[asia-apec 590] NZ Trade Minister on APEC (II)

[Gatt Watchdog]

 New Zealand Executive Government Speech Archive
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 6.00 pm Tuesday 25 August 1998

    ADDRESS BY HON LOCKWOOD SMITH, MINISTER FOR INTERNATIONAL TRADE

                      Asia & New Zealand's Economy

                         Annual General Meeting
                            Wellington Branch
             New Zealand Institute of International Affairs
                                BP House
                               Wellington

 Domestic politics have certainly been interesting over the last
 fortnight. Tomorrow, New Zealand's Government will formally change
 from the National/NZ First Coalition minority government to a
 National-led minority Government. It is nothing surprising under MMP
 that the Government can change without an election. It happens
 regularly in all proportional representation systems.

 But one thing has not changed: the National Party is determined to
 deliver the good government that New Zealanders deserve. We have the
 support of 62 MPs on confidence and supply. That will allow us to
 deliver stable and constructive government for New Zealand. That is
 particularly important right now because of the Asian Economic Crisis.

 No one in the Government has ever underestimated the seriousness of
 the turmoil in Asia. Asian economies account for half our top 20
 export destinations. Japan alone takes 15% of our exports. Not only
 that, but we are also affected indirectly through Australia, our
 biggest export destination. The effect of the turmoil so far has been
 significant on key sectors. Our forestry exports to Japan and Korea
 over the past six months were $170 million down on the same time next
 year - a full third. According to the Reserve Bank, our GDP growth
 rate for 1998/1999 is now expected to be only 0.1%.

 But the Reserve Bank also expects growth to strongly bounce back in
 1999/2000 to 4%. And one of the key reasons for that is because of the
 way in which our economy has been restructured since 1984. We are now
 a flexible, innovative economy. Our dollar has automatically adjusted
 to take account of our balance of payments deficit, falling around 30%
 against the US dollar in the last year. According to Statistics New
 Zealand, our exports during the three months to March were up 11%
 compared with the same quarter in the previous year. The latest
 forecast for the June quarter is that exports will be down less than
 1% compared with the very successful June quarter in 1997.

 Clearly, New Zealand's economic framework is one which allows our
 exporters to respond and diversify quickly - with the US possibly set
 to shortly overtake Japan as our second biggest export market. That
 ability to respond shows the danger of any notion that we should
 return to the high-tax, protectionist, union-dominated New Zealand of
 the past. The Shipley-led Government is clear that we need to continue
 on our path of price stability, sensible spending policies, an
 innovative labour market, a low-rate, broad-base tax system and
 continual improvements to our competitiveness through microeconomic
 reform.

 But none of this is to suggest that New Zealand should turn its back
 on Asia. To the contrary. Even now, economies like Japan still offer
 huge consumer markets. The East Asian market continues to import
 around NZ$3 trillion worth of merchandise each year. There continue to
 be good opportunities in services such as tourism and education.
 Longer-term, Asian markets will continue to be our natural trade,
 tourism and investment partners into the future. Even if they don't
 offer the levels of economic growth seen in the past, they will offer
 strong, more sustainable rates of growth in the future. New Zealand's
 growth and development will always be strongly linked with Asia.

 And nothing is more certain than that Asia will recover. The only
 question is how long it will take. In the last part of this century,
 Asia has enjoyed the fastest economic transformation the world has
 ever witnessed. Many of the factors that made that possible remain
 entrenched - high savings rates, an increasingly skilled and educated
 workforce, a dynamic business environment and low rates of tax. What
 is now required is for Asian economies to implement the reforms
 necessary for speedy and sustainable recovery.

 Most crucial is Japan. Because it is by far the wealthiest economy in
 the region, the Japanese people have not felt the same direct impact
 as those from other Asian economies. It means there is little sense of
 crisis on Japanese streets. That makes the necessary reforms more
 politically difficult. But Japan must show leadership, in reforming
 its banking sector, rationalising its public service and liberalising
 trade.

 In the short-term, Japanese leadership will help to keep the yen above
 the level at which China would be forced to devalue the RMB. In the
 medium-term, Japanese leadership will be essential to restoring the
 business confidence that Asia needs, and engine to get Asian economies
 moving again. And, longer-term, reform will mean that the world's
 second largest economy will be on a much stronger footing.

 The rest of APEC has a crucial role in encouraging Japan to take that
 leadership role. And, collectively, we have an important role in
 demonstrating that the problems we are facing in our region will not
 send us back down the dead-end road of protectionism. We need to
 continue to open and integrate our economies. That will help to build
 business confidence and spur economic growth.

 APEC's key goal has been free trade and investment by developed
 economies by 2010 and by developing economies by 2020. We remain fully
 committed to those goals. At the same time, we have been working on
 early liberalisation of trade in certain sectors. Work will be
 completed this year on nine sectors: energy, toys, gemstones and
 jewellery, chemicals, medical equipment and instruments,
 telecommunications, environmental goods and services, and - of
 greatest importance to New Zealand - forest and fish products.

 Getting agreement on that package was not easy. When I arrived in
 Vancouver in November last year, to consider the broad outline of the
 package, I was advised it was highly unlikely agreement would be
 reached on any but a handful of sectors. But the New Zealand team and
 I persisted and, working with our allies, we achieved agreement for
 the much more comprehensive package of nine sectors - a package which
 is balanced to ensure all economies see some immediate benefit.

 The package again struck some problems in Kuching in June, mainly
 because Japan was about to hold Upper House elections. Economies like
 Thailand and Indonesia - with their problems - showed tremendous
 courage in remaining fully committed to the package of nine sectors.
 Korea and China also showed a tremendously constructive approach in
 being prepared to sign up.

 The package remained intact, with only the last few details still to
 be decided in Kuala Lumpur in November. Should all APEC economies
 finally commit to the package, it will mean free trade in sectors
 already worth NZ$3 trillion in exports around the APEC region every
 year. It will go far beyond the elimination of quotas and tariffs,
 also dealing with standards recognition and other issues which can be
 used as de facto trade barriers.

 The significance of that package alone would be enormous. First, it
 would show that APEC is working. There are a lot of naysayers around
 the world who are critical of APEC's goals-based approach, as opposed
 to the EU's rules-based system. This would be a clear demonstration
 that a goals-based system can work, and work well. Second, from New
 Zealand's perspective, the inclusion of forest and fish products would
 provide an opportunity for those industries to increase their exports
 of high value products into high value markets. They are major
 industries for us, but they are constrained by protectionism
 internationally. Third, it would be the first time a major
 international group had agreed to free trade in primary products. It
 would set the scene for further progress both through APEC and through
 the World Trade Organisation.

 Next year, when New Zealand chairs APEC, we will consider a further
 six sectors for early liberalisation: natural and synthetic rubber,
 fertilisers, automobiles, civil aircraft, oilseeds and oilseed
 products, and food. Liberalisation of food will be on the APEC agenda
 when New Zealand is in the chair. It provides us with a unique
 opportunity. Already, we are working with the National Centre for APEC
 in Seattle on its Efficient Food System proposal. The idea is to
 design what an Efficient Food System - free trade in food - would look
 like.

 We will be wanting to use our year in the chair to make as much
 progress as possible. All our best brains and most extensive
 experience will be necessary. With the taxpayer having spent hundreds
 of thousands of dollars on travel for me to meet and build
 relationships with all the key players, I have committed my life to
 ensuring they and New Zealand exporters get the best possible return
 from that investment. I am determined we will make progress.

 What makes that APEC work even more important is that it will set the
 scene for the World Trade Organisation negotiations to liberalise
 agricultural trade, scheduled to be launched in the United States near
 the end of 1999. APEC covers half of world trade. If we can achieve
 progress towards liberalisation of trade in food around the APEC
 region, we will be half way towards a good outcome from the WTO,
 before negotiations have even begun.

 One of the key issues which will determine our success in making
 progress through APEC and the WTO is the degree to which economies
 remain committed to globalisation following the turmoil in Asia. Since
 1950, the world has generally moved towards freer and more open trade
 and investment regimes. According to the OECD, world production has
 increased sixfold since 1950, but world merchandise trade has
 increased by 16 times. Outflows of investment have increased by 25
 times, in just 25 years. When comparing our relative performance
 through the 1970s and early '80s with our progress since then, we in
 New Zealand know full well the benefits of opening and liberalising
 our economy. And, despite its recent troubles, the performance of
 South Korea, compared with North Korea demonstrates the lesson even
 more clearly. OECD work makes clear that the more open an economy, the
 more likely it is to grow.

 But globalisation also leads to a backlash, by those who feel
 threatened by it. Pauline Hanson's One Nation Party in Australia is a
 good example of that. Here in New Zealand, the Alliance is currently
 the vehicle for unthinking nationalist sentiment. Asian economies also
 risk a rise in that kind of thinking. In New Zealand we saw a totally
 irrational campaign against the idea of establishing clear rules for
 investment through the OECD's proposed Multilateral Agreement on
 Investment. Even the pause in negotiations hasn't stopped the
 conspiracy theorists from suggesting that the negotiations may
 secretly be transferred to the IMF. In Asian economies, the reality of
 IMF involvement may well fuel that kind of paranoia.

 The reasons for these fears are simple. Globalisation does involve a
 reduction in national power. Through international agreements, New
 Zealand, for example, is not allowed to test nuclear weapons,
 recklessly use landmines, trade in endangered species, reintroduce a
 death penalty or introduce tariffs or quotas above our Uruguay Round
 commitments.

 We need to demonstrate that losing these types of powers as a result
 of being involved with the rest of the world is far outweighed by the
 benefits from globalisation. Intellectually, it is not a difficult
 argument. Politically, it can be, because objections to globalisation
 are emotional, based on deeply-held fears of change and the outside
 world. These can not be arrogantly dismissed, and nor can they always
 be countered just by statistics. They can only be fully countered by
 careful explanation of New Zealand's place in the world and the
 opportunities globalisation provides to our people.

 As people committed to involvement with the rest of the world, this
 institute has a role to play in that process. And, as a nation
 committed to globalisation, New Zealand has a role to play in leading
 the process internationally. That is the way for us to ensure that New
 Zealand takes our place as a dynamic, outward looking and growing
 economy, part of a dynamic, liberal and growing APEC region.

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