateral and regional FTA agenda.

ASEAN-AUSTRALIA-New Zealand Free Trade Agreement (AANZFTA)

Ministers have agreed to try and conclude the AANZFTA by June of this year. The penultimate round of negotiations for AANZFTA is currently underway in Brisbane (21-26 April).

This should see negotiators make further progress across the wider negotiation, including goods, investment and services.

The Brisbane meeting will be followed by a Ministerial meeting in Bali from 2-4 May. This will be the truly sharp end of the process.

Simon Crean and I will be negotiating hard with ASEAN Ministers to give some direction to negotiators so they can close this deal in June.

It is, however, important to be clear about this deal. It is not the China FTA.

AANZFTA is the first time that ASEAN has attempted to negotiate a comprehensive agreement as part of a “single undertaking”.

We are negotiating with a group of ten diverse countries that range in levels of development from Singapore to Cambodia and Laos.

It is a grouping that has struggled to conclude meaningful FTAs, a fact that is borne out by its FTAs with China, Korea and Japan.

Combined, these factors make it very difficult for our trade negotiators to achieve a comprehensive deal.

At the same time, this deal is very important to New Zealand for two inter-related reasons: regional integration; and the creation of commercial opportunities that strengthen our competitiveness.

The ASEAN market of more than 475 million people is also an increasingly important target for New Zealand service suppliers, including education, environmental services, engineering and so on as well as a growing destination for outward investment.

The AANZFTA is a core element in New Zealand’s regional integration strategy.

A range of political and economic structures are already emerging in the region including the East Asia Summit, our long standing engagement with APEC and ASEAN.

If New Zealand wants to be an integral part of the regionalisation that is underway we need to conclude the AANZFTA.

The AANZFTA provides an opportunity to get in on the ground floor of what could become a new economic bloc.

While the deal will not be as comprehensive as our FTA with China, it is my expectation that it will still deliver credible commercial benefits across all parts of the negotiations – in goods, services and investment.

We are also seeking instruments on labour and environment with those key countries - Indonesia and the Philippines - with whom we don’t already have outcomes.

There are also strong competitiveness reasons for New Zealand to conclude this agreement.

ASEAN is not just an important and growing market for us, but for other countries as well. Several - Japan, China and Korea in particular - already have partial FTAs with ASEAN.

We have to keep up with our competitors and ensure our traders are not being disadvantaged in relation to third countries - AANZFTA is the way to do this.


P4 Plus

The Trans-Pacific Strategic Economic Partnership between New Zealand, Chile, Singapore and Brunei (P4) entered into force in 2006.

It was agreed that negotiations for chapters on Investment and Financial Services to take place within two years of entry into force.

These negotiations are scheduled to get under way this year with the United States to participate together with the existing P4 Parties.

The United States, which is seeking to expand its trade and economic links in the Asia-Pacific region, has indicated that it views P4 as a useful vehicle for furthering those objectives.

United States involvement with P4 is an important development with the potential to significantly enhance the regional trade and economic architecture.

The United States is presently engaged in a domestic consultation process on the prospects of its full accession to P4.

The conclusion of a bilateral FTA with the United States remains a top trade policy priority for New Zealand.

In the meantime, US involvement in P4 presents another potential route to liberalising the trade and economic environment between New Zealand and our second largest trading partner.


GCC

New Zealand and the Gulf Cooperation Council (GCC) have held two rounds of negotiations and, following the second round in mid-November in Riyadh, concluding negotiations in four rounds now looks like a realistic prospect.

Rapid progress has been made in getting to the potential end-zone for goods tariffs and we are hopeful that the positive tenor of negotiations to date will continue into the next negotiating round.

We are currently awaiting confirmation of the dates for the third round, with the likelihood of a fourth round being held some time around the middle of the year.


India-New Zealand Joint Study Group

New Zealand and India held the first meeting of a joint FTA study group in New Delhi in early April. Modalities for conducting the study and concluding by the end of 2008 were agreed. Officials intend to meet again during May/June.

The first meeting demonstrated that India is serious about concluding the study with a positive recommendation to commence FTA negotiations.

However India is also wary about the place of agriculture in an FTA and does not share our view of what a comprehensive FTA would encompass.

Australia is embarking on a parallel exercise with India, with similar timing for its meetings.

The study is an important opportunity for New Zealand, not only because of the potential for it to lead to an FTA.

It will also provide a new mechanism for engagement between the two governments and offers the opportunity to propose new approaches for addressing some longstanding market access problems we have faced in India, whether through an FTA or through parallel processes of engagement between officials and regulators.

The study also puts the bilateral relationship on the radar screen of business in both countries in a new way.

The study will be a Track 1 study (i.e. officials only), consistent with our approach with most of our other FTA studies. This approach will still allow for close consultation with the New Zealand business community and other stakeholders as we proceed.

We have informed business and other stakeholders about the study and a number of companies have registered their interest in the process.

Over the next few months we will be meeting with key stakeholders for more detailed discussion of their specific interests.


Korea

An independent study has been completed on the merits of an FTA with Korea. It found that an FTA would bring economic benefit to both countries, and concluded that “the next step should be for formal government-to-government discussions, aimed at completing a Korea-NZ FTA”.

A very positive roundtable was held on 21 April in Seoul to discuss follow-up steps to the FTA study. The roundtable does not commit either government to FTA negotiations – that is a decision for Ministers – but it will be important nonetheless in mapping out what such as course of action might look like.

Preliminary officials’ talks to be conducted in the second half of 2008 are anticipated as the next step.

I hope to be able to visit Seoul soon after the Round Table to meet with my Korean counterpart and discuss how we might continue to build momentum toward the possible launch of FTA negotiations after the finalisation of the Korea – US Free Trade Agreement.


Japan

With Japan, efforts to advance the trade and economic relationship are set within broader efforts to reinvigorate the bilateral relationship.

New Zealand and Japan agreed in November 2006 to “establish a working group to review the economic relationship and make recommendations on how to advance it”.

We see the working group as a tool for advancing New Zealand’s case for beginning economic partnership agreement (EPA) negotiations with Japan.

Japanese decision-makers remain highly cautious about the prospect of an EPA with New Zealand and the working group process is proving challenging.

New Zealand’s high proportion of agricultural exports to Japan, and our strengths in agriculture are the primary area of Japanese concern.

Japan’s FTA policy horizons are currently limited by the domestic political situation meaning it cannot contemplate negotiations with agricultural exporters like the US, EU, Canada or China.

It appears that Japan is now not considering entering into new EPA negotiations until after the Doha round has been completed.

Upcoming high level visits to Japan will provide an opportunity to identify a route forward in the economic relationship that can be reflected in the final Working Group report.

This will need to reconcile our EPA ambitions with Japan’s current reluctance to move. It will ideally provide opportunities to develop some aspects of the relationship and provide opportunities moving forward on EPA issues when Japan is ready.


Conclusion

As you can see, we have a very full trade negotiations agenda. The conclusion of the China FTA is a big step forward, with the challenge now being to realise the potential it offers.

Further agreement should be completed this year, and further negotiations entered into.

These agreements and much needed progress within the WTO Doha Round will be important to stimulate new trading and economic opportunities in an international economic environment which is clearly going to be a difficult one over the next year.


ENDS

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