Friday, 02 December 2016 21:11

Todd McClay: Speech to Policy Exchange, London

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The New Zealand economy is doing extremely well, because of trade liberalisation, not in spite of it. We are one of the most open economies in the world.

Our economic performance is the envy of many countries, certainly our closest neighbour and largest trading partner Australia and many EU member states.

GDP growth this year was 3.6 per cent and is forecast to remain between 3 and 3.5 per cent for a number of years to come.

Unemployment has fallen to 4.9 per cent with labour force participation rates the highest they have been since records were first kept.

Debt-to-GDP is around 24 per cent and on target to fall below 20 per cent by 2020

We are back in surplus, for a second year and forecast to grow.

The World Bank has judged us easiest place to do business, and we have the 2nd most competitive tax system.

We rank in top five for peaceful countries, most democratic, lack of corruption and economic freedom.

Oh and our rugby team is doing OK.

In trade we have also seen strong growth and performance.

Two-way trade with China has gone from $4 billion to around $20 billion since our FTA was signed eight years ago.

FTAs with Taiwan and Korea have seen huge growth.

Trade in goods is up, as is trade in services.

Tourism numbers and spend have grown significantly. We now receive more than three million international visitors, and their spend is up 18 per cent on last year’s with international tourism now rivalling dairy exports.

FDI is performing well.

We have an economy that looks for opportunity and is based on innovation.

New Zealanders as with Brits benefited when barriers come down and from an environment where businesses are left to do what they do best – run their businesses, create jobs, and grow the economy.

When it comes to trade negotiation and trade liberalisation, New Zealand’s achievements offer some valuable examples on how to get it right for a country contemplating its place in a post-Brexit world.

When advocating for the opportunities presented by trade liberalisation New Zealand continues to show leadership internationally. We look forward to the UK’s loud clear voice in this space.

Today I want to talk about trade and New Zealand priorities for the next few year.

While Brexit has preoccupied minds both in Westminster and across the UK, a much bigger global phenomenon of recent years has been the erosion of support for the benefits of trade liberalisation.

This has been evident in developments across the developed world, including opposition to mega-regional trade deals (TPP and TTIP); most recently highlighted in the electoral campaign which delivered Donald Trump the White House, but saw candidates across the political spectrum opposed to regional trade deals.

New Zealand remains a firm advocate of free trade - our prosperity depends on it - and we are pleased to see the ambition of Theresa May’s Government – in the face of increased anti-trade sentiment around the world – to become a global leader in free trade. If you wish to grow an economy, trade is a necessary way forward, in our view.

My speech will cover three areas that may be relevant to a trade policy audience in the UK: New Zealand’s trade policy focus in the 21st Century; New Zealand’s trade focus in Europe and the UK; and the changing nature of trade negotiation – at least how we must talk about it to ensure the benefits of free trade are better understood.

The world is not the same as it was in 1993 when New Zealand first defined this strategy based around a four track framework of unilateral, bilateral, regional and multilateral initiatives. Changes in the global environment, changes in the very way business is conducted, as well as our own successes under that existing trade strategy, have all been significant.

We need to continue to create opportunity and increase international connections, especially for New Zealand businesses – large and small. We need to use strategy to reduce the enduring challenges that New Zealand faces.

The biggest is geography. We’re a long way from some of our key markets – none more so than the UK, our fifth largest trading partner.

The second is scale. Unlike the UK, we have a small domestic market. My Prime Minister is fond of saying “we won’t get rich selling to ourselves.” Certainly this is true, considering our national population is about half the size of London’s.

The third is the fact that our major comparative advantage is in products that many of our trading partners want to protect from competition.

If our trade policy strategy can address those objectives it will help make the New Zealand economy more resilient, and in turn help to lift growth and raise living standards for all New Zealanders. I will come back to this last point shortly.

So what does the future hold for New Zealand’s trade in the 21st Century?

The first shift will be the balance between negotiation of further agreements and making the most of those we already have. New Zealand has secured FTAs with markets covering 52 per cent of our exports. This would rise to 72 per cent should TPP enter into force, and about 90 per cent if all of our current and prospective negotiations are successfully completed.

Having invested heavily in building what you might call ‘architecture’, the fact that the majority of our exports go to markets that are now, or will soon be, covered by FTAs means in future we are likely to spend less effort looking to negotiate new agreements and more effort on implementing and upgrading our existing agreements.

That includes things like government working with businesses to maximise the advantage of preferential access, monitoring and enforcing the rights we have secured, and in some cases future negotiations to extend aspects of those agreements.

One of the main lessons we have learned – and one which I have discussed with my UK counterparts – is that bigger is not always better, particularly in the early days of a trade strategy.

It is sometimes better to conclude a high-quality agreement with a like-minded partner that can form a benchmark for future discussions with other partners/third parties, rather than rushing into a low-quality deal that may need renegotiating at a later date. I can tell you that it’s better to get it right first time, and leave the door open to upgrade the deal as trade develops and technology changes.

But increasingly New Zealand’s focus will be on the new challenges faced by business. With the progress on tariffs, we should be able to increase our focus over time on the barriers and distortions to our goods exports caused by non-tariff barriers.

Services and investment are also of increased importance. The digital economy is transforming the operating environment for New Zealand.

Take our FTA with China. The success of our trade relationship extends to services – with two-way trade on a sharp growth trajectory, up almost 300 per cent since the FTA entered into force in 2008. A large part of this is the fact that the number of Kiwis and Chinese travelling in both directions is at a historic high – an incredible 500,000 in the year to date. This in turn enhances ties and understanding between our countries, strengthening the foundations of our relationship for the future.

New Zealand has been working to secure a free trade agreement with the European Union. The EU is collectively New Zealand’s third largest trading partner and our second largest investment partner.

So it’s good news that we now have a process in place leading to the launch of negotiations next year. We are making excellent progress with scoping the FTA and everything remains on track, provided that both sides successfully obtain negotiating mandates early next year.

For now, the UK remains a member of the European Union, and has confirmed its support of the FTA and we remain grateful this support.

I have been heartened by the indications I have received from my counterpart, Commissioner Malmstrom, and other ministers that the EU is similarly committed to seeing the FTA launched.

An FTA with the EU 27 remains a priority for us but so does our relationship with the UK.

Brexit holds both opportunity and risk for New Zealand.

The New Zealand Government responded quickly by setting in place internal processes and by deepening our engagement with both the EU and the UK to deal with Brexit questions.

Clearly negotiations between the EU27 and the UK on the terms of the UK’s exit will be complex and resource-intensive. But New Zealand is successful at trade negotiations. We are nimble and adept at adjusting to changing circumstances. We will work hard with the EU and UK to keep things on track.

Whilst the UK cannot enter into legal obligation until the Article 50 process is complete I have expressed our clear interest in a high quality and comprehensive trade deal with Britain and would expect to be one of a group of countries who are first to do such a deal.

In the meantime, Trade Secretary Fox and I have established a Trade Policy Dialogue to ensure our officials engage in detail on the full range of trade and economic issues that will arise as a result of Brexit.

New Zealand and the UK are close friends, and we cooperate across a range of areas. Trade is no different. We have considerable expertise in this area, and since the vote, we have provided considerable support to our friends in the UK. Senior officials from both countries have visited respective capitals, and we have provided training materials and information about the structure of our trade department to help inform the establishment and capability of the UK’s DIT.

Most importantly, however, we have been sharing our experience of the importance of setting a coherent but flexible strategy to guide the direction of trade policy, and to ensure that decisions made lead towards the ultimate goal of liberalising the global trade environment in a way that supports business and delivers benefits to society as a whole.

I will participate in a trade meeting with UK Ministers and my counterparts from a number of Commonwealth countries early next year and thank Liam Fox for his leadership in this area.

When we started our trade strategy 20 years ago, negotiators used to go overseas, do a deal, it would quietly go through parliament and then trade would commence.

Those day are long gone, what’s secret today is on the internet tomorrow.

The public believes that trade deals are good for countries, they don’t think they are good for them.

At the signing of TPP 10,000 people marched in protest. Not all of them knew why they were there.

That doesn’t sound like many, but proportionally that was 135, 000 on the streets of Britain or 1.6 million on the streets of the EU.

When the final readings of the TPP bill took place only 20 protesters turned up.

In part that is because we had engaged more widely than on any trade agreement before.

We talked, explained, fronted up.

But governments can’t do this alone.

We need to find ways to engage with business and industry better.

And we need them to advocate for the benefits of trade.

We need workers whose livelihoods depend up access to foreign markets to see opportunity, not threat.

In a world increasingly ruled by sound bites, telling these positive stories should be a priority we are unashamed to deliver on.

As the UK develops an independent trade policy, and looks to be a global leader in free trade, I would encourage an approach that ensures the public are brought along with the government.

As a Minister, my answer is to keep talking about the issues – people need to be informed; people need to feel that they have been heard, that we take their views seriously and take them into account.

Thank you very much.

| A Beehive release | Weds 30 November 2016 |