New Zealand Embassy Brasilia, Brazil
New Zealand Trade Policy Speech - September 2011
Ambassador Mark Trainor delivered a speech on New Zealand's Trade Policy at FAAP - Fundação Armando Alvares Penteado, on 04 October.
The speech traces the development of New Zealand's policy, including its ground-breaking FTA with China and the current Trans-Pacific Partnership negotiations that bridge countries on both sides of the Pacific.
"Tihei Mauri ora. Tena koutou, tena koutou, tena koutou katoa. This greeting is in the language of the first inhabitants of New Zealand, the Maori.
Thank you for the opportunity to talk tonight about New Zealand trade policy.
To provide context, I will sketch the history of New Zealand as a trading nation, in particular the economy wide reforms of the 1980s which have had a great effect on New Zealand trade policy.
I will then talk about why the WTO remains a cornerstone for New Zealand'rs trade policy. I will also outline the thinking behind New Zealandrs's ambitious free trade agreement agenda, highlighting key features.
Finally I would like to offer some reflections on how New Zealand’s experiences might be of interest to trade policy thinkers here in Brazil.
I would be happy to take any questions afterwards.
To start I will outline some information about New Zealand and its economy.
New Zealand has a population of 4.3 million people in an area about the size of the state of São Paulo. Our GDP is NZ$187 billion (or about US$158 billion) Levels of agricultural subsidies are the lowest in the world. The ‘producer subsidy equivalent’ calculated by the OECD for New Zealand was 0.4% in 2009 - the lowest among OECD economies. For comparison, the PSE for Brazil was 5% (2007 data) and the United States 10%.
I hope this sketch will help explain some key features of New Zealand’s trade policy: the critical agriculture sector produces overwhelmingly for the global market. It is open to world price signals with virtually no interference from domestic tariffs or subsidies.
I would like to turn to a brief history of New Zealand’s trade policy evolution.
New Zealand has always had to be a trading nation.
In the nineteenth century almost all of New Zealand’s trade went to the colonial power, Britain. The main products were lamb, wool and butter.
The 1932 Ottawa Convention gave New Zealand guaranteed access for sheep meat, butter and cheese into the United Kingdom.
In the 1950’s New Zealand followed an import substitution model. This directed resources into industries that were not justified or sustainable.
Then came the oil shocks of the 70s and a loss of our preferential access into the British market when they joined the European Community.
The prosperity of New Zealand was extremely affected.
In a misguided attempt to boost the economy, our government took an interventionist approach, increasing import barriers and in the early eighties, considerably increasing government assistance to farmers. To the extent that by 1983 the level of support was equivalent to 34 percent of farmers’ gross farm income.
The results in hindsight were a disaster.
With the economy spiralling out of control, the 1984 Labour Government introduced radical and wide-reaching economic reforms.
Practically overnight New Zealand went from being one of the most subsidised and regulated economies in the world to one of the least. The policy of import substitution was abandoned in favour of supplying many products from overseas where they could be produced at lower price. A key reason for this policy change was the agri-business sector. With the removal of subsidies, farmers demanded that similar distortions also be removed in other parts of the economy so as to lower the costs of their inputs.
An important part of trade policy development at this time was the 1983 Closer Economic Relations, or CER, FTA with Australia. The government negotiated the agreement partly in order to start to expose New Zealand industry to external competition, initially from Australia.
New Zealand’s economic reforms were by no means painless. At the start many farmers feared they would be forced to abandon their farms. In the end, however, a total of only 800 farmers had to sell their farms (around 1% of the total or 5% of significant farmers). Similarly, some industries went out of business. And 50,000 jobs were lost in the manufacturing sector, a rate of job loss equivalent to about 3 million jobs in Brazil. However, the majority of New Zealand’s firms adapted, became more efficient and survived.
The Uruguay Round of multilateral trade negotiations from 1986-1993 was critical for New Zealand. For the first time, the agriculture sector was brought under multilateral trade rules, which allowed New Zealand to compete more fairly internationally.
Speaking now about New Zealand’s current trade policy, we follow a multi-layer approach: multilateral, regional, bilateral and unilateral levels.
The economic reforms of the 1980s and 1990s opened New Zealand to the world.
Without a large domestic market, trade must be a key driver of New Zealand’s economic growth.
The WTO is fundamental: it provides the structure and mechanism to maintain a global rules-based trading system that protects the rights of small and large countries. Brazil, like New Zealand, is a big beneficiary of this system, as recent dispute settlement cases have shown. The value of the WTO as an organisation was powerfully demonstrated in the 2008 financial crisis. It constrained countries from resorting to widespread protectionist actions, such as occurred after the Wall Street crash in 1929, which turned a financial crash into the Great Depression of the 1930’s. So far, the global economy has managed to avoid that downwards spiral. With current fragility in the global economy, we want the WTO Ministerial Conference in December to help sustain the institution.
Although the political space may not exist right now to conclude the Doha Round, we must not lose sight of its importance to the coherence and smooth running of the global trading system. New Zealand has actively supported efforts to advance the Doha Round. The Round remains the only current realistic way to address subsidy issues, particularly in agriculture, which are global in nature. A successful Round would also need to deliver meaningful improvements in market access in both agriculture and industrial goods.
Plainly a fundamental rethink it needed about the structure of such negotiations in future, so as to bring them into line with the rapidly changing realities of global economic power. Major emerging economies, such as Brazil, China, India and others, with a seat at the G20 and wide global influence, will in our view also need to recognise their greater responsibilities to contribute to the multilateral trading system by further opening their own markets.
In recent years countries have become more active in negotiating free trade agreements to supplement their efforts in the WTO.
New Zealand is no different.
New Zealand’s trade strategy with regard to FTAs has a strong element of regional integration. In our case that means the Asia-Pacific region.
The foundation pillar of our network of FTAs begins with our nearest neighbour and most important trading partner - Australia. I have already mentioned the role the 1983 CER agreement played in solidifying New Zealand’s economic reforms.
CER today is still, 26 years later, New Zealand’s premier FTA. It is a living and evolving agreement. During bilateral talks in February, both countries’ Prime Ministers said that they were “committed to accelerate efforts towards greater trans-Tasman economic integration”.
Regulation, particularly economic and business regulation, is increasingly being harmonised or aligned to deliver the benefits of a seamless market to consumers and business. This is complemented by new agreements being negotiated on capital flows and tax to enhance two-way investment.
The next pillar in New Zealand’s FTA strategy is Asia.
The FTA signed with Singapore in 2001 was New Zealand’s first after CER. It had an important signalling effect. New Zealand showed that we wanted to be integrated into the region and that we wanted to do it in a high quality and comprehensive way
Next came the Agreement with Thailand in 2005. New Zealand’s objective was to use this agreement as a platform to broaden and deepen our engagement in the region. This agreement will eliminate tariffs on all goods trade.
Also in 2005 New Zealand, Singapore, Chile and Brunei signed what was then know as the P4 agreement. I will talk more about this agreement shortly.
A crucial part of New Zealand’s strategy has been China. In 2008 New Zealand and China concluded an FTA. This remains the first FTA China has concluded with any OECD country. It is a high quality, comprehensive single undertaking that includes legally binding agreements on labour and environment.
Key outcomes of the China FTA were:
- Elimination of tariffs on 96% of New Zealand’s current exports to China by 2019 (the residual 4% were excluded under the provisions governing China’s entry to the WTO);
- All New Zealand tariffs on products originating from China will be phased out by 2016.
The results are encouraging:
Since it entered into force China has overtaken both Japan and the United States to become our second largest trading partner after Australia. New Zealand’s trade with China has increased by more than 50%. We are on track to meet the goal set by Premier Wen and Prime Minister Key in 2010 of doubling trade from NZ$10 billion to NZ$20 billion by July 2015.
The next step in New Zealand’s regional FTAs was with the Association of Southeast Asian Nations, commonly known as ASEAN. New Zealand, Australia and ASEAN’s free trade agreement, known as AANZFTA entered into force in January 2010.
The FTA covers 12 countries, almost 600 million people, a combined GDP of US$ 3.228 trillion and two-way trade of nearly US$19.9 billion.
AANZFTA is notable for several ‘firsts’:
- the first region-to-region FTA (CER - ASEAN) which either New Zealand, Australia or ASEAN have concluded;
- the first comprehensive FTA concluded by ASEAN as a ‘single undertaking’;
Importantly for New Zealand, we secured tariff elimination on all products of key export interest to New Zealand in this negotiation, by 2020. In return, New Zealand will also eliminate all its tariffs to imports from ASEAN by 2020.
It is still too early to see the effect of the AANZFTA agreement in trade flows, but the expectations of increased trade with our fourth largest trading partner are positive.
The New Zealand and Malaysia bilateral FTA entered into force in August 2010. It goes beyond the commitments agreed in the FTA with all of ASEAN..
A New Zealand-Hong Kong Closer Economic Partnership entered into force in January of this year. We are currently negotiating an investment protocol to that agreement.
We are also busy negotiating a full-plate of other FTAs.
Negotiations with the six member states of the Gulf Cooperation Council have concluded and the agreement is awaiting signature.
Negotiations are underway with Korea, India, and outside Asia with the Russia, Belarus and Kazakhstan customs union.
I would like to now turn back to the “P4 Agreement” between New Zealand, Chile, Singapore and Brunei. When it was negotiated in 2005, New Zealand saw the agreement as a strategic step, to link the Americas, the Pacific and Asia. We often call it a “hinge” between the three regions. The P4 Agreement is high-quality and comprehensive. We wanted to use it as a magnet to attract other Asia Pacific Economic Cooperation (APEC) countries to join the FTA. It worked.
New Zealand is currently negotiating the Trans Pacific Partnership with 8 other Asia-Pacific countries – Australia, Malaysia, Vietnam, Singapore, Brunei, Chile, Peru, and the United States. A number of APEC countries are showing interest in TPP. Japan in particular has said it is looking closely at whether it could join the negotiations
Seven rounds of negotiations have been completed. We hope it will be possible for the Leaders of the participating countries to announce a substantive framework at the November APEC Leaders meeting in Honolulu in November, with remaining negotiations to conclude after that.
The vision for TPP is ambitious: to make it a high quality, comprehensive building block for a Free Trade Area of the Asia Pacific.
All of these FTAs look to provide certainty for New Zealand businesses and reinforce our commitment to reducing trade barriers, promoting liberalisation and helping New Zealand businesses compete in the international environment.
To summarise I would like to highlight key themes that New Zealand looks for in all of our FTAs.
- They must be high quality and WTO compliant;
- They must be comprehensive and modern agreements covering substantially all trade, including goods, services, investment, intellectual property, competition policy, government procurement, technical barriers to trade, sanitary and phytosanitary measures, rules, Customs etc.
You will have noted the emphasis on comprehensive coverage of all product of export interest to New Zealand. This is a key theme running through our FTA negotiations.
- We seek to negotiate as a “single undertaking”;
- The agreements should include workable labour and environment outcomes either as part of the FTA or alongside the FTA.
The New Zealand Prime Minister has said publicly that we would like to explore the possibility of negotiating a high quality comprehensive FTA with Mercosul and Australia. This idea has been discussed by our respective Trade Ministers on several occasions.
We understand Brazil and Mercosul are not yet ready and we recognise that there are complex issues to work through. But, New Zealand will be here when you are ready because we think an agreement makes good sense.
Eliminating the trade barriers between our two regions will lower costs to consumers and promote greater economic integration. Both regions stand to gain.
More importantly such an agreement would give Brazil a strategically valuable springboard into the trade-policy architecture of the rapidly growing and dynamic the Asia-Pacific region. FTA partners are then well positioned to build supply chains into third markets, creating platforms for additional growth.
We encourage Brazil to seriously consider starting negotiations on an FTA.
In the meantime, there are partnerships and connections that can be useful to grow our bilateral economic relationship.
New Zealand has an innovative agri-technology sector. For example, New Zealand meat processing technology is world class. And we know that Brazil also has impressive technology in this area. Together, New Zealand firms are working with Brazilian companies in this area.
New Zealand has expertise in pasture based farming. Brazil has abundant land, water, a tropical climate and experience and research in tropical farming. Combining these expertises has the potential to capture very large production efficiencies. Several such partnerships already exist in the dairy industry and are very successful for both New Zealand and Brazil.
In our opinion, the most effective vehicle in our view for realising this value is through investment in agribusiness partnerships. We seek partnerships that are long-term, secure and provide benefits for both Brazilian and New Zealand companies.
To begin to draw a few conclusions, it may be useful to reflect on some of New Zealand’s broader trade policy experiences that could be of interest to the Brazilian trade policy thinkers. But first I would like to sound some caveats.
Clearly, Brazil, like New Zealand, will decide what trade policy is most appropriate for its circumstances.
And New Zealand and Brazil face different contexts.
But there are also similarities between our countries. Both are immigrant societies with important indigenous populations. Agriculture is a critical domestic and export sector in both countries.
From that point of view, some aspects of New Zealand’s experiences may be of interest as possible points of reference here in Brazil.
New Zealand was able to maximise its export-oriented agriculture sector because there was strong domestic pressure to maximise the efficiency of the entire economy and to reduce the costs of inputs and doing business. Everything is connected. It was not sustainable to liberalise isolated parts of the economy.
- The government undertook integrated reforms across the whole economy:
- New Zealand’s tariffs were reduced or eliminated;
- Agricultural and industrial subsidies were removed because they distorted the economy;
- Regulation was updated and simplified. There was widespread deregulation;
- Labour law was reformed;
- The transport and ports sectors were deregulated to increase the efficiency of distribution.
Turning to what we have found in our own FTA negotiations, it is hard but not impossible for a highly competitive agricultural producer to insist on comprehensive coverage of goods and of other key sectors such as services in free trade agreements.
Comprehensive and high-quality FTAs at the outset set the precedent for future FTAs. New negotiating partners will quickly cite any previous deviations as a precedent for not agreeing to high quality FTAs.
New Zealand’s FTAs contain what may be useful models for sensitive subjects such as trade and labour, trade and environment, competition policy and investment.
As I said, this is our experience, but it may offer some reference points of interest to those thinking about the options for Brazil’s own trade policy in future.
Thank you for your attention".