Trans-Pacific Partnership: New Zealand Submission to the US International Trade Commission

Presented by Mr Roy Ferguson, New Zealand Ambassador to the United States

2 March 2010 

Introduction

Chairman, Commissioners, thank you for the opportunity to speak on behalf of the New Zealand Government.

The Trans-Pacific Partnership (TPP) is an initiative for regional integration and economic growth. It is an honour to be able to discuss with you the benefits this agreement offers the United States, New Zealand and the wider Asia-Pacific region.

International trade environment

Let me begin with two comments on the nature of the international trade environment today.

First, global trade flows have come under serious pressure over the past year in the wake of the worst global economic crisis since the 1930s.

Unemployment in both our countries – and many of our trading partners – has increased, impacting the lives of working Americans and New Zealanders, and their families.

Second, the face of international business is changing dramatically. Increasingly companies are running production lines that span the Asia-Pacific region and beyond. Investment and trade in services are becoming increasingly important.

TPP is a vehicle to address these new realities. Firstly, by strengthening trade flows across the Asia‑Pacific region, TPP provides the US a ready platform to contribute to the achievement of President Obama’s goal of doubling US exports over the next five years, and creating two million US jobs. 

TPP also offers the US, and the other participants, a unique opportunity to negotiate a trade agreement which reflects the business realities of the 21st century. We can work together to find ways to address behind-the-border barriers, which will allow our companies to operate more seamlessly across markets. We can also tackle issues such as standards, conformance, and other technical barriers to trade. And we can address issues at the intersection of trade and the environment, social accountability matters such as labour standards, and trade and investment in new technologies and emerging sectors.

US-New Zealand Relationship

While the TPP is an important initiative for the wider Asia-Pacific region, my government also supports the agreement because it will contribute to a stronger and broader relationship between our two countries.  

New Zealand and the United States share a strong political and economic relationship, built on common values and a commitment to advancing security and prosperity in our region, and around the world.

Our trade and economic links are sound and mature. Two-way merchandise trade totalled over US$6 billion in the year to June 2009, covering all economic sectors from heavy manufacturing to agriculture. The United States is also New Zealand’s second largest source and destination of foreign direct investment.

TPP: A means to boost US exports to the Asia‑Pacific region

However, despite the strength of this relationship, the reality is that the US’ share of exports to New Zealand has been declining over recent years. And this is consistent with the broader trend for US exports to the Asian region.

So notwithstanding the fact that US exports to New Zealand have grown on average by 2% each year since 1990, the share of US’ total exports to New Zealand over the same period has dropped from nearly 18% to around 11%. During that same time, imports from our regional partners with whom we have Free Trade Agreements have grown in relative importance. For example, China’s exports  to New Zealand  have grown  by 20%  on average per year and  China's  share of  total  exports  to New Zealand  has grown from 1% to 15% during that time, overtaking the US position as our number two source of imports.  As this pattern is multiplied all across the region, you get a sense of the lost opportunities for US exporters and workers.

So how has this come about, and what can be done to reverse this decline in US exports to New Zealand, and the Asia‑Pacific region more broadly?

For most economic commentators, the answers are clear – the falling share of US exports has been the result of the growing network of bilateral and regional trade and economic agreements of which the US has not been a part. For example, New Zealand has been at the forefront of negotiating trade agreements across the Asia‑Pacific region. We concluded an FTA with Singapore in 2001. We then concluded an FTA with Thailand in 2005. That year we also concluded the P4 Agreement with Brunei, Chile and Singapore, which is of course the basis for the expanded TPP negotiations. In 2008, we also concluded a high‑quality FTA with China – its first FTA with a developed country; and in 2009, we concluded a bilateral FTA with Malaysia and, along with Australia, a regional agreement with the 10 countries of ASEAN. And we’re certainly not standing still – we have also recently concluded an FTA with Hong Kong; we’re well into negotiations with the Republic of Korea; and we will be launching negotiations soon with India. 

This is just the trade negotiating activity undertaken by New Zealand. Most other countries in the Asia‑Pacific region have embarked on similar programmes. 

Bringing this back to the US context: TPP provides the US with a ready‑made platform to reverse the declining share of the US’ exports to the Asia‑Pacific region. The concluded Agreement will level the playing field for US exporters within key Asia‑Pacific markets – and, as the Agreement expands further, so will the opportunities for US exporters to foot it on the same terms as their competitors, which will in turn create new, higher paying jobs for US families.  

Challenges

The TPP negotiation will not be easy. Negotiating a trade agreement between just two parties is difficult – the complexity intensifies as you add more partners. But it is certainly not impossible – we ourselves have the experience of negotiating the original P4; and more recently our regional agreement with Australia and the ten countries of ASEAN. 

A second challenge will be to conclude an FTA that is comprehensive and high‑quality. In order for the current participants to enjoy the best possible terms for access to new markets in the Asia‑Pacific region, it will be important for TPP to set high standards now. In practice this means an agreement which includes all sectors, sets high standards and sound regulatory approaches, and produces strong outcomes across all chapters.

Finally, I’d also like to address concerns expressed by some about the New Zealand dairy industry and its success internationally. 

We take great pride in the success of the New Zealand dairy industry.  We have some natural advantages (such as sun and rain).  But our industry has basically succeeded the old-fashioned way: by hard work, innovation, investment in research, and close attention to quality and customer needs.

Successive New Zealand governments have been determined to preserve the competitive dynamic of the dairy industry because of its importance to our economy.  A quarter of a century ago we chose to eliminate subsidies and other forms of protection for our industry, notwithstanding the distortions in our main dairy markets.  And we have put consistent emphasis on regulating the New Zealand dairy sector to ensure strong competition.  That is working, as we see from the number of new industry players and the influx of new investment, some of it from offshore.

My point is that New Zealand's dairy industry has succeeded for all the right reasons.  American aerospace companies and their counterparts in Silicon Valley and Hollywood have become influential players in world markets exactly the same way.  For those who believe in the benefits of free markets and strong competition, success of this sort is something we should celebrate.

I know there are concerns in the US dairy sector about new access for New Zealand dairy exports under TPP.  I believe their concerns are misplaced. 

One reason is the relative scale of the two industries.  While New Zealand exports most of what we produce, we need to keep that in perspective. The US accounts for 13% of global milk production, whereas New Zealand accounts for approximately 2%.  And our capacity to expand production is now very limited.

More importantly, I believe we should have great faith in the ability of American dairy farmers to take advantage of the huge new opportunities opening up in global dairy markets.  For example, the “Bain Report”, commissioned by the Innovation Center for US Dairy, shows that global demand for dairy products – particularly from Asia – will grow ahead of the capacity of Europe, Australia and New Zealand to create supply, and that the US dairy industry is uniquely placed to step up and meet this demand. The report goes on to warn that in order to take full advantage of this projected latent demand gap, the US dairy industry needs to move quickly and ambitiously in order to meet this demand ahead of potential new global dairy players, such as the Ukraine and Brazil.

New Zealand farmers and dairy companies certainly see the US as having a strong future as a dairy exporter: travelling around this country I see more and more examples of New Zealand investment and other commercial ties in the dairy sector.  One illustration of this is the fact that New Zealand cooperative Fonterra, working with US suppliers, is now exporting more US dairy products than any other company.

Against this background we believe it makes most sense to view TPP as a platform for the US dairy industry to build its exports to the increasingly wealthy middle classes of the Asia-Pacific region.  But if we want to pursue that longer-term goal we will need to start with a comprehensive and high-quality agreement.  Only then will we be in a position to put real pressure on the more closed Asian markets of most interest to American and New Zealand farmers.

Concluding Remarks

In concluding, I would like to remind the Commission that the TPP is more than just another free trade agreement.  It will do much more than liberalise trade.  It is a unique opportunity to develop regional economic integration and deal with 21st Century trade issues such as labour and environment standards.

The economic benefits of the TPP for the United States, New Zealand and other members will continue to multiply as the agreement is expanded to bring in new economies.  This will be integral to longer-term trade growth and job creation.  To ensure we achieve the best possible commercial outcomes and a true vehicle for regional integration, we must aim to complete a deal that sets new benchmarks for quality and ambition.

New Zealand’s and the United States’ interests are inextricably linked to the growing economic strength of the Asia-Pacific region.  The TPP is the fastest moving trade initiative outside of the World Trade Organisation and one that offers to boost significantly US exports in the Asia-Pacific region. 

New Zealand welcomes the opportunity to work with the US in creating a high-quality, visionary Trans-Pacific Partnership.

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