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APEC: What it means for New Zealand Business

Embargoed until Delivery

Hon Lockwood Smith
Minister for International Trade
Minister of Tourism

APEC: What it means for New Zealand Business
Institute of Directors
Northern Club
AUCKLAND
0800 hours
18 August 1999


Mr Chairman, Ladies and Gentlemen, Friends.

In just four short weeks, New Zealand will be the focus of significant international attention as we host the APEC Leaders' Summit here in Auckland.

Already, I've seen signs in Auckland advising motorists of which routes may be closed due to the APEC summit.

I know of several publications, including TIME magazine, which are sending senior bureau staff to provide comprehensive coverage of the summit.

President Clinton is staying on for a state visit, and he'll be travelling with the White House Press Corp.

Hosting APEC in Auckland is huge for New Zealand - it will have spin-offs for tourism, hosting major events, and it will raise awareness of New Zealand all over the world.

But these are positive externalities - the financial benefits of hosting APEC do not explain why New Zealand is involved with APEC, or how APEC's work helps New Zealand business.

And often, when we do hear about APEC's work, it's impossible to understand what's being achieved. Officials, and I'm afraid even Ministers, all too easily fall into the trap of talking about IAPs and CAPs. There's talk of ECOTECH, which sounds like some sort of fancy machine for cleaning up environmental damage.

And even when we talk about APEC's goals of achieving free and open trade across the region by 2010 for developed economies and 2020 for developing economies, it's perhaps hard to see what APEC has done for New Zealand in the past, and what it can deliver this year in Auckland.

And that's what I want to clarify this morning - to discuss with you what APEC means for New Zealand business.

In order to do this, we'll need to go back a step. In New Zealand over the past couple of years, we've heard a lot of talk about the need to embrace the knowledge economy. The need to "add value" to our exports, and to diversify our export base beyond plain commodities.

I want to give you an example of why that's so true.

Since 1845 - 1845 -, London’s venerable Economist magazine has run a commodity price index.

It measures the value of a basket of commodities, which has been updated every so often to take account of international trading trends.

Seeing it’s an index, it starts at value 100, way back in 1845.

Things looked quite good until the 1860s or so.

Commodity prices went up.

But look what happened up until 1914.

It was all downhill.

Then we had the First World War.

People must have wanted iron and wool and bulk food, because the commodity index went up.

With peace in 1918, commodity prices started to fall again.

But then along came the 1930s Depression, and ironically, producers of commodities were saved.

After that, you’ll see the effects of the Second World War.

But since then, it’s all been down, down, down.

The record shows that unless we have plenty of wars and plenty of depressions, we can't rely solely on the commodity trade to deliver the standard of living we in New Zealand aspire to.

We have to produce innovative products with high intellectual property content, and we have to keep updating them as technology and consumer tastes advance.

But there’s a problem with this.

Let’s say you’re a dairy executive, and you’re trying to get out of the commodity milk powder business.

You’ve developed the best-tasting hokey-pokey ice cream in the world.

Your expertise and the Government’s economic policies mean you can also produce it far cheaper than anyone else on the planet.

You’ve even employed the world’s top biotechnologists to develop a line of hokey-pokey ice cream for people who are lactose-intolerant.

Your market research shows that your new product line is going to sell well in Asian economies and in all the other economies which make up the 21-member APEC forum.

Sounds like you’re on to a winner, but I bet you’ll run into some problems.

In China, you’ll face a 65% tariff, which is why our great dairy-producing country exports only around $100,000 worth of ice cream to China’s billion-plus people each year.

In Korea, you’ll face a tariff of 57%, which is why we export no ice cream to Korea’s 50 million people.

In Japan, you’ll face a tariff of 28%, which is why Japan’s 130 million wealthy people buy only a little over 2 million dollars worth of our ice-cream each year.

In the US, there’s a tariff on ice cream of 20%.

In Canada, there’s a quota of only 460 tonnes.

If you want to sell Canada more than that, you face a tariff of over 300%.

But let’s say your trade minister does a brilliant job.

He gets all APEC economies to give New Zealand open access for ice cream.

You may still face some real problems.

There might be product standards that differ in each of the 21 APEC economies.

You might have to produce 21 different kinds of hokey-pokey ice cream, or spend time and money showing how you comply with all the different standards.

Once you’ve done that, you finally put your ice cream on a ship and send it to your export markets.

When it arrives, you find you have to fill in Customs forms in Double Dutch, and a forest has been cut down to produce them.

The local Customs staff may be uncooperative.

To stop your ice cream melting, you might even pay for some “assistance”, even though New Zealand has signed an anti-bribery treaty.

Despite all of this effort, your ice cream may end up melting anyway if local electricity and transportation networks aren’t up to scratch.

Even if it doesn't melt, you might find you face local regulations no one can understand, or local accounting techniques that don’t seem to follow any known Standard Statement of Accounting Practice.

Let’s say you work your way through that minefield, but you don’t get paid.

The local legal system may not have a strong tradition of enforcing contract law.

None of this adds up to a strong incentive to export.

If you are an exporter, your particular product may not be ice cream, but all New Zealand exporters will have faced some or all of these types of problems.

Try selling yoghurt to the US, with its rule that it has to made out of Grade A milk, whatever that means.

Try selling high value corned beef to the Philippines, over its 50% tariff.

Or sliced velvet to Korea, where imports are banned.

And don’t think its just food.

Try selling whiteware to Malaysia or Thailand where tariffs are 25 and 30% respectively.

Or fashionable clothing to the sophisticates of Shanghai or Beijing.

To do that, you have to buy quota from local government-owned producers.

Understandably, they’re not that keen to sell it.

Try transporting anything around Papua New Guinea, particularly beyond Port Moresby.

APEC is designed to sort these problems out.

I’m as guilty as anyone of making APEC sound mysterious.

I’ve had to become highly fluent in bureaucrat-ese to do my job.

But as I said earlier, APEC is not about bureaucrat-ese.

It’s about sorting out the problems of our ice-cream manufacturers, and all our exporters.

Initial credit for APEC has to go to former Australian Prime Minister Bob Hawke, when it was established in 1989 as an informal dialogue group.

US President Bill Clinton deserves credit for lifting it to the next level when he hosted APEC Economic Leaders at Blake Island, Seattle, in 1993.

For the first time, we had that image of all the leaders together, which lifted APEC’s status and importance.

And those leaders established APEC’s over-riding goal: of “stability, security and prosperity for all”.

This is a gathering of Directors, so I’m taking it for granted we all agree with the simple law of economics: that every time two people trade, they both end up better off.

They both gain something they value more than what they have given away.

When APEC leaders got together in 1994, they must have kept that in mind.

In Bogor, Indonesia, they established the goal of ”free and open trade and investment” for developed economies by 2010, and by 2020 for developing economies.

No import bans that can’t be justified by sound science. No quotas. No tariffs.

It’s for this goal that APEC has been described as the biggest trade policy initiative in history, including even the European Union.

APEC has three pillars of work to help make that goal a reality.

The first is called, simply enough, trade liberalisation.

To liberalise trade, individual economies prepare Individual Action Plans, or IAPs.

They outline what they’ll do to take them towards that free trade goal, and other members peer review those plans.

It’s working.

China has recorded in its IAP that it will cut nearly 6,000 industrial and IT tariffs to a maximum of between 10 and 11 percent by 2005.

Indonesia – with its 215 million people - has cut tariffs on food items to a maximum of 5%.

At the APEC Trade Ministers' Meeting which I chaired here in Auckland in June, 14 of the 21 economies announced further tariff cuts which accelerate progress towards those 2010/2020 goals.

To take us even further ahead toward those goals, we’re also working on Collective Action Plans, or CAPs.

Generally, these are about making it easier, cheaper, faster and fairer to do business in the region.

A good example is government procurement.

Governments tend to purchase goods and services worth around 10 to 15% of GDP, but often they’ll only buy from local suppliers.

Through APEC's work, if a Government wants to buy ice cream in the future, it’ll have to treat us all fairly.

At the same time, some economies, such as New Zealand, want to move faster in particular sectors.

That’s why in Vancouver we started out on our Early Voluntary Sectoral Liberalisation programme, or EVSL.

Two of the sectors were forestry and fisheries, and we’ve agreed to targets of zero tariffs for forestry by 2004, and by 2005 for fisheries.

Hopefully, we’ll see that work progressed at the World Trade Organisation by the end of the year.

Earlier this year, APEC Trade Ministers agreed to refer another six sectors, including some processed foods and horticultural products, to the WTO for further work.

And there is also a more comprehensive programme for free trade in food called the APEC Food System.

But what our ice-cream example shows us is that our APEC goals won't be fully achieved just by sorting out tariffs and quotas.

Trade liberalisation on its own isn’t enough.

APEC needs to facilitate trade as well.

A good example is our work to align standards in APEC economies with international standards.

In Auckland next month, we're hoping to finalise electrical and electronic equipment standards among developed economies by 2004, and by 2008 for developing economies.

If you’re a manufacturer of those goods it means in five years your international standard will be good for the US, Canada or Japan.

In nine years, it’ll be good for Russia, Viet Nam or even Papua New Guinea.

We’re also working this year on Customs Harmonisation.

It’ll make it easier for you to get your products in and out of APEC economies, much more cheaply.

And we plan to get some of that work completed this year as well.

It should also become easier to get yourselves in and out of APEC economies, thanks to the APEC Business Travel Card scheme, reducing the need for visas and providing you with fast track processing on arrival at airports.

The benefits of these initiatives all add up.

With different standards and Customs procedures right now, it has been estimated that the average international transaction involves between 27 and 30 parties, and up to 40 documents. That's going to change.

The third of APEC’s pillars is about Strengthening Markets - helping to build economies' infrastructure and governance capacity to make their markets better for doing business.

At the most basic level, it’s designed to sort out all those problems of electricity, transport and telecommunications systems not working properly.

You could say it’s designed to help get the ice cream to the shops as cheaply as possible, without it melting on the way.

But it's also about work on competition policy.

Our first goal is to get agreement on a set of competition principles to eventually achieve an easier, cheaper and more certain environment for business.

Much of this work to strengthen markets is backed up by technical assistance to developing economies if required.

Economies may want to introduce competition law, for example, but they may not have the expertise to set up a Commerce Commission, or the lawyers or economists to staff it.

Markets will work better if we help each other.

And as part of that programme, for example, APEC is helping Viet Nam develop its tax system

Indonesia and Thailand are developing bankruptcy laws, also with APEC assistance.

In fact, across the region, there are 410 co-operative projects underway.

So when you next hear Helen Clark, Jim Anderton, Jane Kelsey and all their 1960s sociology student friends attacking APEC, remember this:

They are protesting against helping Viet Nam develop its tax system.

You wouldn't think that the Alliance of all parties would be upset about that, but they are.

APEC’s agenda is comprehensive.

The disruption to Auckland next month will be significant.

In June, I had around 550 people - over 21 Ministers and their officials - attending the Trade Ministers' Meeting here in Auckland.

The Prime Minister has around 7,000 people coming to her Leaders’ Meeting in September.

There will be lots of acronyms and everything will be negotiated in bureaucrat-ese.

The media will focus on the photo-ops, the motorcades and the banquets, and they will all be splendid, and will raise awareness of New Zealand overseas.

But APEC is not about any of that.

It’s about making it easier to sell ice cream around the region.

It’s about making it easier to sell other high-value products in our region.

And that’s our future.

It’s our only escape from the trap of The Economist’s commodity price index.

With APEC, there will be steps forward and steps back.

But I am determined it will deliver free and open trade and investment by 2010 and 2020, because APEC means trade, and trade means jobs.

I'm determined to move this process that means so much to business - this process that can so improve the security and prosperity of our fellow New Zealanders, and of all the people of our region.

ENDS

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