New Zealand’s place in a fractious world – advancing small state diplomacy when might is increasingly right
Speech by Catherine Graham, Economic Divisional Manager, at the Centre for Defence and Security Studies, Massey University, to mark the 75th Anniversary of the Ministry of Foreign Affairs and Trade
E ngā mana (to the many powers)
E ngā reo (to the many voices)
E ngā waka (to the many vessels represented here)
Tēnā koutou katoa (greetings one and all)
I am delighted to be here with you this morning. Palmerston North is my home town and as an earnest high school student I spent hours here at Massey in the library studying for my UE exams. There was no internet and the books I wanted to use were too heavy to carry home on my bicycle.
It is a privilege to be speaking to you today about New Zealand’s security, prosperity and resilience as we celebrate the 75th anniversary of the Ministry of Foreign Affairs and Trade, while at the same time we contemplate an increasingly fractured international system. In preparing for this address, it hit home how much the world has changed, and diplomacy itself has changed, since I studied international relations at university.
I finished university in 1997 at a time when “the end of history” by Francis Fukuyama was on everyone’s reading list in the discipline. Fukuyama essentially predicted an inevitable convergence over time in international relations around liberal democracy and liberal economies. This was of course not even a decade after the end of the Cold War and the collapse of the Soviet Union. At the same time, the main competing narrative to this was Samuel Huntington’s Clash of Civilisations. By contrast to Fukuyama, Huntington foresaw an existential conflict between the world of Islam and the world of western liberal democracy. China’s rise and its rapidity was not broadly foreseen – or no-one bothered to get me to write an essay about it!
So it is fascinating to reflect on where we are 20 years on and what narratives we can now employ to understand and advance New Zealand’s security in the world. To point out the obvious, a sovereign nation of 4.9 million people is never going to hold much hard power – luckily we have never had this, so we have not had to suffer the challenge of a decline in our power (a point which is relevant when we contemplate the variable responses of major powers suffering a relative decline in their power).
Notwithstanding our limited stature – and our extreme geographic isolation, with its curses and benefits – New Zealand still relies on the international system for its ongoing security in all respects: economic, physical, political and environmental.
So what are the changes that impinge on our security and demand our attention in today’s world? In short, Fukuyama’s convergence is out and multipolarity of political and economic systems is in.
A key symptom of this change is the increasingly pervasive challenge that major powers are mounting to the rules-based international order – an order first put in place after the Second World War to prevent global conflict and advance trade between nations.
Not only do the biggest nation states agree with each other less frequently in the major institutions charged with global consensus-building; increasingly, they also don’t agree on how, or even whether, it is desirable to reach consensus. These trends make New Zealand’s role as a good international citizen both more challenging – and more essential – to our future security.
So today let’s talk about how New Zealand is adapting its approach as we seek to influence the global system and protect our interests. I’m extremely keen not only to talk at you about this – but to hear your thoughts this afternoon about the issues I raise in this session. Public servants certainly do not have a monopoly on answers or good ideas!
There are three questions I thought we could discuss this afternoon – and I’ll provide some thoughts on them now to hopefully spark your ideas:
1. How can New Zealand ensure our economic security at a time of increasing complexity in the global economic system, including the challenge to the post-Second World War order?
2. How can New Zealand work with other regional powers to amplify our influence and in turn increase our security in the face of major power agendas?
3. Does the technological revolution mean that geography no longer matters as much in the international economic system?
1. Global system in turmoil
All those who pay any attention to the media and global affairs will appreciate that we are in a period of disruption.
Politically, the orthodoxies of the post-Cold War world are being challenged by new power balances, in particular as China and the United States work through a new modus vivendi, and as the United States looks to amend the international trading system to protect its advantages.
Economically, and related to political balances, systemic and internal disruptors are affecting the international trading system that we relied on since the establishment of the World Trade Organisation in 1995.
Since 2015, we have seen a 30 percent increase in trade restrictive measures – continuing a trend of increasing trade protectionism that took off during the global financial crisis.
And at the same time, we have a moving centre of economic geography as population centres and economic centres align in Asia.
Unusually in our history, many of the most disruptive elements internationally – and many of the opportunities – are being played out somewhat closer to New Zealand than in the past. We have moved from concern about the fall of Singapore to observing the rise, and rise, of China, in only 70 years – both of these events bringing profound and different questions about how we conduct ourselves as a nation.
As an open economy, with a quarter of our jobs dependent on trade, New Zealand is deeply affected by global changes. We value highly many of the existing rules and structures currently being challenged.
2. Our region and major powers
Now let’s turn to the second question I posed and think about our home region of the Asia-Pacific. In this context, three major powers merit special mention in New Zealand’s calculations about security.
Clearly the United States, as the biggest economy in the world, is a key player. The US is a vital partner for New Zealand and has been the foundation of the current international system since the Second World War. This is a fact that goes beyond any single administration’s policies – though we of course recognise the impact of different political directions taken on the broader system.
At the same time as we observe change in US settings, we see an economically growing and strategically important China take an ever more important role in the Asia-Pacific. Since 2008, to mitigate its weaknesses as well as leverage its strengths, China has been more willing to utilise its economic resources to pursue its own economic and strategic objectives, including those now being bundled as the Belt and Road Initiative.
These two powers are increasingly bumping against each other in our region. This matters hugely for regional integration efforts and is likely to delay their progress. And ultimately we anticipate that China’s economic and security relations with the United States will be pivotal to how reliably global systems continue to work, and how they evolve.
Another regional power, Australia can sometimes be taken for granted here but, as a $25 billion trading partner, it remains a fundamental anchor for New Zealand‘s economic and political security. We remain extremely strategically fortunate to have a country that is our closest ally as our nearest neighbour.
Finally, South East Asia is a key region for New Zealand economically and politically, with contested space in the South China Sea. The countries of South East Asia are closely linked to the world trading order, growing fast, and facing similar disruptions to New Zealand and Australia. With growing middle classes, they will provide demand for New Zealand’s high-value food and beverage offerings into the future.
3. Technological disruption and the end of geography
Turning to the third question I have posed, let’s talk about technological disruption.
One of the most significant changes we face when discussing New Zealand’s security in the world is that technology now enables us to engage in a way that simply wasn’t possible earlier in our history. That means broader and deeper global engagement, but in a context that is much less structured.
Does anyone in the audience not have a smart phone? Isn’t it incredible to think that it is more powerful than the computers that managed the moon landing? (Although admittedly my phone mostly has pictures of my dogs on it). Apparently more than 80 per cent of the data on the planet was collected in the last two years. The potential to solve human problems using this data has never been higher – but equally the risks to humans as a consequence of data use and abuse have also never been higher. Technological changes and the challenges they present to our security are starting to become increasingly apparent to us as we engage internationally.
There are many challenges and we don’t have time to consider them all. So I’d like to talk briefly about non-state commercial actors and digital evolution generally.
Non-state actors such as the major e-commerce platforms (think Amazon and Alibaba) and the social media giants (think Facebook, Instagram and Google) are each on their own much bigger economically than New Zealand (and many other countries’ economies). How do we navigate our relationships with them as a nation state? We have strategies for our relationships with countries – this is traditional diplomacy – but we do not yet apply the principles of diplomacy systematically to non-state actors. We may yet need to do so as these actors exert evident influence on areas of traditional sovereignty such as business regulation, taxation systems, and ownership and control of personal information. The Economist announced a few years back that “data will be the new oil” and this prediction is one that is starting to play out globally as governments seek to catch up with change and to assess where their national interests lie in a world that will transact more and more of its business via digital means.
New Zealand is by no means alone in trying to understand this change. All countries and regions face technological mega trends that are consequential to businesses and governments and affect decisions. Digitalisation, artificial intelligence and automation will increasingly affect wage and employment levels, in developing as well as developed countries. The key difference from the past is that the change – driven by computing power – will occur at an exponential, rather than linear, rate.
It is notable in this regard that automation (in a country of few people) has already been the basis for a great deal of New Zealand’s current prosperity, especially in agriculture and horticulture. Continuing to create and leverage smart ideas will be essential for New Zealand’s agricultural sector to keep delivering value to the economy and address broader societal and environmental challenges. Elsewhere in the economy, New Zealand’s success in weightless exports – such as software development, services embedded and embodied in physical products, and the creative arts – are growing apace. It is likely that this trend will be supported by ongoing technological advances. For the Ministry of Foreign Affairs and Trade, this means that we must ensure that the global system and the rules within it are benign and enforceable. We don’t want to wake up to find our digital trade hobbled by the protectionist instincts that for decades impeded our traditional trade in agricultural goods.
Does the technological revolution mean the end of geography?
I strongly believe that earth will never be “flat”, as Thomas Friedman claimed, and that geography remains, to a greater or lesser extent, destiny. Digitalisation is not causing the end of geography as a key determinant of prosperity. Industry clusters, international connections and trade, knowledge exchange and IP transfer are all positively correlated with geographical proximity as well as prosperity – in other words, they are much easier for large countries and countries with land borders to achieve. The catch-22 for small, isolated countries is that they are also the very conditions essential to overcoming the disadvantage of geographical distance. This is a huge challenge for New Zealand, both in terms of international policy but also domestically – currently we see the government tackling this challenge through regional policies such as the Provincial Growth Fund.
Developing competitive business environments outside major cities is a focus for many countries. It is now widely believed that growing trade protectionism responds at least in part to a sense that the benefits of globalisation and open markets have not accrued evenly, either globally or within countries.
So what is the plan?
Contemplating the global, regional and technological challenges I’ve just described raises the question: what is the plan to deal with these? Having identified uncertainty as a core element impinging on our international security, we cannot merely comment on it. We must provide some understanding and leadership to enable our country to succeed in spite of it. New Zealand’s response is grounded in the government's aim to build a productive, inclusive and sustainable economy – all within a turbulent global environment for trade.
If you will bear with me, there are seven strands to our response strategy.
First and most importantly, recognising that New Zealand has benefited substantially from the established international system, we will continue to work assiduously to preserve it.
In particular, we have benefited greatly from open trading arrangements, as has the rest of the world, in macro terms at least. World GDP has grown substantially in times of relative peace and established rules. In New Zealand, we have 620,000 jobs dependent on trade. Another key figure is 8 – that is the number of World Trade Organisation cases that New Zealand has successfully taken – each time against a country much larger than ourselves. There is no doubt that a rules-based and legally enforceable international trading system, as provided by the World Trade Organisation, benefits all players large and small. It’s easy to forget that before 1994, there were no enforceable rules for agricultural trade, with the result that New Zealand had to negotiate access to some markets every year.
So in the wake of the mid-term elections in the US, we remain nervous about the possibility of even more new tariffs on trade – and likely retaliation from others. We are also deeply concerned about challenges to the dispute settlement function in the World Trade Organisation. We know from the history of the Great Depression that increasing trade barriers and tit-for-tat behaviour make it harder for the global economy to recover from shocks. This is particularly concerning as we reach the end of a buoyant economic cycle in global financial markets – consequently the predicted shock coming in those markets may be more difficult to navigate than the global financial crisis for the world. We are also watching the Brexit process very closely and seeking to protect New Zealand’s interests during a very complex discussion between the EU and UK about new rules between them.
For all these reasons, New Zealand will continue to take every opportunity to act in support of the rules-based international order, and to try to modernise the institutions that support this.
But happily we are not alone. While consensus around international institutions – and rules to govern trade – have been shaken, the seriousness of this threat to global stability has rallied many countries in defence of institutions and structures that have not been getting the support they need, including importantly the World Trade Organisation. And this has reopened conversations about what the future trade system might need to look like – and how we might get there.
The second strand of our activity is accelerating our efforts to embed New Zealand in the emerging regional architecture. Agreements such as the CPTPP and RCEP are demonstrations of our commitment to open, progressive and predictable trade in the Asia‑Pacific.
The third strand is actively building like-minded coalitions to sustain and support global and regional public goods in the broader international system. This in turn reinforces the wider rules‑based system and means increased effort in fora like the OECD, APEC and the Commonwealth among others.
The fourth strand is advancing “flexible and open negotiating approaches”, which means supporting open accession to plurilateral preferential trade agreements, as well as support for plurilateral World Trade Organisation processes. Within our existing agreements we will seek to advance accessions, including to CPTPP, which has just been ratified and will enter into force before the end of the year. Several countries have already expressed interest in joining. We would also like RCEP, once concluded, to have similar future expansion possibilities.
The fifth strand is ramping up our economic diplomacy. This means working deliberately to enhance relationships globally that will enable us to advance our interests and those of our exporting businesses. We need to assist New Zealand exporters and influence our trading partners in ways that can advance our economic success. Here we are focusing on three main areas:
- We are working collaboratively with other government agencies to provide seamless support to New Zealand businesses onshore and offshore.
- We are extending practical online export tools we provide, like the tradebarriers.govt.nz website – this enables whole-of-government responses to real problems brought to us by exporters and to which we have a firm commitment to reply within two working days. We are also extending our online tariff finder tool and – coming soon to a screen near you – a services trade tool.
- Thirdly and acknowledging the complexity in the international system at present, we will increasingly share insights derived from our international network with exporters and other government agencies in a more systematic and timely way.
The sixth strand of our strategy is continuing to pursue diversification.
In trade terms, this has been a long-run game, with its roots extending back into the 1970s. Our existing free trade agreements now cover 53 percent of our trade, giving our exporters preferential access to markets, as well as rules-based and enforceable economic protection in a more volatile trade environment.
We are currently working to expand our FTA network including with:
- the European Union
- the Pacific Alliance of South American countries (Mexico, Peru, Colombia, Chile)
- the Regional Closer Economic Partnership of Asia
- FTA upgrade negotiations with Singapore, that have just concluded, and China
When our existing negotiations are completed, we will have covered 77 percent of our trade.
Seventh – and last but definitely not least – we are advancing a Trade for All agenda that is changing the conversation we have with New Zealanders about trade. Launched by the prime minister earlier this year, it is aimed at sustaining the social licence for trade and making sure our trade policy is genuinely fit for purpose. The consultations to date have been exploring how the benefits of trade can be shared by all, including women, Māori, small and medium size enterprises and regions. They are also discussing how, where possible, trade disciplines can be used to address global challenges, such as environmental issues, labour rights and gender equity. Put simply, Trade for All is designed to ensure our trade policy reflects the aspirations of all those with an interest in it.
I want to end by repeating the closing remarks of Prime Minister Jacinda Ardern in a speech delivered earlier this year.
“In this uncertain world, where long-accepted positions have been met with fresh challenge, our response lies in the approach that, with rare exceptions, we have always taken. Speaking up for what we believe in, standing up when our values are challenged and working tirelessly to refurbish rules and build architecture, and to draw in partners with shared views.
"We want an international reputation New Zealanders can be proud of. And while we are navigating a level of global uncertainty not seen for several generations, I remain firmly optimistic about New Zealand’s place in the world. Our global standing is high: when we speak, it is with credibility; when we act, it is with decency.”
I can say with confidence that all of the governments I have worked for in the past 20 years would recognise their foreign and trade policies somewhere in those words. This is probably because they represent the sentiment of very many New Zealanders themselves. This unity, and sense of responsibility and fairness are, perhaps above all, the source of our international mana and, ultimately, our security as a nation. I look forward to further discussion with you all in the afternoon.
Nō reira, tēnā koutou, tēnā koutou, tēnā tātou katoa.