Speech: Groser - Address to 3rd Japan-NZ Partnership Forum
Hon Tim Groser
Minister of Trade
11 July 2011
Japan and New Zealand – Overcoming Adversity,
Building the Future
Excellency Yutaka Banno, Co Chairs Phillip Burdon and Yoshihiko Miyauchi, Hon Lianne Dalziel representing the NZ Opposition, Sir Graeme Harrison, and Gempachiro Aihara, distinguished guests
The safety briefing given earlier was a stark reminder of how we listened to a similar briefing at the start of the US NZ Council meeting earlier this year in Christchurch. We listened to that safety briefing never imagining it would become real.
I want to offer thanks for the generous financial support of the Japanese Government and people following the earthquake in Christchurch. But even more so we remember the human support. I will never forget the 66 Japanese search and rescue workers who came to New Zealand to try to get their young people and others out of the rubble. We know this ended sadly. That these same Japanese rescuers less than three weeks later would have to turnaround to go back to a far great disaster at home is something that will stick in my mind forever.
We acknowledge the huge losses and grief of the Japanese people.
Japan and New Zealand face the future against the background of the tragic coincidence of natural disasters. In an earlier discussion this morning we reflected how well chosen the theme for this Forum is: Japan and New Zealand – Overcoming Adversity, Building the Future.
It’s also important to look ahead and to explore some “new thinking” in the words of Chairman Miyauchi, and that is the purpose of this Forum.
Both countries are having to find ways to rebuild and re-grow our economies in the face of not only domestic upheaval, but a world trading system coming out of a number of years of crises and the hiatus of the Doha Round.
The world trading system has kept up remarkably well during a series of challenges over 2008/09. The flow of goods adapted well on the whole. Supply chains were stretched but not broken. Trade volume growth in Asia has been extremely rapid.
Demand from developing countries, particularly in emerging economies in Asia, has been at the heart of the recovery in global trade. Import demand from developing countries was responsible for more than half of the growth of global trade during the first half of 2010, and again during the fourth quarter of 2010 and the first quarter of 2011.
Going forward, although solid growth led by developing-countries is the most likely outcome, high food prices, possible additional oil-price spikes, lingering post-crisis difficulties in high-income countries pose downside risks.
The disasters in Japan pose the world with a first-of-its-kind challenge.
Japan has been at the heart of the global supply chain trading system through playing a central role in production and supply of high end componentry, and has championed the system through the creation of processes that have made this system tick such as the ‘just-in-time’ low inventory approach. Yet this system is now under strain.
Over the past decade or so the just-in-time concept of having supplies delivered at the last minute to keep inventories down, has spread down the global manufacturing chain. Now, it is being said that this chain may be fortified with “just-in-case” systems to limit the damage from disruptions. Companies throughout the region have seen what happens when a key link in the supply chain is weakened - the results have been felt throughout the region and will cause a fundamental change in the way supply chains are operated.
For instance, suppliers who have near-monopolies on crucial parts and materials may be pressed to spread their production facilities geographically. Their customers may, as a precaution, also switch part of their orders to smaller rivals within the region. Structural change in the Asian region is producing a number of fast-growing economies.
Countries in the Asia/Pacific region are standing ready to make the most of the new opportunities this change may signify. This will lead to a further diversification of supply chains within the region.
Companies will want to see this diversification buttressed by clear trading rules because we cannot manage a global supply chain without a plurilateral solution now that the Doha Round is in hiatus. Now is the time to modernise trade rules – domestic legislation around doing global business needs to be refreshed to reflect the transformation that has taken place in production/distribution patterns and business models. Trying to move forward using solely a patchwork of bilateral FTAs does not make sense economically, strategically or geo-politically.
This is why the Trans Pacific Partnership Agreement is so important for the region – and not just for trade.
TPP will form the basis of an integrated regional trading bloc linking Asia, Australasia and the Americas, and cement the US’ role in the region.
East Asian manufacturing still depends crucially on a global trading system. The USA is still a vital trade destination for East Asia. Conventional trade statistics often do not capture the value-add that results from US innovations. US businesses such as Amazon, Google, Facebook and Apple Mac have shown the US’ continuing capacity to generate business models that can entirely transform established industries. Therefore, despite what trade statistics may suggest there is a need to expend special effort to ensure the US is built into this region’s architectures. TPP can ensure this vital trade link is harnessed. It can also similarly provide Japan with the opportunity to recapture its role as the region’s great innovator.
The events of 11 March and the challenges of reconstruction within a changing regional and global market present a momentous challenge for Japan. Decisions around how to engage with the TPP process are part of this challenge. New Zealand was hugely encouraged by PM Kan’s statement made in Yokohama 2010 about possible engagement in the TPP – it was the most important statement by Japan on trade in 25 years. Debate around this issue is complicated. As we ourselves wrestle with the aftermath of a natural disaster we can understand the measured deliberations within Japan. Reconstruction could be seen as an opportunity to implement or test major regulatory changes.
We believe that domestic agricultural and regulatory reform will be the door through which Japan will be able to take full part in the dynamic new market realities of regional trade. Yet we understand the deep roots of Japan’s problems with agriculture and the reasons Japan finds it difficult to move forward in this area. If more time is needed to make a decision because of the recent calamity, this would be understood. TPP negotiations will still push ahead but Japan will not be left behind as long as the right questions are still being asked, and as long as there is movement in the right direction in Japan’s policy adjustments.
It is worth noting in this context that an important part of the negotiation, given the high ambition of what TPP seeks to achieve, is finding ways to support each negotiating country facing major policy adjustments as a result of their commitment to TPP. As we stay in contact over regional issues like TPP, we also acknowledge that we have much to offer each other as we face reconstruction.
Japan remains a very important partner in trade and investment terms. We want to see that grow. The world is short of food. Climate change policies will impact on food availability and price. New Zealand can help in Japan’s food and mineral security needs through the reliable delivery of contractual supply commitments. Given the tightening of global supply, it is important to maintain a strong relationship with New Zealand for the benefit of many of Japan’s industries and consumers.
There are already many examples of New Zealand-Japan cooperation in primary industries including for example Japanese investments in New Zealand’s food industry - beef, fishing, forestry, milk powder, kiwifruit. This is a cooperative relationship, with New Zealand providing specialised inputs for Japanese manufacturers (dairy ingredients), technological cooperation (dairy processing technology), links to global supply chains, (fishing), research and development (flowers, blackcurrants) and cooperative production in Japan to raise Japanese farmer incomes (gold kiwifruit). New Zealand can be a partner for Japanese agriculture as it develops its full potential.
Both our countries are known for our innovation and science. In the post-disaster environment there may be a particular benefit in working together in geothermal technology. Our companies have worked together on large developments in New Zealand, and have the potential to work together here in Japan and in third markets.
Engagement with Japan in a bilateral FTA with New Zealand in conjunction with TPP developments would not only enhance this cooperation, but would further complement regional initiatives to secure for Japan the food and energy resources currently in high demand.
Together we have the ability to create opportunity out of adversity. We need to take the opportunity to join and participate in the activities of this fast-growing region.