Free Trade Arrangements with Asia a national priority

Free Trade Arrangements with Asia should be put at the top of our national priorities, said Sir Dryden Spring at an address to the Asian Forum in Wellington on Tuesday.

"Real progress needs to be made in constructing a bridge between AFTA (the ASEAN Free Trade Agreement) and the Australia-New Zealand Closer Economic Relations Agreement," said Sir Dryden. "It will be very important for New Zealand to improve and entrench its trading links, and to develop increasingly sophisticated economic arrangements with regional trading partners. This is important now, and could well become crucial if an East Asian trade area embracing ASEAN, China, Korea and Japan eventuates. Indeed, in my view the potential value to New Zealand from assuring our trade with these dynamic economies could be even more important in the long term than a Free Trade Agreement between New Zealand and the United States."

Sir Dryden also stated that no other region of the world is as important to the New Zealand economy as Asia. At nearly 36%, the region's share of total exports is half as much again as exports to the Americas, and more than double those to Europe.

Asian countries also account for a quarter of all tourists and about 80-percent of all fee paying international students in New Zealand.

"Remove Asia from the economic equation, and much of the life style we now take for granted falls into question. Our economic turnover with Asia is huge. Exports account for $11 billion, imports for $10 billion, tourism for $1.5 billion and education for $1.2 billion. Add all that together and, with our total GDP standing at around $110 billion, the Asian region now underpins about 20% of the New Zealand economy," said Sir Dryden.

Sir Dryden, Chair both of Asia 2000 and ABAC, has spent most of the last two decades involved in Asia trade.

Full speech follows:

THE ASIA-NEW ZEALAND CONNECTION IMPLICATIONS FOR TRADE

NOTES FOR AN ADDRESS BY SIR DRYDEN SPRING, CHAIR ASIA 2000, TO THE ASIAN FORUM, WELLINGTON, 1730 ON 25 FEBRUARY 2003

20 MINUTE INFORMAL ADDRESS FOLLOWED BY DISCUSSION

Introduction

I welcome the invitation to speak for reasons which will become clear. I do so as Chair both of Asia 2000 and ABAC, and as someone who has spent most of the last two decades involved in Asia trade. I make a couple of points from that experience at the outset. The first is that trade with Asia is a function of relationships. The broader and deeper the relationship, the better the prospects for long-term trade growth. Rather than thinking in terms of the Asia-New Zealand “Connection”, we need increasingly to be thinking about the Asia-New Zealand “Relationship”. Secondly, no other region of the world is as important to the New Zealand economy as Asia. At nearly 36%, the region’s share of total exports is half as much again as exports to the Americas, and more than double those to Europe. A similar formula applies to imports. That’s just the beginning. Asian countries also account for a quarter of all tourists and about 80-percent of all fee paying international students in New Zealand. Remove Asia from the economic equation, and much of the life style we now take for granted falls into question. Our economic turnover with Asia is huge. Exports account for $11 billion, imports for 10, tourism for 1.5 and education for 1.2. Add all that together and, with our total GDP standing at around $110 billion, my back-of-the-envelope estimate is that the Asian region now underpins about 20% of the New Zealand economy. That’s one job in five. My third point relates to the speed of change. The current levels of economic exchange I have just outlined have been reached in the space of one generation. Looking back to 1970, Europe alone accounted for half of all New Zealand exports and nearly 40% of imports. Asia accounted for only 14% of either. There were few Asian students, fewer Asian tourists and minimal Asian investment in New Zealand industry.

The Way We Are

It is no wonder perhaps that New Zealanders are not always aware of the extent to which Asia has become part of their daily lives. Things have happened quickly. It is easy enough to see the surface changes in the wallpaper of shops, streets and schools. People are less aware of fundamental changes in the political and economic basement. But look at the way things now are. The simple fact is that New Zealand is integrating with Asia at many levels. It is not only with respect to our jobs. Futons and sushi are part of the New Zealand way of life. When you buy a Warehouse “bargain”, it generally comes from Asia. Most New Zealanders drive Asian cars, and Asian electronics power our household entertainment and domestic appliances. Asian films win Oscars and Asian athletes win gold medals - sometimes for New Zealand. One New Zealander in 15 is now of Asian origin, and thousands of New Zealanders live in Asia. More New Zealanders learn Asian languages (although it would be good if more followed their example), and more New Zealanders have Asian workmates and relatives. Asian investment underpins our tourism industry and supports other important sectors too. Conversely, New Zealand investments in Asia include brewing, tanning, tourism, fisheries, publishing and foodstuffs. In the broader setting, New Zealand is engaged internationally with Asian countries in ways that would have been unimagineable 35 years ago. We share membership of organisations such as the United Nations and its agencies, the World Trade Organisation and the OECD. Within the region we sit around the same tables at APEC, the Asian Development Bank, the Asian Regional Forum and within the ASEAN dialogue process. We have a sophisticated bilateral free trade agreement with Singapore, and have been talking about similar arrangements with Hong Kong, Korea and the ASEAN countries. In a nutshell, the New Zealand-Asia “Connection” of the 20th century has become the “Relationship” of the 21st. And, as with all relationships, what we get out of it will depend on what we put in.

Predictions

Where is all this going? Let me make some predictions, ask a couple of questions and express a few hopes. First of all, Asia will become more important to New Zealand rather than less. We are not East Asia or South Asia. But we are Austral-Asia, with the emphasis on the last part, and OF the region if not actually IN it. Our economy will become even more densely entwined with those of our Asian neighbours as a result of relative proximity, demographics and basic complementarities. I would like to see Free Trade Arrangements with our Asia neighbours put right at the top of our national priorities, and real progress made in constructing a bridge between the ASEAN Free Trade Agreement and the Australia-New Zealand Closer Economic Relations Agreement. It will be very important for New Zealand to improve and entrench its trading links, and to develop increasingly sophisticated economic arrangements with regional trading partners. This is important now, and could well become crucial if an East Asian trade area embracing ASEAN, China, Korea and Japan eventuates. Indeed, in my view the potential value to New Zealand from assuring our trade with these dynamic economies could be even more important in the long term than a Free Trade Agreement between New Zealand and the United States. Just look at the facts. Over the last 35 years of the 20th century, the world’s economy grew by 1.4% per annum. The economy of East Asia and the Pacific outpaced the world by a factor of four, averaging annual growth of 5.6%. The region has also outpaced New Zealand – our growth over the past eight years has averaged 3.1 percent. The Asia Development Bank is projecting that Asian economies will continue to grow at historical rates in 2003. Unless growth is de-railed by a security crisis or serious global instability, it will remain the order of the day. Looking further ahead to 2010, the work forces of Europe and of Oceania will expand by 2 million each and that of North America by 13 million. The work force in Asia will expand by 298 million, with all that implies in terms of supply and demand. By 2020, the Chinese government has set a target of doubling the size of the country’s economy. China is once again becoming a great power and the influence of other Asian neighbours is also expanding greatly. Our education sector will continue to be very involved with fee paying students from Asia. Half of all international students worldwide come from China and India, and 80% from wider Asia. These proportions also apply in New Zealand, and that is not likely to change. Asian tourism will grow along with disposable incomes, and so will Asian investment.

Questions

There are question marks of course, and they need to be the subject of ongoing analysis and discussion. Asia 2000 has started a process of trying to identify the major issues New Zealand might need to look at over the next 10 years. They include economic, institutional, strategic, political, technological and social questions. All of them impact on the trading environment. We will be exploring the issues this year in association with a major conference the Prime Minister has asked us to organise, but I will share some early thoughts here. Economically, Asia has emerged from the Asian “crisis” of the latter half on the 1990s. Of all the world’s regions, only Western Europe has a bigger share of world trade than Asia (41.5% versus 25% – North America has 16.6%) and trades more with itself (67.5% versus 48.2% – North America is 39.5%). A process of regional integration through trade and investment is driving new interest in regional economic agreements, bringing with it the prospect of an East Asian trade area emerging within the next 10 years. What kind of arrangement could this prove to be, and how can New Zealand be associated with it? Institutionally, and rightly or wrongly, the 21st century has begun with greater questioning of the role and effectiveness of multilateral organisations and of the commitment of the US in particular to multilateral processes. There is strong current interest in regional solutions and in bilateral mechanisms. Balancing multilateral, regional and bilateral options is never easy for a small nation: the price of one relationship can impose a cost on another. Where do our common interests lie, and with whom? What options do we have, and where do we strike the balance? Strategically, the region is preoccupied with the return of China to its former world power status. As its economy expands, fuelled by massive flows of investment, so too does China’s political influence. Some see prospects for new cooperation, and others for competition. Where does New Zealand fit into the evolving picture? Political challenges persist despite the end of the Cold War. Asia retains its diversity and remains a region of borders. Some demarcations remain sensitive, including those in the Taiwan Straits, the Korean Peninsular and the South China Seas. There are challenges too in the form of ideological contests, intra-national conflict, expanded armament programmes, transmigration and the frightening impact of international terrorism. What can New Zealand do to influence the positive outcomes which will sustain development? Technologically Asia continues along the path that has taken it from war ravaged rice paddies to the cutting edge of the future. Creative industries, ICT and biotechnology are all priorities which New Zealand shares. But industrial advances have also imposed high environmental costs in some parts of the region. Can New Zealand develop stronger strategic partnerships to globalize its own innovation? Are there opportunities to address some of the negative environmental consequences in the interests of sustainable growth? Socially there is a growing awareness that business does not happen in a vacuum. Cultural understanding, personal relationships and human exchanges provide the framework essential for long term economic links. The bad news is that both the competition for attention and in-market representation costs have increased, while New Zealand’s capital of goodwill from post-War development and security assistance has diminished. The good news is that the potential of informal linkages has never been stronger as a result of migration and educational, cultural and business exchanges. How can New Zealand create synergies and maximize the return on this new human capital? And what can we do to sustain our profile?

Hopes

I will conclude with my hopes. I hope, first of all, that we can come up with constructive answers to big questions such as those I have suggested. I hope that we can start thinking less in terms of “Connections” and more in terms of “Relationships”. I hope we all develop greater knowledge about the detail and depth of New Zealand’s relationships with the countries and peoples of Asia – knowledge that goes past the wallpaper and into the basement. I hope we use the term “Asia” with greater understanding and respect for the huge diversity of language, culture and history of the many different countries and people concerned. I hope we make better use of our new communities of Asian citizens and students as resources from which we can learn, and as bridges to their societies of origin. I hope that both New Zealanders and the peoples of Asia come to regard each other more as “Us” and less as “Them”. And I hope we will continue to evolve as a confident and unique Asia Pacific culture which deserves its place in the regional sun. Asia 2000 will be doing its best to make these hopes happen. I would welcome your questions and comments.

Sir Dryden Spring Chair, Asia 2000 Foundation February 2003

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