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Speech: Phil Goff Outlines Trading Future For NZ


Phil Goff Outlines Trading Future For New Zealand

Hon Phil Goff Speech to Federated Farmers AGM Wednesday 19 November, 2008

Thank you for the opportunity to address you today. It is an interesting time. This is alternatively my last speech as Minister of Trade and my first as Leader of the Opposition.

As Minister of Trade, I would like to focus on key issues and challenges that New Zealand faces in the current international trade environment, and some of our key trade priorities.

Agriculture is critical to New Zealand to New Zealand’s economic well-being. It accounts for nearly two thirds of all our merchandise exports.

In the year to March, export earnings for agriculture and forestry grew by 7.8 percent to $23.4 billion.

New Zealand’s farmers are market driven, unsubsidised and highly competitive. Innovation and technology keep you ahead of competitors.

Our small nation has earned, through hard work, innovation and ingenuity, a world-wide reputation for excellence and innovation in our primary products.

But times are difficult. Although the drop in the value of our dollar is helping our exporters, we are facing the most serious economic crisis since the Great Depression of the 1920s.

There are worrying signs that protectionist pressures are building in some key markets.

These pressures may be most acute in the highly politically sensitive area of agriculture.

Despite the challenges posed by the economic crisis, the outlook for our agriculture sector looking forward is not negative.

Demand for protein in expanding economies like China will continue to grow.

Improved management practices, breeding and genetics, have revolutionised our primary industries.

Higher global meat prices should result from the major impact on land use of the move towards biofuels.

Land available for feed production is declining as a result and increased costs are affecting the feedlot cattle sector.

This benefits pasture-based farming. Consumer demand for healthier foods and lower fat content should also promote preference for grass-fed beef.

The rise of Latin American beef producers, especially Brazil, Argentina and Uruguay, and the lower cost of production in those countries poses a competitive challenge.

That puts a premium on New Zealand focusing on quality and meeting consumer demands for natural and sustainable products.

New Zealand’s future is in the production of high quality, environmentally sustainable food and primary products.

Our more energy efficient farming should produce a lower carbon footprint for our products, notwithstanding distance travelled.

This provides a competitive advantage for us in terms of sustainability.

Removing Trade Barriers

New Zealand has long had to trade in a protectionist world facing the challenges of tariff barriers, quotas, behind the border barriers to trade and high agricultural subsidies.

Removing these barriers and improving the terms of access for our exporters into international markets – especially those that retain heavy tariff and non-tariff barriers, was my key priority as Trade Minister.

It is an area in which both of the major political parties have taken a bipartisan approach. In Government I worked closely with my National Party counterpart, Tim Groser and, in Opposition we will cooperate to promote New Zealand's progress in the world.

A “NZ Inc” approach benefits our exporters, and contributes to our economic growth, and the well-being of all New Zealanders.

Our first priority has been to tackle these problems multilaterally through the WTO’s Doha Round negotiations.

Like the Uruguay Round before it, it has been tough going. Any consensus-based process faces the frustration of seeing pace and ambition set by the most reluctant and defensive interests.

It is in our interests as a small country to promote a rules based multilateral system.

It provides us with leverage to remove trade barriers in countries which would always be reluctant to negotiate agricultural market access bilaterally with an efficient producer like New Zealand.

And when we get a result such as in the Uruguay Round, which provided us with about $1 billion in annual trade benefits, it can be a valuable one.

While a small country, New Zealand has had a marked influence on negotiations, through chairing the Agriculture Negotiating Committee in the WTO and our presence in the Ministerial Green Room negotiations.

In July, before Ministerial consultations broke down, we got very close to a breakthrough in concluding the Round. NZ will continue to do what we can to secure an early re-engagement in the negotiations, bringing ministers back to the table as quickly as possible.

The financial crisis should provide impetus to the international community to conclude the negotiations quickly.

I was pleased to see the G20 leaders renew their call for agreement to Doha Round modalities over the weekend.

The challenge will be seeing those high-level calls translated into action on the ground.

Too often in the past has there been a disconnect between statements made at the Leaders’ level and the willingness by countries to show flexibility and leadership when it comes to the negotiations themselves.

For New Zealand, tariff quota markets in the US and EU are key for the meat sector.

In sheep-meat, one of our key priorities is to defend our current arrangements in the EU.

This is particularly important given European farmer concerns about the current structural and economic difficulties the sheep-meat sector there is facing.

Meat and Wool New Zealand has been doing good work with its European counterparts in helping to dampen down any negative perceptions about the role of imports, given the current parlous state of the EU market.

While the WTO is our priority, we have never put all of our eggs in that basket.

Bilateral FTAs give us the ability to move ahead at a faster rate in some key markets. Not to enter the bilateral game would risk New Zealand being left disadvantaged in relation to our competitors.

I recently returned from a meeting of the P4 Trade Ministers and USTR Representative Susan Schwab in New York. We secured there from the US an announcement that it will negotiate to enter the Trans-Pacific Partnership, the P4, on a comprehensive basis. This is a significant outcome for New Zealand.

Securing an FTA negotiation with the United States, the world's largest economy, has been a key trade objective for us for more than a decade.

Securing this through the P4 negotiations follows my promotion of this idea to USTR Representative Susan Schwab at a trade meeting in Cairns 14 months ago. I am delighted that the US has taken it up.

The United States is New Zealand's second largest individual trading partner and second largest export market. New Zealand's total trade with the US in the year to June 2008 was worth $8.14 billion, accounting for 9.6 per cent of New Zealand's total trade. US research conducted in 2002 into the impact of a FTA with the US showed it could be worth up to a billion dollars a year to us.

New Zealand’s food exporters will gain a great deal from a comprehensive agreement with the US, given that our two largest exports, beef and dairy, operate within quotas – with tariffs on out of quota exports at over 26 per cent.

To have this commitment from the United States in the same year as we have also concluded FTAs with China and the ASEAN economies is an excellent achievement. It opens up the prospect of significant and sustained benefits to New Zealand businesses and the economy in general.

With the involvement of the US, the Trans Pacific Partnership is now poised to expand rapidly to encompass other countries in the region and to lead to greater economic integration in Asia Pacific.

Participation in the agreement by the US on a comprehensive basis is likely to enhance the interest of others in using this high quality comprehensive agreement as the basis for further trade liberalisation and economic integration.

Interest in the agreement has already been shown by other countries such as Peru, Vietnam and Australia.

Eventually we hope the agreement will prove attractive to other large economies in the region such as Japan. As significant export markets for New Zealand, this would also bring big benefits for New Zealand.

The Trans-Pacific Agreement is a high-quality, comprehensive agreement and is WTO consistent.

It should support continued ambition in the Doha Round in the same way that the creation of APEC was a spur to other countries to complete the Uruguay Round of the WTO.

The elimination of tariffs and the removal of other barriers to trade stimulate economic activity. This agreement at a time of global economic uncertainty is particularly important.

Further adding to our efforts towards regional consolidation and trade liberalisation is the ASEAN – Australia – New Zealand FTA, also known as AANZFTA.

We successfully concluded substantive negotiations on 29 August in Singapore, finalising arrangements with the trade ministers from Indonesia and the Philippines .

ASEAN collectively represents a market of more than 575 million people. Our exports of goods to the ASEAN market have grown at 24 per cent per year over the past three years.

Taken together, those ten countries were New Zealand’s third largest merchandise export market last year, worth NZ$4.6 billion.

The FTA is a means by which we will eliminate tariffs on all key items of trade interest to New Zealand in these markets. This means we protect New Zealand businesses’ access to ASEAN as well as securing a competitive advantage against other countries that are also active in the region.

While agriculture was a sensitive part of the AANZFTA negotiations, progressive elimination of tariffs on all key trade products is an excellent outcome for our food exporters.

It also critically, made us a part of Asean’s strategic trade architecture.

Closing out the “hat trick” for 2008 is the NZ-China FTA which came into force on 1 October.

This agreement is a major outcome. It sets a high standard, and is a model for how two trading partners – disparate in size but complementary in the products and services they offer – can take a trading relationship to a new level.

Creating new opportunities in China can deliver large benefits though, as the San Lu experience has shown, investment there also requires careful management. China is the world’s third largest economy, with a population of over 1.3 billion people and a rapidly growing middle class. China’s GDP has been growing by about 10% each year for nearly three decades.

China is our fourth largest export market. A pre-negotiation study of implications from the deal estimated that a high quality FTA would increase New Zealand exports to China by up to NZ$350m a year.

The deal provides for elimination over time of tariffs on 96% of our current exports to China. Based on current trade, that will equate to an annual duty saving of $116 million. From 1 October, 35% of imports from New Zealand became duty free. Duties on a further 31% of our exports will be phased out over five years. Tariffs greater than 20% will be reduced to 20% on day one, and will be phased out over 5 years. We secured a zero tariff outcome for all our key agriculture exports, with phase-in over 10 years for some of the most sensitive products in dairy, meat, and horticulture.

Alongside these agreements we are currently working on a number of other negotiations.

We have recently re-engaged in talks with this year with Malaysia. The seventh round of negotiations – or the first round since re-engagement – has recently been held in Kuala Lumpur, with promising progress towards building on the AANZFTA outcome.

We have had three rounds of FTA negotiations with six states of the Gulf Cooperation Council, – Saudi Arabia, Oman, Qatar, Bahrain, United Arab Emirates and Kuwait. The GCC together forms our seventh largest export market, worth over eight hundred million dollars a year.

With India, we are conducting a joint study into an FTA. The bilateral trade and economic relationship has a great deal of unrealised potential. New Zealand presently exports almost no dairy and meat to India due to high tariffs and non-tariff barriers. There are good prospects to build export trade from its low base of NZ$360 million if these barriers can be reduced.

The study will be completed and referred to the two governments before the end of 2008, with a joint recommendation to commence negotiations on an FTA in 2009.

Following a positive joint study on the implications of a free trade agreement with Korea in April, we are now in the midst of two rounds of preparatory talks. We expect Korea will be in a position to announce a decision to enter into FTA negotiations early next year, following approval by its National Assembly of the Korea-US FTA.

The potential tariff savings from an FTA are around $200 million annually.

And finally Japan. Japan is our other key partner in North Asia. Prime Minister Helen Clark and former PM Fukuda last year agreed that an FTA study should be undertaken by the two countries. We are discussing with Japan the Terms of Reference for such a study and hope to get this underway next year.

Sustainability

Working to break down tariffs and barriers to trade through FTAs is only one aspect of what we have to do. There are other actual and potential barriers to be addressed.

Sustainability is one of these challenges. It is particularly important for New Zealand due to our reliance on the food and beverage sector. Half of our exports are food-related, with the sector employing one-in-five of the New Zealand workforce.

The misleading concept of food miles and some of the inaccurate comment and advertising about New Zealand products in the UK market and elsewhere in Europe clearly posed threats to our trade interests.

Through work commissioned in New Zealand, we were able to turn that debate around into a focus on the carbon footprint of products, where our key products compare positively with locally produced products in Europe, even after taking into account the distance travelled.

We continue to monitor closely developments in our overseas markets on carbon footprinting research and on the potential development of international standards in relation to measurement of the carbon footprint. We have to be ahead of the game and use the opportunities which research and innovation can give us.

We need to be at the front when it comes to environmental performance, global competitiveness, and delivering new products and services to market.

We are facing growing competition from lower cost, higher volume producers. As well, consumers in affluent markets have rising expectations about the quality of the food they consume and the way it is produced.

We can expect increasing focus on the functionality of food and on the extent to which it is sustainably produced and supplied.

The Labour-led government recognised the need for innovative thinking to build on our key strengths in pastoral agriculture. We announced New Zealand Fast Forward, a $700 million initiative to lift the global competitiveness, dynamism, value and sustainability of New Zealand’s pastoral and food industries.

New Zealand Fast Forward is the biggest-ever boost to innovation in our history, and is on top of current Government research and development funding.

It aims to achieve a step change in the performance of our primary sector.

It offers young graduates a long term career path in the rural-based primary sector. It strengthens the long term future of rural-based primary industries.

There has been a strongly positive response from primary industry leaders, grassroots farmers and scientists to New Zealand Fast Forward.

The rural sector understands the need to invest in innovation, value creation and product differentiation in the marketplace for us to succeed.

There are also larger concerns. One element of the climate change debate in some developed country markets has been the suggestion that imports from countries which do not take on emissions targets, should be targeted and have to pay a levy to compensate for their lower production costs.

This so-called “border tax adjustment” concept – while not yet an immediate threat – is another trade element of the sustainability debate, where we need to be engaged.

Emissions Trading Scheme

I acknowledge concern within the farming sector about the effects of the Government’s Emissions Trading Scheme.

Agriculture does not enter the Emissions Trading Scheme till 2013 – in accordance with the industry-government agreement that committed both parties to fund research on reducing greenhouse gas emissions from livestock.

When farming does enter the scheme, 90 per cent of emissions at the 2005 levels will be “grand-parented” – the Government will allocate credits to take responsibility for those emissions. Farming will only be liable for anything above that.

The current plan is that only from 2018 will agriculture be asked to begin to pay for more of its emissions. It is proposed that the allocation will phase-out in a linear fashion from 2018 to 2030.

This provides an additional 12 year window for the sector to adjust its investment to minimize costs and maximize the opportunities arising from investments such as forestry.

That phase-out is dependent on there being mechanisms available to reduce the methane, nitrous oxide, and other greenhouse gas emissions from livestock.

If those mechanisms – currently being researched – are not available, then we would need to review and adjust the plan.

There will be regular reviews to ensure that agriculture is not asked to deliver more than is reasonable.

Efficient farmers should not feel threatened by the proposed Emissions Trading Scheme. Doing nothing is not an option that developed markets like the EU will ultimately accept.

Conclusion

Where does this leave New Zealand agriculture?

The huge growth in demand from our Asia-Pacific neighbours should help to keep commodity prices relatively high. There are new opportunities for New Zealand agriculture in those markets, which is why the focus for our FTA efforts is in that region.

We have had recent success with China and ASEAN, and we are working on closer engagement with Korea, Japan and India, as well as the negotiation with the US and others for a Trans Pacific Partnership. Further liberalisation from multilateral negotiations, and from reform in our key markets, will deliver important new benefits.

New Zealand’s pastoral and food industries have a strong productivity record, which requires ongoing improvement. Creating new market access, and improved trading conditions and regulatory links overseas will be an ongoing challenge. We need also to focus on the competitiveness, dynamism and sustainability of New Zealand’s pastoral and food industries.

Given the continuing importance to the New Zealand economy of the agricultural sector, our future prosperity relies on our progressing on all these fronts.

Thank you.


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