Hon Phil Goff
Minister of Trade

25 May 2007
Speech Notes

Promoting New Zealand Trade
Address to the British New Zealand Trade Council Breakfast, Auckland

Our changing trade relationship with Europe.
Our trade and economic relationship is underpinned by strong historical ties. From the early days of New Zealand as a trading nation the UK was our dominant trading partner taking primary products from New Zealand and supplying manufactured goods in return.

But we’ve however moved a long way from being “Britain’s farm” — of piling commodities on to ships and sending them to a guaranteed market.

Our reliance on the UK as a market peaked in the thirties at nearly 90 percent of total exports, and ended only in 1973 when the UK entered the European Economic Community.

At that time the EEC still took one-third of our goods exports. And while the UK remains New Zealand’s fifth-most important export market for goods (not counting the EU as one market), it now takes less than 5 percent of our merchandise exports.

The EU, taken as a whole, has grown to be our second-most import export market. Britain’s entry to the EEC launched significant diversification of New Zealand’s trading profile.

It provided the impetus to build the vital trading relationship we now have with Europe as a whole.

New Zealand’s exports are still dominated by primary products — meat, wine, wool, fruit, cheese and honey.

New Zealand’s imports from Europe are, of course, much more diversified, and are dominated by manufactured and consumer items.

Our trade profile, however, is starting to change. We are increasingly exporting services though trade with Europe in this area remains short of its potential.

Investment is an important part of the trade and economic relationship. 17 percent of foreign direct investment in New Zealand is from Europe, while 28 percent of our overseas investment is to Europe. The bulk of this is with the UK.

In tourism, New Zealand receives around 500,000 visitors per year from Europe.

The UK alone makes up nearly 300,000 of this total and is New Zealand’s second-largest source of visitors after Australia.

These figures of trade, investment, tourism and migration - the UK remains our largest provider of new migrants - paint a picture of a strong mature relationship that has the potential to strengthen further.

Beachheads
One initiative to help New Zealand businesses crack the European market is NZTE’s Beachheads Programme.

This is a highly successful private-public partnership scheme to assist New Zealand companies enter key overseas markets.

The Beachheads Programme focuses on accelerating the growth of New Zealand companies in selected markets around the world.

It began by focussing on the information and communication technology (ICT) sector, but now also includes food and beverage, specialist manufacturing, biotechnology, creative industries and the services sector.

A cornerstone of the programme has been the establishment of advisory boards. Experienced board members provide advice on how to accelerate growth in markets, and they provide critical contacts from their networks.

The programme also has project managers providing practical assistance on the ground to help set up and expand business.

The UK Beachheads Programme has recently enjoyed a number of successes that give you a taste of new areas of trade.

Datasquirt text messaging contact centre service, for example, have signed an exclusive distribution deal with Eircom in Ireland, thanks to an introduction by Alan McCarthy of the UK Advisory Board.

Humanware assistance devices for the visually impaired has opened a second UK office as they continue to expand across Europe.

Metra weather data and graphics have been nominated for the Hottest Overseas Prospect at the UK Technology Innovation and Growth Awards 2007.

Leveraging off Valencia
With sporting attention now focused on Valencia, Spain and the America’s Cup, NZTE is running an America’s Cup programme that involves a range of leading New Zealand companies in other fields such as biotechnology, wine and information technology — meeting influential leaders in those fields at the team's base during the regattas.

The government is using the opportunity to help increase trade, investment and tourism opportunities for New Zealand.

Products from smart Kiwi marine and technology companies are being used by America’s Cup management and several teams for the 2007 series.
For example the high-end rigid inflatable boats made by Auckland-based Rayglass Boats can be seen on almost every corner of the Valencia course.

Comvita is a brand gaining recognition worldwide for its therapeutic properties in digestive health and wound treatment.

Two-thirds of Comvita’s sales are exports and its London-based subsidiary is spearheading an expansion into Continental Europe during 2007, a process that the America's Cup programme will assist. And all this from its base in Paengaroa, a small town in the Bay of Plenty.

4RF's telecommunications systems help plug gaps in mobile phone coverage and are used in dozens of countries around the world including France and Spain.

NZTE also helps New Zealand companies to build their presence internationally at overseas trade shows. Earlier this year 16 information technology and communications companies attended the CeBit show in Germany helping them potentially to strike up deals worth millions of dollars.

The companies exhibited collectively under the banner of "New Zealand New Thinking" — illustrating how New Zealand businesses bring the world creativity, innovation and technology by thinking beyond traditional boundaries.

I don’t want to undervalue the importance of our traditional exports — we need to continue selling dairy, sheepmeat, wine and wool, and to increase the unit value of those exports.

But we need to supplement those commodities with innovative goods and services.

Food Miles
Trade protectionism in agriculture, however, remains a concern – and it sometimes takes on new guises.

A fortnight ago during a brief stopover in London, I took the time to engage with a range of environmental journalists, including from high-profile publications such as The Guardian, Economist and New Statesman.

I wanted to set the record straight about some of the ill-informed commentary about New Zealand trade, particularly in the UK market, in the context of the ‘sustainability’ debate.

There have been repeated articles about the global emission impact of kiwifruit, olive oil and strawberries air freighted to the UK from NZ. In fact, 99.75% of NZ food and beverage is shipped not air freighted to the UK.

New Zealand sends a billion dollars a year exports of food and beverage to the UK.

The appropriateness of these exports has recently been challenged on the grounds of the miles this food travels and its environmental sustainability.

We fully support consumers making informed decisions about the environmental impact of their food purchasing decisions.

But "food miles" is a superficial and a deeply flawed concept, which lacks credibility as a measure of environmental sustainability.

Even after accounting for the energy used in shipping food from New Zealand to the UK, the emissions associated with imports from New Zealand are often much lower than those associated with alternative, local sources.

The Lincoln University and other studies show that the energy used to produce a lamb and ship it to the UK is, for example, a quarter that needed to produce a lamb in the UK. For dairy, the carbon footprint for a kilo of butter is about half that produced in the UK, even after transport is taken into account.

It is in fact often better for the environment to import goods than buy them locally, if they can be produced much more efficiently and sustainably elsewhere.

New Zealand and the UK share a concern for the environment. These concerns should be addressed by robust and honest analysis, which is based on facts rather than rhetoric.

Export Year
2007 has been designated by the Government in partnership with the private sector as Export Year.

Although New Zealand’s economy is about 25% bigger today than it was seven years ago, New Zealand’s export performance has not increased as percentage of GDP.

We are buying far more from overseas than we sell. The objective of Export Year 2007 is to improve our long-term export performance.

Export Year 2007 is an initiative designed to build a platform for ongoing efforts to improve New Zealand’s export performance.

New Zealand has a shortage of firms that are capable of operating globally or that are willing to push beyond the perceived safety of the local market.

We need to build export capability so businesses are ready to tackle export markets. We need to broaden our exporting base and encourage more companies to look at markets beyond New Zealand.

Some are already doing that. Last week I joined five New Zealand companies at an event in Paris where they successfully showcased natural cosmetic products to French media and industry representatives.

There is extraordinary international interest in high-quality 100 percent natural products. This interest has translated into demand, and natural products are now a $300 million per year export industry for New Zealand.

New Zealand natural cosmetic companies are an example of firms that have used innovation, product integrity and environmental quality to succeed.

Budget
Last week’s Budget delivered the most substantial changes to the business environment in twenty years.

These changes will help to develop a more innovative and dynamic economy — one better able to compete in the increasingly competitive global marketplace.

The cut in the company tax rate, the introduction of tax credits for research and development, reforms on the international tax regime and the expansion of industry training will all help our export industry.

These policies will help New Zealand businesses to expand here and overseas. They will help New Zealand firms to research and develop new products. And they will help New Zealand exporters to invest in skilled staff to lift productivity.

For Export Year we made an additional $33.7 million available for export market development grants, and in the budget we’ve provided an additional $87.8 million over the next four years.

This extra funding will enable more New Zealand firms to undertake new market development activities overseas. If you’re willing to invest in international market development and meet the relevant criteria, then NZTE may match you dollar for dollar under the Enterprise Development Grant scheme.

The government has also provided additional support for NZTE’s Beachheads Programme.

In another initiative, the Government, together with business organisations working together as part of Export Year 2007, has promoted export-focussed mentoring to address the need for knowledge sharing between exporters and aspiring exporters.

A boosted Business Mentor Programme will provide experienced exporters to act as a sounding board for ideas, and to offer their own skills and know-how to new exporters.

NZTE has also increased the focus of its Exporter Education Programme and revised the content. Exporter Education workshops teach specific skills on export-related topics that are immediately applicable for businesses.

Three seminars have been held this week alone in Levin, Tauranga, and here in Auckland, on the topic of “Exporting to the UK”, and course material is being developed that covers "Exporting to the EU.”

Kiwisaver will hopefully turn around New Zealand's appalling savings track record and create a deeper pool of capital available-saved for within our own country rather than from foreign savers.

Government assistance is important but a large part of New Zealand's long-term economic success rests with the business community and its willingness to take up the challenge of improving exporting performance.

Trade Negotiations
The international trade environment is another key aspect of our ability to gain the most from our trading relationships.

A successful outcome from the current Doha round of the WTO negotiations remains New Zealand’s number one trade priority.

Openness to trade and competition is one of the cornerstones of economic success. It fuels economic dynamism and innovation, and ultimately raises productivity and standards of living.

A good outcome from the Doha negotiations is by far the best opportunity for global trade reform. No other outcome will give the same payoff across the range of world trade — in agriculture, in services, and in manufactured goods.

And a multilateral outcome is the only way we can tackle large trade-distorting issues such as subsidies. The global gains of a successful WTO round are likely to be very significant.

We’ve seen acceleration in negotiations over recent weeks. For the first time since negotiations were formally suspended last June, ministers from the key players — the so-called G-4 of the EU, the US, Brazil and India — have been meeting as a group to try and hammer out a deal.

While we have yet to see a decisive breakthrough, they have stated a commitment to getting results before the northern summer break. Time will tell.

The four countries can’t get a deal done by themselves. This will need agreement from the other members of the WTO through the Geneva based process. But the fact that they’ve met twice since Easter, and will meet again for nearly a week in mid-June, is at least a positive sign.

The G-4 members are facing tough choices between protection and reform. Experience and logic argue that each should make the compromises needed to help pull together a deal. But all face a temptation to take the soft option and stick with their current negotiating positions. This makes the risk of failure high.

The challenges of completing a Doha deal are well known. At present I think that there is about an even chance of success.

No one wants to Round to fail, or to be held responsible for its failure, but it is clear also that a breakthrough will require leadership, courage and a willingness to compromise – led by the G-4.

It is clear that the major players are still a long way apart on the details of a deal. The US will have to reduce farm spending; the EU and other developed countries will have to improve market access for agricultural products; and Brazil, India and major emerging economies will have to give ground on industrial tariffs.

The multilateral system is our first priority, but there are good reasons for also working at the bilateral and regional level.

Bilateral free trade agreements are useful to countries willing to liberalise faster and deeper than the slow-moving multilateral system provides.

We now have agreements in place with Australia, Singapore, Thailand, and collectively with through P4, with Singapore, Brunei and Chile. We're expecting to close a deal with China within a year, and are negotiating with ASEAN and Malaysia.

We’re about to start negotiations with the Gulf Cooperation Council.

Korea and New Zealand have a joint study underway examining the benefits of a bilateral FTA.

With Japan, we have established a joint working group to examine ways to re-invigorate our economic and trade relationship. Our hope is that this becomes part of a process that eventually results in an EPA.

We’ve also agreed in principle to commence a study into the implications of an FTA with India. And of course our agreement with Australia under CER is being regularly updated to try and achieve a single economic market.

One of the key advantages of an FTA is that economies become more connected. And these international linkages are an important component in helping to drive productivity growth.

These connections tend to come at the government-to-government level initially, but can also stimulate and strengthen relationships in science, research and development, education, and investment and services trade.

On that basis, and given our broad symmetry of views on a number of areas, I have discussed with EU Trade Commissioner Peter Mandelson ways of deepening the New Zealand — EU bilateral economic relationship once the Doha Round has been successfully concluded. There is certainly scope to work more closely together on a range of trade issues.

In conclusion, our trade and economic relationship with the UK and Europe continues to be of huge importance to us.

It is a relationship that has been reshaped over time, and continues to change.

For New Zealand as a small trading country, a long way away from Europe, we have to be flexible and innovative to ensure we remain competitive in the European market.

A New Zealand Inc. approach is important in this regard, with Government and business working together to maximise our ability to realise new commercial opportunities.

This also means operating effectively in multilateral trade policy and rules setting fora such as the WTO, and also through the negotiation of bilateral FTAs.

Our relationship with the UK remains – in many ways – the cornerstone of our relationship with Europe, reflecting the strong historical and people-to-people ties.

Like any good relationship, however, we must continue to work together to ensure that we remain responsive to each other's needs.

Thank you again for the opportunity to speak to you today.

ENDS

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