EventsImage galleriesMediaPublicationsAnnual reportAsia White PaperBusinesslinkExport year 2007NewslettersPost election briefTrade matters
Although we have tried to use plain English content on the site, you may come across specialist terms and acronyms. Find out what they mean in our glossary of terms.
If you come across a term that isn't included in the Glossary please send us an email.
The rapidly changing nature of global trade presents challenges and opportunities for New Zealand’s trade and economic diplomacy. Features of the current phase include the growth in trade in services, the impact of major developing countries, the role of multi-national corporations and associated reactions from civil society, and moves towards economic integration in Asia, Europe and the Americas. The trend is for greater integration of economies, increasing fragmentation of supply chains albeit subject to greater integration of their control, and less distinction between services and goods trade. The competition for resources, energy and investment, and for markets, has broadened and intensified among nations and across regions. New patterns of international trade and capital flows are emerging, and new levels of wealth and centres of economic power will rapidly evolve, all with consequences for New Zealand, especially if the basis for this transformation is by preferential access, rather than the GATT/WTO principle of ‘most favoured nation’.
The nature of New Zealand’s interactions with the rest of the world is also changing. New Zealand’s businesses and policymakers know that being a successful outward-oriented economy involves a lot more than just trying to increase the sales of our goods exports overseas. Key factors in maximising the growth impacts of New Zealand’s international connections include attracting foreign investment to deepen our capital stock; absorbing foreign technology and innovation to remain internationally competitive; developing richer people-to-people links to facilitate knowledge transfer via permanent and temporary migration; boosting our services exports; participating in global value chains, including through outward investment; and developing integrated marketing and branding strategies. The spectrum of trade policy and MFAT’s external economic engagement is therefore much wider than in previous decades.
MFAT’s external engagement contributes directly to the Government’s economic goal of sustainable economic development within the context of the Government's Growth and Innovation Framework (GIF). Our objective is to help deliver productivity gains to the New Zealand economy from international connections by facilitating flows of technology, people, ideas and capital in collaboration with other government agencies and business.
The achievement of the goal of sustainable economic development requires collaboration among different agencies across the public sector in their work both on- and offshore. MFAT, the Ministry of Economic Development (MED) and New Zealand Trade and Enterprise (NZTE) have agreed as a shared outcome to improve alignment in the strategic direction, operations and activities of our international work, recognising the complementary roles and expertise we bring to bear. The three agencies have set in place formal and informal mechanisms to define strategy, coordinate operational and resourcing issues and to share information on opportunities and risks in the external and domestic operating environment. Treasury, the Ministry of Agriculture and Forestry (MAF), Customs, Ministry of Research, Science and Technology (MoRST), Ministry of Education, the Department of Labour/Workforce and other government departments and agencies are also fully engaged in the development of New Zealand’s international connections for sustainable growth.
MFAT has two central roles in support of the Government’s economic growth and innovation objectives.
First, it has a specific responsibility for dealings and negotiations with foreign governments over the frameworks for our trade and economic relations with the rest of the world. MFAT does this through:
Second, MFAT plays a collaborative role in assisting and supporting efforts by other government agencies and by the private sector to achieve their objectives in international markets and relationships. This collaborative role, facilitated especially through our network of overseas missions, is fundamental to helping the New Zealand business sector internationalise by deepening its connectivity to regional and global centres of excellence and commercial power. MFAT combines local knowledge and an understanding of New Zealand’s needs to secure access to decision-makers offshore. MFAT works closely with relevant agencies in formulating trade and economic policy and supporting implementation of programmes to bring skills, technology, research and development and capital into New Zealand.
In the trade negotiations area the multilateral World Trade Organisation (WTO) Doha Round process remains the top priority for New Zealand because it offers the largest potential gains. But the scale of the negotiations and the interests involved means that progress is slow.
In recent years there has been an increasing trend towards the negotiation of bilateral Closer Economic Partnerships (CEPs)/Free Trade Agreements (FTAs) to complement the WTO. New Zealand is actively engaged in this process, not only to develop opportunities, but also to protect our trading interests when other countries exchange trade preferences on a bilateral basis.
CEPs/FTAs are valuable, too, for promoting cooperation to enhance both parties’ global competitiveness. CEPs/FTAs can encourage investment flows and the alleviation or removal of non-tariff barriers to New Zealand exports. In addition, CEPs/FTAs can be used to complement other trade liberalising initiatives and can be leveraged as part of a broader economic relationship with the partner country. Significant effort is under way led by MFAT on a whole-of-government basis to maximise gains from completed trade negotiations (“harvest strategy”).
New Zealand is committed to CEP initiatives that provide momentum for the WTO process, while also serving to advance APEC’s Bogor Goals of free and open trade and investment.
The current Round of WTO negotiations (the “Doha Development Agenda”) was launched in Doha, Qatar in December 2001. The period from late September to the Hong Kong ministerial meeting in mid-December will be critical for the negotiations. Some issues will be held over for further work next year (the final deadline is December 2006) but we need to get decisions out of Hong Kong on core issues, particularly agriculture (market access and subsidies) and industrial tariffs.
The negotiations have been stalled since the interim “framework” deal reached in Geneva in July 2004. The US and EU now have new negotiators (Robert Portman and Peter Mandelson) in place. A new WTO Director-General (former EU negotiator Pascal Lamy) takes over from 1 September. The expectation is that initial elements of a Hong Kong package will be put in place at a ministerial event in Geneva in October, possibly with preparatory work done in a small group (with the US, EU, Brazil and India as core members).
Draft texts for decision in Hong Kong will need to be completed for circulation by late November. The key decisions relate to “modalities” for agriculture and non-agricultural market access (these determine the content of the schedules that detail tariff and subsidy cuts to be made by each member).
Other issues needing attention in the lead-up to Hong Kong include services (offers currently on the table will not deliver much real liberalisation), rules (antidumping is particularly sensitive for the US, while New Zealand has been especially active on fisheries subsidies), environment (we have environmental and commercial interests in the environmental goods negotiation) and “geographical indications” (a European agenda closely tied to agriculture). And a deal will not come together unless there is a clear development dividend for the developing countries that make up the majority of the membership.
Agriculture remains the most distorted sector in international trade: European, Japanese and North American farmers continue to benefit from high levels of subsidy and border protection (total support to OECD farmers came to US$279 billion in 2004). The distortions are particularly acute for livestock products such as meat and dairy. Agricultural products – mostly pastoral products – account for more than half of New Zealand’s goods exports.
It will be hard to get real reform of agriculture trade through bilateral free trade agreement negotiations. Australia was unable to secure any market access concessions from the US on sugar, and only marginal improvements in dairy in their 2004 free trade agreement; and the US and EU have been unwilling to negotiate on subsidies outside the WTO process. The stakes are large: export subsidy elimination alone is estimated to be worth around $650m a year to New Zealand while a realistic result on tariff quota expansion on dairy products alone could be worth close to $600m a year.
We also have a strong interest in preserving the integrity of a rules-based trading system. WTO rules and mandatory dispute settlement are at the heart of this. Without a successful outcome to the Doha Round that system could be at risk.
Breakthroughs will be needed in agriculture and non-agricultural market access before decision texts can be prepared for Hong Kong. Politically difficult concessions will be required from the US (real cuts in domestic support for agriculture), EU (some genuine movement on agricultural market access) and Brazil and India (real cuts to industrial tariffs) if a deal is to come together.
Although our objectives are mostly offensive, the New Zealand dairy and kiwifruit industries are being targeted by the EC and US in the export competition part of the agriculture negotiations. It also now seems likely that there will be pressure for a further round of services offers, which would require a decision on whether we should attempt to improve our current offer.
Negotiations towards a FTA between New Zealand and China were launched last November at the APEC Leaders meeting in Santiago. This followed the release of a Joint Feasibility Study which concluded that a high quality FTA would likely deliver positive benefits for both economies and recommended a negotiation – covering goods, services and investment – begin as soon as possible.
Four rounds of negotiations have been completed to date. These have focused primarily on preparing the ground for detailed negotiations through discussion of the negotiating process itself and through enhancing collective understanding around each country’s policy settings and approaches to past trade negotiations. No target date has been set for the conclusion of negotiations. While both sides are aiming for a timely and successful conclusion, New Zealand’s priority is securing a high quality deal that delivers to our interests.
Throughout the Joint Study process and negotiations, officials have undertaken consultations with New Zealand business and other interested stakeholders. The material collected through this (ongoing) process has been a valuable source of information and has been used to inform New Zealand’s negotiating positions.
Because of the potentially significant impacts of an FTA with China, officials have already begun work on an FTA implementation strategy. The aim is to coordinate interdepartmental effort to assist New Zealand business in leveraging off the opportunities presented by the FTA. This strategy includes: identifying priority sectors and/or regions that might offer significant long-term potential; close engagement with business and improvement of business capability; alignment of activities across government and a targeted outreach programme to promote trade and broader economic connections.
New Zealand is seeking a high quality agreement covering goods and associated ‘rules’ areas, services, investment and other issues covered in the Joint Study (such as intellectual property, government procurement, competition policy, labour and environment). China now has a clear understanding of what such an agreement would look like, although has signalled that a range of issues represent new approaches or present challenges to its current systems.
The potential benefits for New Zealand are significant. Under a high quality FTA, New Zealand exports are forecast to grow between US$180-280 (NZ$260-400) million per year over the twenty years – over and above the baseline. While the FTA is expected to deliver bilateral trade gains to China also, these are expected to be on a smaller scale (US$40-70 million per year), reflecting New Zealand’s relatively open economy.
The fifth round of negotiations is scheduled to take place in New Zealand from 17-20 October. This will largely provide an opportunity to gauge further the nature of China’s positions. Following this round, officials will need to seek further guidance from Ministers.
FTA negotiations were launched on 31 March 2005 following studies in both countries on the benefits of an FTA, with the objective of achieving a high quality and comprehensive agreement covering all goods, services and investment. Malaysia wants to conclude negotiations by the end of the year – much faster than the original timeframe of mid-2006. We have indicated that we can work to this timetable but not at the expense of a quality agreement. Officials have now completed three rounds of negotiations with Malaysia (the most recent in mid-September), and good progress has been made. Further rounds are proposed for October to December. Australia has also entered into negotiations with Malaysia though we understand they are still working on a mid-2006 completion date.
Malaysia is New Zealand’s 12th largest trading partner taking $488 million of goods and close to $100 million of services in the year ending June 2005. Malaysia’s ambition to complete negotiations on an FTA with New Zealand by the end of 2005 provides an opportunity for us to secure a high quality and comprehensive agreement. A good outcome with Malaysia should also have helpful precedent effect on the ASEAN-Australia-New Zealand FTA negotiations.
Because of the intention to complete negotiations by end-2005, officials may need to seek decisions from ministers over the next few months on key issues, including on progress on important aspects of negotiations and on the package of outcomes on goods, services and investment.
ASEAN and Australia/New Zealand Leaders launched negotiations on an ASEAN-Australia/New Zealand Free Trade Agreement (AANZFTA) at the ASEAN and Australia/New Zealand Leaders' Summit in Vientiane on 30 November 2004.
The negotiations are guided by a set of agreed principles which envisages:
Negotiations commenced February 2005. So far three rounds have been held.
Counting the EU as a single destination, ASEAN collectively is New Zealand’s 5th largest trading partner, taking $2.4 billion of our goods exports and providing $3.6 billion in imports in the year to June 2005. New Zealand exported more than $400 million of services to the ASEAN market in the year ending December 2004. Five ASEAN countries rank amongst New Zealand’s top 20 export destinations: Malaysia (with whom we are also negotiating bilaterally), Singapore, and Thailand (with whom we already have agreements) and Philippines and Indonesia. Together ASEAN, Australia and New Zealand have a combined population of over 500 million people and an estimated GDP exceeding US$700 billion.
New Zealand is seeking a high quality agreement covering goods and associated ‘rules’ areas, services, investment and other issues such as intellectual property, government procurement, competition policy, labour and environment. There are benefits for Australia and New Zealand in engaging with ASEAN countries collectively, both politically and in terms of opportunities for involvement in an expanding regional economic architecture.
New Zealand is working closely with Australia to achieve a comprehensive and timely FTA, including developing joint positions in areas such as goods, services, investment and rules of origin. As might be expected, with twelve countries of varying levels of development round the negotiating table, progress has been quite slow. The first rounds have focused on explaining our (Australia/New Zealand) approach to FTAs, which is more comprehensive and ambitious than most of the ASEAN FTA models to date, and discussing working papers prepared by countries on approaches to each topic. ASEAN has signalled sensitivities across a range of issues that Australia and New Zealand are more familiar with from our previous agreements.
The next negotiating round is scheduled for Australia in October. It is unlikely that there will be other meetings before the end of the year. After the Australia meeting, officials will need to seek a specific negotiating mandate for early rounds in 2006.
Negotiations on a Trans-Pacific Strategic Economic Partnership with Brunei, Chile, Singapore and New Zealand were concluded in June 2005. As part of the package, negotiations were also concluded on a Labour Cooperation Memorandum of Understanding and Environment Cooperation Agreement.
All four countries have signed the agreements. Subject to completion of respective treaty ratification processes, the Trans-Pacific SEP and accompanying labour and environment agreements are expected to enter into force for each Party on 1 January 2006.
New Zealand began its treaty examination process on 18 July by tabling the agreements and accompanying National Interest Analysis (NIA) in the House where they were referred to the Foreign Affairs, Defence and Trade Committee (FADTC) for select committee examination.
While many of the benefits of the Trans-Pacific SEP are strategic, there are also important economic advantages for New Zealand. On entry into force, Chile will eliminate tariffs on 90 percent of New Zealand’s exports. This represents an immediate tariff saving of NZ$1.9 million (based on export figures year to June 2004). Brunei already applies zero tariffs on 92 percent of New Zealand’s exports. On implementation it will bind these tariffs at zero. New Zealand businesses will also benefit from Chile and Singapore’s services and government procurement commitments, from the mechanisms established for resolving technical barriers to trade (TBT) and sanitary and phystosanitary (SPS) issues, and the frameworks for cooperation on issues such as customs procedures, intellectual property and competition policy.
The key remaining steps for New Zealand to bring the Trans-Pacific SEP into force by 1 January 2006 - based on the normal process for a treaty subject to ratification – are: examination of the treaty by the Foreign Affairs, Defence and Trade Committee; passage of the implementing legislation; and deposit of an instrument of ratification. The timing to complete New Zealand’s processes by 1 January 2006 will be tight.
A whole of government implementation strategy is being developed to ensure that New Zealand maximises the potential benefits and opportunities arising from the trade agreement.
Thailand has long been an important trading partner for New Zealand, total bilateral merchandise trade exceeded NZ$1 billion in the year ending June 2005, and Thailand ranked as New Zealand’s 20th Trade Partner worldwide by export value. New Zealand and Thailand are complementary economies. Thailand exports predominantly-manufactured goods to New Zealand, while New Zealand specialises in exporting agriculture-based goods and some niche manufactured items.
The New Zealand Thailand Closer Economic Partnership (CEP) Agreement entered into force on 1 July 2005. New Zealand and Thailand have negotiated Arrangements on Labour and Environment in parallel with the CEP Agreement. Beyond its trade liberalisation objectives, the CEP establishes a framework for the continuing development of economic linkages between the two countries, supports wider trade policy interests and cements stronger links with the Southeast Asia Region.
The CEP has delivered a substantial opening of the Thai market. On entry into force, 52% of imports from New Zealand became duty free compared to 4% previously. All tariffs and quota restrictions on New Zealand exports to Thailand will be removed over time.
The CEP commits the two countries to enter into negotiations on the liberalisation of trade in services within three years. Thailand will take some steps to improve work permit and visa provisions for New Zealand business people operating in Thailand. The CEP provides for additional protections against arbitrary treatment for New Zealand investments in Thailand and offers greater certainty over New Zealand control of investments in the manufacturing sector.
New Zealand business will also benefit from the bilateral mechanisms established for addressing barriers to trade in the areas of standards, sanitary and phytosanitary measures and customs procedures.
Officials are developing an implementation strategy to ensure that New Zealand’s obligations and commitments under the Agreement are met, and that the benefits and opportunities from the Agreement are maximised by the New Zealand economy.
Officials have been developing a strategic whole-of-government approach to leveraging opportunities from the various FTA negotiations in both the short and longer-term. The approach goes beyond implementing the FTA itself – we also want to leverage off the FTA to broaden the overall trade and economic relationship, consistent with the Growth and Innovation Framework (GIF).
At the heart of the process is continuing and expanding our engagement with business, with whom there has been extensive consultation on the negotiating agenda for each FTA.
Under coordination from MFAT, a broad range of agencies is involved in the strategic exercise, including NZTE. We are establishing for each FTA an inter-agency group (but just one for ASEAN, Malaysia and Thailand). The purpose of each group will be to coordinate, prioritise and report the activities of agencies so that we are all pulling in the same direction, with close engagement with the private sector and broad consensus on strategies for each market.
There are five main objectives for “harvest” strategies: provision of information and increasing awareness domestically; effective implementation, including monitoring and compliance, and ongoing/dynamic development of the FTA; leveraging off the FTA to improve our international connections and trade and economic activity, including primarily increasing exports of goods and services; improving business capability to take advantage of the opportunities opened up by the FTA; and building relationships with the FTA partner at both industry and government levels.
Development of “harvest” strategies requires:
“Harvest” groups for Thailand, China and P4 (TPSEP), have already been established. For China, attention has focussed to date on selected areas/sectors. A major series of activities is projected in Thailand later this year and next to promote the CEP and leverage benefits for New Zealand business and the wider economy.
APEC is central to New Zealand’s engagement with leaders from Asia and the Pacific on political and security as well as economic issues.
APEC is a grouping of 21 Asia-Pacific ‘economies’ representing some 60% of the world economy and 44% of world exports.[1] As the only regional economic body to bring together countries from East Asia, the Americas and Australasia, APEC has significant value to New Zealand. Its membership includes 13 of our top 20 export markets accounting for over 70% of our exports. Over 60% of foreign direct investment (FDI) in New Zealand comes from APEC economies. The annual APEC Leaders Meeting is a major forum for top-level international dialogue.
APEC continues to play an important trade and economic role – albeit one stage removed from front-line negotiating fora such as the WTO and FTAs. Its principal focus is on trade facilitation and ‘pathfinder’ initiatives on new issues. It also hosts a range of policy dialogues and provides capacity-building for developing members. More recently, APEC has embraced a security agenda of growing significance in areas such as counter-terrorism, health and disaster prevention.
APEC remains an evolving organisation with considerable debate surrounding its most appropriate focus/priorities and how it should operate to best effect.
APEC provides New Zealand with excellent opportunities to: (i) enhance our engagement in the Asia/Pacific region; (ii) help build momentum in the Doha Round negotiations and promote FTA best practice; (iii) encourage trade liberalisation by continuing to promote the Bogor Goals of free and open trade and investment; (iv) contribute to collective counter-terrorism efforts and secure trade; and (v) advance specific bilateral interests.
Korea is hosting APEC this year.
Key issues for the Leaders and Ministerial meetings to be held in November are: (i) The WTO/DDA – giving an impetus to these negotiations in the lead-up to the 6th WTO Ministerial Conference in Hong Kong in December; (ii) The Mid-Term Stocktake of progress by APEC economies towards the Bogor Goals – APEC has a very respectable story to tell in terms of liberalisation since 1994; and (iii) APEC’s future trade and economic priorities – likely to comprise a continuation of existing issues like the WTO and trade facilitation, and new issues such as FTA best practice and behind-the-border work directed at easing the path for business. Other issues for discussion will include reform of APEC, human security/secure trade, emergency preparedness and disaster management (in response to the Boxing Day tsunami), fighting corruption, and the protection of intellectual property.
[1] APEC members are: Australia, Brunei, Canada, Chile, China, Hong Kong China, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Chinese Taipei, Thailand, the US and Viet Nam.
The Secretary-General (SG) of the OECD, Donald J. Johnston, will step down in May 2006 after 10 years in the position. A decision on his successor, to be taken by consensus, is expected by 1 December 2005. Six countries have put forward candidates for the SG position. Four are from the APEC region (Australia, Japan, Mexico, Korea) and two are from the EU (France and Poland). All of these candidates look strong on paper but they will have a chance to outline their case for election when they make formal presentations to Heads of Delegation in Paris in early October.
The OECD, of which New Zealand has been a member since 1973, is an important institution for New Zealand government policy making and for benchmarking international best practice. The organisation is currently at a crossroad over its role and global outreach, the catalyst for which is the issue of substantially expanding its membership. A decision on the new SG is therefore important for New Zealand’s interests, as the appointee is expected to help drive and oversee significant changes in the OECD’s governance and membership over the next five years.
As part of its membership of the International Energy Agency (IEA), New Zealand is required to hold, at any one time, “emergency reserve” oil stocks equivalent to 90 days of market demand (deemed by the IEA to be 90 days of net oil imports). New Zealand is currently 28 days (460,000 tonnes) below the requirement.
Voluntary (commercial) stockholding by oil companies is no longer effective in ensuring New Zealand meets its obligation to the IEA.
New Zealand belongs to the IEA primarily for the purpose of energy cooperation among members for oil security. Such membership is an insurance policy for managing the risk of oil crises.
In March 2005, Cabinet agreed that New Zealand should maintain its membership of the IEA and meet the 90 days reserve obligation by holding some stock overseas. IEA rules allow stock to be held in other IEA countries provided New Zealand has a legal entitlement to the stock and there are no impediments to accessing it in the event of an emergency. Cabinet also decided that the Government would tender for oil stocks. Tenders will be administered by MED.
The Minister of Foreign Affairs and Trade, and the Minister of Energy have been asked by Cabinet to seek the agreement, in principle, of other IEA countries in the Asia-Pacific region, to holding IEA qualifying stock on their territory.
New Zealand officials have held preliminary talks with officials in Australia, the United States and Korea. MFAT will continue to work with MED to assess the feasibility of holding stock in these countries and whether they can give us the assurance that we would have the legal right to access our stock at all times.
New Zealand’s foreign policy and external economic diplomacy intersect with immigration policy and operations in a number of areas including: facilitation of short term visitors (business, tourism and students), long term skilled migrants, Working Holiday Schemes, important bilateral relationships (especially in the Pacific where personal, political, economic and development issues come into play), operations (such as off-shore visa processing), international obligations (e.g. refugees), and trade (notably the WTO Agreement on Trade in Services, and the China FTA). The Department of Labour (DOL) and MFAT meet regularly at senior levels to ensure alignment of direction.
New Zealand’s interests lie in striking the right balance between facilitation of visitors, students and migrants to New Zealand and mitigation against security risks. As a small and relatively isolated country that needs to be competitive in the global immigration market, we need to be open to immigration but we require appropriate mechanisms to mitigate risk.
The DOL is engaged in a fundamental Review of the Immigration Act. While the review will focus on framework legislation it will inevitably have an impact on broad policy settings and therefore could impact on New Zealand’s foreign policy interests.
The Pacific Review is another key priority for the DOL in which MFAT has a vital relationship and developmental interest. The issues are covered in the Pacific section of this brief.
The DOL is also developing a new service delivery model to improve the quality and consistency of decision-making. DOL is engaging with us on this given MFAT’s close involvement in offshore operations. Ministers will be consulted as policy is developed.
