“Making Trade Agreements Matter to You”

Suse Reynolds speech: “Making Trade Agreements Matter to You”

I am genuinely thrilled to be here today. Thank you so much for the opportunity to speak to you.

I have always been incredibly enthusiastic about NZ and its potential to foot it internationally. Twenty years ago I spent a year on a student exchange in Indonesia. During this year, mixing with all sorts of nationalities and living in a country so vastly different from our own, I realised how much NZ has to offer. One way and another it has led me to the position I am in today – promoting the need for trade and open borders.

At the nub of it all is maintaining, but more importantly improving, our wonderful lifestyles, our environment and the quality of our health and education services. Despite what the Green Party says, we do need growth. Unfortunately, there is no way New Zealanders, trading solely each other, are going to generate growth.

Four million kiwis buying the goods and services we produce is not enough. We need the rest of the world. It really is as simple as “no trade - no New Zealand”. And yet only 10% of New Zealand firms are exporters and only 150 companies provide 95% of our exports. That’s dreadful.

I want you to head back to your offices after breakfast this morning bursting with enthusiasm about your role as exporters. I want to fire you up trade liberalisation and why it matters to you personally. I want to explain why we all have such a stake in the trade initiatives the Government is currently pursuing with China, Thailand, Chile, Mexico and the USA.

So what is the speech about?

Trade liberalisation sounds painfully boring but I promise it won’t be. I’ll nevertheless be on the look out for signals - drooping eyelids and faces flopping into cereal plates will be a sure sign that I’m losing you. Please feel free to cough loudly if you feel yourself fading and that will be my cue to jazz it up.

Before we talk about trade agreements I want to explain briefly what the Trade Liberalisation Network is, what “trade liberalisation” is, and where trade fits in our economy. I also want to address some of the more common criticisms about open borders to help you be better “defenders of the faith”.

What is the Trade Liberalisation Network?

As far as we have been able to determine the Trade Liberalisation Network is globally unique.

It is a privately funded business lobby group established to broaden public understanding and support for trade.

We’re very proud of our independence and the fact that we represent about 75% of New Zealand’s export interests. Our independence gives us the right to have a poke at the Government if we deem it necessary and we believe the depth of our representation gives us credibility when we do so.

We desperately want New Zealanders to be more passionate about trade – both aspects of it – imports and exports. We tend to take the degree of import freedom we now have for granted and not enough of us are exporting.

So what is trade liberalisation?

It’s quite a mouthful. It’s not free trade and it’s not fair trade. It’s all about removing barriers to trade and investment and establishing rules for international business - rules that apply equally to everyone. It’s about opening borders and providing market opportunities in a global environment where not only does everyone know the “rules of the game”, but they also operate with the confidence that these rules can, and will be enforced.

So where does trade fit in New Zealand’s economy?

The Prime Minister has said trade is New Zealand’s lifeblood. She’s quite right. Let’s look at where trade fits in our economy. Our exports total about $40 billion per annum: of which services equal $10 billion, dairy $7 billion, meat $4 billion, wood $3 billion, and fish $1.5billion.

What about imports? We export to be able to import. It is imports, not exports that allow us to enjoy higher standards of living. Exports without imports are like a job without a pay cheque. Our imports of machinery and cars total $11 billion, services $10 billion, fuel $3.5 billion, textiles and clothing $1.7 billion and plastics $1.3 billion.

The country lives by international trade. So does Christchurch for that matter. Exports from the region are worth in excess of $5 billion a year. This makes the region responsible for more than a sixth of the country’s total export earnings.

Half a million beef cattle and over seven million sheep graze Canterbury farms. More than 80 percent of the meat they produce is sold into some 60 different off shore markets. Another half a million dairy cattle produce 20 million litres of milk and almost all of it (95 percent) is consumed outside New Zealand.

Twenty million dollars worth of logs leave the Lyttelton and Timaru ports every year. The forests they come from generate 1600 jobs.

The region earns millions of dollars of foreign exchange from the export of services too. Around 800,000 tourists visit Canterbury every year and spend about $4,000 each. More than 15,000 foreign students also study here every year.

I want to talk for a moment about trade deficits – New Zealand has tended, particularly recently, to import more than we export – or to put it another way – to buy more than we sell. Trade deficits get a bad press – let’s look at what they mean to you and your business for a moment.

Deficits with individual countries are irrelevant. Let’s look at our trade with Australia. For 18 of the 20 years of CER we have run a trade deficit with Australia. But New Zealander’s have bought what they need from Australia and Australians have bought what they need from us. Any other needs have been met by other countries. What really matters is that we export or sell enough to pay for what we import. But, even then, we may run an overall trade deficit and this still is not necessarily a bad thing.

There are two sides to the balance of payments – the capital account (buying and selling investment assets like real estate, shares and bonds) and the current account (the flow of goods and services and investment income). Trade or current account deficits have nothing to do with trade policy or our competitiveness off shore.

They reflect investment flows. Savings and investments determine those flows. We cannot reduce our trade deficit by restricting imports or by getting other governments to lower barriers to their markets, although that of course would be good.

New Zealanders do not save enough. Our lack of savings means that much of our business expansion and growth has to be funded by offshore investment. We rely heavily on foreign investment. At the moment, we’re also an attractive place for international investors due to our relatively high interest rates. It is this investment from off shore that allows us to buy more than we sell and to grow our businesses.

What matters most is not the difference between exports and imports but the degree to which people are free to trade and invest across international borders. If this is done freely, our resources will flow to the best and highest use raising our overall standard of living.

So don’t let people tell you that trade deficits mean we should be raising barriers to trade to either enhance our exporters’ competitiveness or to save foreign exchange. Neither of those arguments stack up under scrutiny.

Why is trade good for you?

The reason I am talking about the benefits of trade agreements is because trade is about us. It’s about our own daily lives. So what has trade liberalisation done for us in the last twenty years?

For a start there is now much more scope to “wear what you dare in New Zealand”.

The average New Zealand family now spends $700 less a year on clothing than it did in the mid-eighties. To put it another way, when trade restrictions were at their height buying clothes for the family took twice as much from the household budget as it does today.

Not so long ago, if you felt the need to spice your marriage up with something saucy you had to settle for ‘good old NZ made, not so sexy, cotton creations’. You had little choice and it was relatively expensive. Now you can choose between a $9.95 pack of three or pay $80 for something silky and fantastic!

Three decades ago, to talk to friends in England you needed to book a week in advance and it cost you $80 to speak for ten minutes. Now, you not only have a choice of telecommunication providers, but for $8 you can speak for up to two hours.

In the 1960’s a new car cost you a year’s wages. Now thanks to our ability to freely import cars without high tariffs many families don’t give a second thought to buying a second car.

Two thirds of New Zealander’s jobs depend, directly or indirectly, on trade. Have you ever thought what New Zealand would be like if we did not trade? If you spend even a minute or two doing so, these figures do not seem at all far-fetched.

Let’s look at what imports do for jobs first. The key point is that tariffs and industry protection do not create jobs but stifle their creation. Removing industry protection may displace some workers initially but the over all level of employment is determined by monetary policy, the labour market flexibility and other non-trade factors. Tariffs just send false signals about a job’s viability and keep people in jobs without long terms prospects.

In fact, imports create jobs. Open borders to imports shift resources to industries where productivity is higher. Just as improvements in technology do, and in just the same way, imports raise living standards. Living standards are raised because imports keep downward pressure prices and stimulate domestic competition. These two factors improve real wages.

Research in the US has shown that a rising level of imports usually signals the creation of more jobs. Therefore, it probably should not surprise you to hear that larger trade deficits usually correlate positively with falling unemployment. That is certainly the case in New Zealand at the moment.

In developed countries, like New Zealand, the trend is for jobs to be lost in manufacturing and created in services. Here are some rather mind blowing figures. In the UK between 1970 and 2000, 3.5 million jobs disappeared from the labour market but 6.4 million new jobs were created in services.

On the other side of the trade equation, exporters, as you certainly know, also do great things for jobs and workers. Australian studies show exporters do better things for workers in terms of wages and salaries, they provide better working conditions, have better occupational health and safety records and provide greater job security.

If the point of all this needs proving; you only have to look at New Zealand. In the ‘90s after all the jobs lost due to reform were replaced, a net 600 were created every week as the New Zealand economy doubled the growth it had experienced in the previous 20 years. At the moment, we have the lowest unemployment levels in decades.

If you have a personal commitment to the environment or to developing countries we can talk about the how trade is beneficial here too. I will only make two brief points on these issues because I want to speak about trade and your business before wrapping up.

Trade is good for the environment because the more a country trades the wealthier its citizens become. Studies have shown that once annual income reaches a certain point people start to care about the environment and become intolerant of pollution.

Researchers at Princeton University reckon the turning point comes when the annual income per person reaches around $5000. Once annual income reaches around $8000, roughly where South Korea is, almost all pollutant levels start to fall.

What about developing countries? I acknowledge the issues here are complex. But, there are a few stark facts which make it very clear that open economies do far better than closed ones.

Two Harvard economists have found that poor countries that were open to international trade during the ‘70s and ‘80s grew six times faster than those that were closed. These countries double in size every sixteen years. Closed ones take a hundred by which time the living standards in open economies will have grown eighty fold.

China is a great example. In just twenty years the economy has grown eight times bigger, the average bloke on the streets of Beijing is six times richer.

Keeping an eye on free trade agreements

This leads nicely to the business end; why do you and your business need to be up to speed with the Government’s free trade initiatives? What’s in a trade agreement with China for you? What are trade agreements with Thailand and Chile going to do for us all?

Even if you are exporting to these destinations, trade negotiations can seem a million miles away from your day to day business concerns.

But to reiterate my earlier point; it’s about growth. An important aspect of the Government’s pursuit of markets for New Zealand goods and services - be it in multilateral forums like the World Trade Organisation, or through regional initiatives like APEC or through the bilateral agreements we are discussing today – is that it recognises how vital it is for New Zealanders to be internationally competitive. There is very little chance of growth if we aren’t at the top of our game.

Economic growth is directly related to the quality of our lifestyles, our environment and the state of our health and education systems. That’s why we all need to keep up to speed with the Government’s pursuit of free trade agreements. Where are the opportunities? How do we ensure they eventuate? What adjustments do we need to make?

I think it’s important to be upfront about this last question. There will be adjustments. Some will be painful – very painful if it means the loss of your job. At the end of last week Interlock, window stay manufacturer, announced the loss of up to eighty jobs as it transfers production to China. Some of our high profile outdoor companies, such as NZO mountain bike clothing, and Christchurch’s Macpac and Katmandu, have also chosen to manufacture some or all of their product in China. The Government’s tariff policy, World Trade Organisation developments, and even exchange rate movements which in the last two years have made Chinese imports 40% cheaper, have all been sending strong signals about the need to adapt.

What messages do we take from this?

First, none of the companies mentioned have gone out of business. In fact, quite the opposite, they are doing well.

Second, we are currently experiencing some of the lowest unemployment rates in decades. New Zealand is not short of job opportunities. We also have a decent social welfare system in place for those who take longer to find new jobs and in some sectors, such as clothing and footwear, the Government is also providing funding to assist with transition.

Third, the tack these companies have taken precisely reflects the point I made earlier. In developed countries such as New Zealand the trend is for jobs to be lost in manufacturing and created in services and higher value enterprises.

Fourth, we need to get rid of any outdated preconceptions we have about China, and much of Asia for that matter. These are not the developing economies of twenty, or even ten years ago. They are dynamic, fast growing, producers of high quality, cutting edge technology and goods.

What about the opportunities? I have been imploring every audience I speak to to take at least fifteen minutes – preferably more – to think about the opportunities these agreements might offer. Whether you are an exporter, a potential exporter; or even if your only market is New Zealand, you need to be thinking strategically about the impact these agreements will have on your business. If you think there are issues the Government might help with or should be aware of, for goodness sake let them know. Bash out an email or jot down one page letter – but don’t think you can’t make a difference.

There are any number of impressively huge statistics to accentuate the sorts of opportunities on offer in the Chinese market, like 1.3 billion people, economic growth rates of about 8% per annum for the last ten years, 150 million people moving out of the World Bank’s poverty measure in a decade, more than a million millionaires living in China and the fact that it has become our fourth largest trading partner in the last few years.

What about the Thai market? It is currently the fastest growing economy in South East Asia, we do over a billion dollars worth of trade with the Thais every year, importing half a billion dollars worth of cars, computers and other goods and selling them roughly a similar value of forestry and dairy products. Chile? Chile is a major free trade player in the Latin American region. An agreement with Chile would help increase New Zealand’s profile in that market where most international trade is conducted under the auspices of a trade agreement. With its relatively sophisticated, open and liberal market, Chile can also serve as a useful base for expanding to other parts of Latin America. There will also be some minor benefits flowing from the removal of Chile’s relatively low basic tariff of 6 percent, which would, based on current trade flows, save New Zealand exporters around $3-4 million a year in static gains alone. Those with little faith in New Zealanders ability to foot it in international markets claim free trade agreements with these countries will decimate our economy and destroy thousands of jobs, particularly in our clothing, footwear and textile industries.

Some of you will no doubt recall doomsday threats about CER when it was proposed twenty years ago. Not only has our trade with Australia more than doubled since its inception but initial concerns that the fifteen year lead in for the phase out of tariffs would be too fast proved unfounded. Our exports to Australia grew faster than their exports to us and all tariffs were abolished several years ahead of the original timetable at the instigation of business.

Conclusion

That essentially wraps it up.

Very very few New Zealand businesses can afford to be anything other than internationally aware and competitive. Globalisation and increasingly open markets are not going to go away. Open markets help you retain a competitive edge, they give you undiluted signals about where the best profits can be made, they give you access to cutting edge technology and they give you access competitively priced inputs – be they goods or services.

Trade is about you: it’s all about more choice, better quality and better value. Trade agreements are about opportunities – whether they be new export markets or cheaper inputs. If you want your business to be the very best it can be, spend some time considering where those opportunities might be.

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