Tariff (Malaysia Free Trade Agreement) Amendment Bill

JO GOODHEW (Junior Whip—National) Link to this

I seek leave of the House for this debate to be taken as one question—a wide-ranging debate with unlimited calls.

Hon MARYAN STREET (Labour) Link to this

I will highlight in the Committee stage some particular aspects of the Malaysia - New Zealand Free Trade Agreement. Last night and again this morning we spent time talking about the general impact of this free-trade agreement on the New Zealand economy, with some reference to specific sectors. I will continue some of the analysis of the specific sectors and then talk a little more about additional provisions contained in this free-trade agreement.

I spoke last night about kiwifruit in particular, but also our other primary products, which will benefit immediately that this free-trade agreement is passed and ratified by this Parliament. Last night I spoke about kiwifruit in particular. Kiwifruit will benefit by millions of dollars immediately on implementation of this agreement, and also will our meat, wool, dairy, fish, and forestry products. But today I will talk a little about some of the manufactured goods that will benefit from this free-trade agreement, and give some numbers. As we know, the tariff reductions follow a progressive, sliding scale over a period of time through to 2016, when all but 0.5 percent of tariffs on our exports will have been reduced to zero. This is an improvement on the ASEAN free-trade agreement not only in speed but also in absolute numbers.

For example, steel is one of our manufactured products. That industry in particular currently bears a 50 percent tariff on exports into Malaysia. A 50 percent tariff is a very high charge. By 2016 at the latest, that charge will be eliminated. Under the ASEAN agreement, if I remember correctly, some residual tariff—some 10 percent, I think—will still apply on steel products, but into Malaysia it goes to zero.

It is similar for paints and varnishes. We often hear about kiwifruit, dairy produce, meat, wool, and all of those primary products at which we excel in New Zealand. But here we have a relatively small proportion of our manufactured exports into Malaysia, which currently carry a 25 percent tariff. That tariff will be eliminated by 2016. Another area is plastic products. Currently plastic products out of New Zealand bear a 30 percent tariff into Malaysia—again, a huge expense, and something that really places obstacles in front of the New Zealand plastics industry as it looks to increase its exports. But in the case of plastic products, these tariffs are eliminated in 2012. That is in very short order. We are at 2010 now, and within 2 years there will be no tariffs on our plastic products going into Malaysia. There are gains for profits from our manufactured goods as well as from our primary produce. They are very tangible gains, and these achievements in this free-trade agreement actually mean more profit remaining in New Zealand.

I will draw attention also to some other features; I may come back to this one a little bit later in this part of the debate. The rules of origin in this Malaysian free-trade agreement are in fact, as I understand it, the most liberal of any free-trade agreement. That is a cause of some celebration or congratulations to the officials who have worked in this area. Rules of origin have often been a complex and difficult area to arrive at agreement on. I congratulate the Minister and the officials on achieving a very liberal rules of origin regime.

I go to another thing that is very important. Members of the Government and the National Party like to cast Labour members as people who know nothing about business; who do not understand the contribution that business makes to the New Zealand economy. Well, they may like to live in that outdated and outmoded perception of Labour, but we are busy forging ahead. Phil Goff’s record in promoting, sealing, and initiating free-trade agreements recognises and demonstrates absolutely that the Labour Party understands fully the contribution of the business sector to the New Zealand economy.

So apropos of that, we have agreements in this free-trade agreement with Malaysia that impact specifically on business flows. Let me take a couple of examples. If we look at goods, for a moment, we can see there is an agreement that New Zealand goods will be cleared by the Malaysian customs department within 48 hours. Now that is hugely helpful, especially in a small country like ours that is dependent on primary produce. We do not need our kiwifruit to languish, even in refrigerated containers, in a city, a terminal, a port, a receiving area in Malaysia for any longer than they absolutely have to. So a guarantee that our goods will be cleared by Malaysian customs within 48 hours is extremely important. In fact, Malaysia has never agreed to that before. This is new for them but it gives New Zealand exporters a potential edge over their competitors, and that is to be welcomed.

Another point in this free-trade agreement that relates to business and making business happen more easily into the Malaysian market is around business people, so this agreement includes a recognition that people seeking to trade in goods and services—and investors—will be treated equally in Malaysia. There are provisions to enable New Zealand business people who seek to work in Malaysia to be able to stay and visit there for up to 10 years; there is no such provision as that in the ASEAN free-trade agreement. This agreement makes it easier for New Zealand business people to get a foothold, to remain in Malaysia, and to promote their business and New Zealand products into those markets in the Malay Peninsula for a period of time. That will allow for consistency and the building up of relationships, which are necessary in order for that trade to happen smoothly. In addition, the agreement includes a provision to facilitate those temporary entry applications of business people within 40 working days.

So at every point this agreement has attempted to facilitate New Zealand business and business people operating securely and with certainty into the Malaysian market, and all of those provisions are to be welcomed. Members on this side understand how important it is for business people not only to have access to foreign markets but to have reliable rules and provisions that allow them to trade and work securely and with certainty, so they can plan that there will be some kind of longevity to their enterprise in those foreign markets. I welcome those provisions.

STUART NASH (Labour) Link to this

We have heard some very good speeches on the Tariff (Malaysia Free Trade Agreement) Amendment Bill, which is one of those bills on which all parties agree.

GRANT ROBERTSON (Labour—Wellington Central) Link to this

I want to make a couple of contributions to this wide-ranging debate on the Tariff (Malaysia Free Trade Agreement) Amendment Bill. The first is to talk in a bit more depth about the tariff changes that are being brought in to force. Perhaps later, in another call, I will talk about some of the issues around services.

It is important to acknowledge again the quality of this agreement. This is a high-quality free-trade agreement. We see a lot of free-trade agreements coming before this House, and this one makes advances on previous agreements. Mr Hayes and others on the opposite side of the Chamber who have experience in these matters know that the optimal agreement for all of us is a comprehensive World Trade Organization, or WTO, agreement that gives us global rules that are fair and take into account the special and unique circumstances of particular countries. I see Dr Graham nodding in agreement. I think it is important to say at the outset that from a Labour Party point of view we are aiming for a global agreement. The Doha development round is in difficulty, and it would be good to see it make more progress. It should still be New Zealand’s highest priority in trade negotiations. But in its absence regional and bilateral agreements remain important, and this bilateral agreement demonstrably will lead to benefits for New Zealand.

To go back to the tariff elimination process, on entry into force, as well as confirming the outcomes from the ASEAN deal, the agreement binds in Malaysia’s level of openness on $821 million worth of exports—that is today, before the agreement is even signed. Those exports encompass butter, milk powder, cheese, wool, kiwifruit, apples, and some manufactured products. It is a significant achievement on day one, on the agreement’s entry into force. To eliminate tariffs on those key export areas for New Zealand is extremely significant for those exporters and extremely significant for the New Zealand economy. As a number of other speakers have already stated, it amounts to 95.1 percent of our current total exports to Malaysia. For a bilateral agreement, that is a very significant amount on its entry into force, and, once again, I pay tribute to the officials and the Ministers involved for getting such a good outcome on day one.

In the 2011-12 period tariffs will be removed from $27.9 million of current exports. They include electrical parts, fibreboard, chocolate, and some other manufactured products. A further 3.2 percent of our exports to Malaysia will be covered. That means that, by the end of 2012, 98.3 percent of our current total exports will be duty-free. So there is another step forward in the next 2 years. Finally, in the period 2013-16 tariffs will be removed from a further $10.2 million of current exports. They include paper products, plastics, paints, whiteware, iron, and steel. That will bring us, as has been previously stated, by 2016 to 99.5 percent of current exports being duty-free. That is an achievement worth celebrating, and it is in advance of the ASEAN deal.

It is worth dwelling briefly on the fact that this deal brings things into force ahead of the ASEAN deal. It is difficult when we make a trade agreement at a regional level to then go back to a bilateral partner and say that we would like to make further progress, to make faster progress. To be able to do that on so many fronts in this bill is excellent. I mentioned in my second reading speech some areas where that will happen. In terms of paints, varnishes, and plastic products, this agreement is well in advance of the deal with the ASEAN countries. In 2016 they will be duty-free for New Zealand; under the ASEAN deal they will be duty-free in 2020. It is significant that under this particular deal those tariffs will be removed more quickly. It means that this agreement is a high-quality agreement.

I am sure that some people in the Ministry of Foreign Affairs and Trade—some of Mr Hayes’, Mr Groser’s, and my former colleagues—will be deeply concerned that the 0.05 percent of tariffs remaining were not removed. As Mr Nash has already said, they are mainly tariffs on alcoholic products, but also on tobacco, firearms, and tyres. My personal view is we need to respect the fact that there will be countries we negotiate with that have reasons why they do not want to go there. One of the nuances of free trade that I think is important to highlight is that being an absolutist in free trade does not take into account the experiences and the different cultures of other countries. We need to respect that when we sign these agreements. We need to negotiate hard and we need to ensure that we get the best possible benefit for our exporters, but we also need to remember the overall context of the relationships that we have with those countries. Alcoholic products are the obvious ones that we can highlight and say that they have to do with religious practices and we should be prepared to be somewhat flexible on that issue.

I certainly come from the school of thought that holds that for a long period of time New Zealand’s free-trade policy, although delivering considerable benefit to New Zealand, was a little bit like playing a lay-down misère hand in a game of five hundred. We said to the rest of the world: “Here we are. We are prepared to give you absolutely everything we have, and, hopefully, you will give us a little bit back.” That approach to free trade did not work as well for us as it could have, and perhaps it left us with fewer cards to play in later trade agreements. My having said that, this agreement is a high-quality agreement, but it gives us some pause to reflect that from time to time we need to be flexible, that we do not need to be absolutist, and that we have the ability to take into account the circumstances of other countries.

I want to refer to services, which my colleague Stuart Nash has already dwelt on. I note that the services sector will benefit significantly from this agreement, not only in the area of education but also in the area of environmental services. As I said in my second reading contribution, this issue relates to the so-called side agreement on environmental cooperation. It is not actually a side agreement, and I am very pleased that a lot of the literature that the Ministry of Foreign Affairs and Trade has produced recognises that those environmental and labour cooperation agreements are treaty-level agreements. In the parlance of diplomats, that is significant. It gives status to those agreements, and it means that the free-trade agreement and the two cooperation agreements can be seen as part of a single entity in terms of our relationship, and can be worked on together. The services area is where it comes together, because environmental services such as waste-water management, air quality management, noise abatement services, and nature and landscape protection are areas where New Zealand has expertise, areas where there is a lot that we can take to other countries and, indeed, receive in return. In the services sector there is the chance for leverage off the environmental cooperation agreement, so that we can maximise the benefit to all New Zealanders.

The area of education has been discussed at some length, but export education is a vitally important part of what we are doing. We have a good history with Malaysia in that area. I know that the university I attended, the University of Otago, had a significant number of Malaysian students over the years, including people who have risen to the heights of being Government Ministers, which obviously has a flow-on, beneficial effect for New Zealanders as we go ahead in the education area. As I said earlier, the services sector is not an area that we often highlight, because it is easier to highlight the actual products that we are exporting, but this agreement delivers a number of important opportunities for New Zealand exporters.

Another services area that has not been talked about much today is information and communications technology services—ICT services. Here in Wellington we have a number of newer start-up software companies that I know have been developing their markets in Asia, and Malaysia is a huge opportunity for them. As Mr Nash said, that is an example of our exporting some of the fantastic ideas that New Zealanders come up with, but we need to continue to generate those ideas and to support the people who generate them.

The services sector is vital to New Zealand because it builds on the comparative advantage we have of a strong schooling system and a tradition of innovation, but we put that tradition at risk if we are not prepared to invest in the innovators, if we are not prepared to put money into tertiary education and into assisting researchers to commercialise their opportunities and develop export markets. Information and communications technology is another services sector that, under this agreement, can offer great potential for New Zealand.

It is important to be able to see the balance within this agreement of goods and services. It is a high-quality agreement, but, as Mr Boscawen picked up earlier, I do not believe that free-trade agreements are the be-all and end-all, and there is further opportunity for development.

Dr KENNEDY GRAHAM (Green) Link to this

This debate on the Tariff (Malaysia Free Trade Agreement) Amendment Bill is proving to be arguably the most interesting free-trade debate that we have had in my time here. We have had debates on the free-trade agreements with the ASEAN countries and, yesterday, Hong Kong, although the debates on the Hong Kong and Malaysian agreements have merged into one debate, in a way. We are joined in a genuine dialogue, and I thank my colleague Tim Macindoe and others, even Chris Tremain, for responding to my comments, and for responding to members on the Labour benches, as well. I may have a bit more to say about that, to continue the dialogue in the third reading. This is not the place to do that here.

I would now like to address the Minister in the chair, and to take the opportunity to pay my personal respect to Tim Groser for his skill and devotion to the task. I hope he understands that the critique that the Green Party advances on trade policy in no way reflects any diminution of the high regard that we have for him or, for that matter, for his colleagues. I take the opportunity to ask the Minister a number of factual questions, on which I may perhaps stand to benefit from his answers. They are advanced in a positive spirit. There are five or six of them, and I hope I do not get too confused in my own thoughts.

Question No. 1 has to do with the description in the national interest analysis of the benefits of the free-trade agreement to New Zealand. It is divided into basically two dimensions: one is the static benefit, and the other is the second-order net benefit. It was explained to us in the Foreign Affairs, Defence and Trade Committee, and this is in the committee’s report, that the term “static benefits” means the initial shock—the immediate competitive shock—to an economy through trade liberalisation. My question is whether, as we are told that “The removal of a tariff encourages exporters to improve their competitiveness by allocating their resources more efficiently, and increasing their market share.”, we can have evidence of the greater efficient allocation of resources. I ask whether we can have evidence in a specific sense, obviously not in terms of the Malaysian agreement, because we are discussing that, but let us say in terms of the China agreement and perhaps the ASEAN agreement, so that we can understand the effect in practical terms. I am often criticised, and I enjoy the criticism, for being excessively theoretical. What we want is a practical example of the static benefits.

The second-order benefits, we are told, include innovation and technology. The definition I was given in the select committee stated that second-order benefits meant the dynamic productive gains over the longer term through investment, competition, and adjustments of scale. The committee’s report states that the agreement’s second-order benefits “include innovation and technology transfer, which lead to increased exports and access to new markets. These effects should lead to an improvement in New Zealand’s economic performance, including the creation of new jobs.” My question relates to the fact that those second-order benefits through innovation and technology presumably apply to Malaysia as well as New Zealand. I think it is an example of the inherent bias and slant that we bring to bear on our so-called objective analysis in the national interest analysis when we trumpet the benefits to New Zealand exporters through all this, but remain silent or mumble when it comes to New Zealand imports and the effect of an agreement on our own domestic manufacturing sector. So my question is initially theoretical, but I assure members it will quickly become practical. If the second-order benefits were equally distributed, then presumably there is no net economic benefit to New Zealand. Is that correct, or is it wrong?

I come to my second question. I note the lament in the so-called disadvantages section of the national interest analysis that the agreement’s principal disadvantage is that it did not go far enough. There is the 0.5 percent that Mr Robertson was lamenting, although he was gracious, broad-minded, and globally-minded enough to issue a caveat and say we should be flexible and not 100 percent absolutist about this. I could phrase that differently. We are told there that “New Zealand would have preferred an even more ambitious goods market access outcome.”, notably so that it could export—wait for this—alcohol, tobacco, and firearms.

Well, New Zealand wine is very nice, and probably not very many of us are teetotallers. However, I advance the suggestion that it is cultural insensitivity of the highest degree to lament in our national interest analysis that another country, with another religion and a different culture from ours, and with which we have cordial relationships and a degree of mutual understanding, is to be criticised by implication for not importing New Zealand firearms and tobacco. Never mind the alcohol, although that is an issue! What are we doing here? It is hubris, and it has slid into our national interest analysis in the name of so-called objectivity. These analyses are not objective documents; they are creeds. What manner of cultural insensitivity drives us to insist that those people accept those exports from us? Have we no shame in this respect? I am sorry; I meant that to be a factual question, so I will look to the Minister to answer it in a very low-key, deadpan, rational way.

I turn to question No. 3. The national interest analysis talks about the negative adjustment effects, and it goes as far as to identify a few sensitive sectors: “margarine, clothing, footwear, carpets, … steel, plasterboard and most wooden furniture.” Yet when I asked in the select committee whether any study had been done in New Zealand by the Government or by academia about the effects on those sectors of previous agreements, the answer was no, New Zealand had not done any studies. New Zealand, we are told, looks to the study done by the Asian Development Bank about the effects of free trade on Europe and the United States. My suggestion is to ask whether we are 100 percent convinced, given the different scale of those economies from that of New Zealand’s economy, that that study applies ipso facto to our economy, or might we just stretch our 4.2 million population capacity to undertake a study of our own? If we have not done such a study—and I am told we have not—then we should do so. That is another question to the Minister: should we take that on?

I will now ask question No. 4. We are constantly told that the Green Party can start morris dancing again, on the grounds that because there are environmental protocols in the agreements we can be happy and go home. I have a question for the Minister to answer factually. I have asked about this and the answer, as far as I can understand it, is that there have been no meetings yet, in relation to any free-trade agreement, under the environmental protocols. I will be happy to stand corrected on that, but could I please have details of any meetings held under the environmental protocols of any free-trade agreement: details of when and where the parties have met, and a transcript of the meetings.

Finally, question No. 5 derives from the earlier comments: has a review of the effects of free-trade agreements on New Zealand’s domestic manufacturers ever been done? If not, should we take that on, in this country? Never mind the Asian Development Bank—there should be a New Zealand Government study or a commissioned academic study of the effect on New Zealand’s companies. Which companies have suffered economically? Which domestic manufacturers in this country have suffered economically, in terms of both revenue and employment—jobs lost within their own companies? If we do not have the courage and the integrity to take on that kind of study, then we should. Thank you.

Hon MARYAN STREET (Labour) Link to this

I will talk about some additional items that have not been covered so far in this debate on the Tariff (Malaysia Free Trade Agreement) Amendment Bill. I acknowledge the comments of the previous speaker, Dr Kennedy Graham, and say that last night, when I spoke for the first time on this legislation, I made reference to the 0.5 percent of tariffs that will remain, including those on wine and pork products, which are clearly exceptions made on the grounds of religious and cultural custom and practice. That will always be the case, and should always be recognised by New Zealand.

I will talk about a couple of things. One thing that has not been mentioned so far, which I think is a good feature—and this free-trade agreement, I think, is not the only agreement where such a thing has been put in—is the establishment of a free-trade agreement joint commission. That instrument can be used in the future to assess and amend the impact of this free-trade agreement. The purpose of the joint commission is to review the implementation and operation of the free-trade agreement, and to recommend any amendments to it, so this particular construction makes this free-trade agreement—along with others, but we are talking about only the Malaysian one at the moment—a dynamic agreement. It means that we can look at the agreement again in a year’s time—because the requirement is that the free-trade agreement commission should meet within 1 year of the free-trade agreement entering into force, and after that as often as the parties agree—to assess whether improvements can be made to the free-trade agreement. The joint commission will be established, and it has in its brief a number of committees that will look at the trade in goods, the trade in services, technical barriers to trade, the sanitary and phytosanitary measures in the agreement, investment, and economic cooperation.

I will link this debate to some comments from the Māori Party earlier. In the consideration of this agreement I will next go into the labour and environment treaty-level agreements. My colleague Grant Robertson has pointed out that these agreements are, indeed, binding treaty-level agreements. But the connection with the Māori Party’s comments earlier goes to the labour cooperation agreement. The Māori Party has expressed concerns about the rights of workers and the treatment of workers, and that party is absolutely right to do so. We must be clear, however, that a free-trade agreement does not prescribe for any country how it might run its internal industrial relations or, indeed, its labour market system. We would resent it if Malaysia started to tell us how to run our industrial relations and our protections for workers, so Malaysia would be rightly offended if we intruded into its domestic policies in that regard.

Two things are important about the labour cooperation agreement. Let us be very clear to start with that these are Malaysia’s first such agreements, and that Malaysia has not had labour and environment agreements with other countries before now. So we could say, for the Māori Party’s benefit, that New Zealand has brought those agreements to the table, in that regard, which is a very constructive thing to have done. But two things are of significance in my mind, as a Labour member of Parliament, and are important in the labour cooperation agreement. The first is that no domestic labour policies may be used for protectionist purposes. In other words, both countries agree that they will not drive down the wages of workers in order to secure some economic advantage that prohibits or inhibits New Zealand exports into their market. They will not apply domestic policies that will be used for protectionist purposes. That is important. The second important thing is that there is an agreement to pursue the principles embodied in the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up in 1998. This is no effort for New Zealand, but it is significant that we have that agreement with Malaysia. Both countries are bound into ILO principles and declarations, and that becomes important.

The shared objectives of this labour cooperation agreement are that we have a goal of promoting working conditions and improving and advancing the quality of life for workers. In addition, there is a 90-day time frame in which to resolve any issues arising out of this agreement. If we think something is going wrong with this part of our free-trade agreement—the labour cooperation agreement—we can actually raise the matter and seek to resolve it, and there is 90-day time frame for resolving such issues with Malaysia should they arise. That includes even the involvement of Ministers. So this is a significant addition for Malaysia, and it is a significant aspect of this free-trade agreement that we should not lose sight of.

Similarly, the environmental cooperation agreement will address all sorts of things, again establishing a framework for cooperation with the intention of working together across a whole lot of environmental issues, including environmental expertise and technology, waste management, wetlands management, ecotourism, and environmental remediation—the list goes on. That also becomes a significant piece of this apparatus and, therefore, subject to the same provisions for resolving any disputes that arise out of it, even to the level of Ministers.

I will have the pleasure and privilege of meeting with the Malaysian Foreign Affairs Minister on Friday as he is visiting this country, and I will have this discussion with him. This is a good moment for us to be passing this Malaysian free-trade agreement legislation through all its stages, and I too add my acknowledgment of Minister Tim Groser for his part in advancing and concluding this free-trade agreement. We have a Minister who understands not only the mechanisms but the detail of such free-trade agreements exceptionally well, and that has been an advantage to New Zealand.

Services are also included in this agreement, and the primary one, which I will use my closing moments to speak on as it is of real significance, is education. Malaysia has long had a relationship with the New Zealand education system. At the time of accompanying the Minister, on his gracious invitation, to the signing of the free-trade agreement in Kuala Lumpur, if I heard about the Colombo Plan once I heard about it a gazillion times. I was almost tired of it. However, it is part of our historical connection with Malaysia—a connection that was founded in education and educational exchange. Malaysia is keen to upgrade the quality of its universities. It does not rank highly in the world’s assessment in terms of its universities, and it is very keen to benefit from New Zealand in that regard. Thank you.

Hon TIM GROSER (Minister of Trade) Link to this

I want to answer some of the questions that have been raised, particularly by Dr Kennedy Graham. They have also been touched on by Grant Robertson. In doing so I want to issue a consumer welfare warning. Three of us are, of course, former Ministry of Foreign Affairs and Trade employees. I am speaking on behalf of the centre-right faction of the ministry. There is serious danger of this developing either into a university-style seminar or, even worse, an internal Ministry of Foreign Affairs and Trade discussion, which is what drove me out of the institution in the first place.

DAVID SHEARER (Labour—Mt Albert) Link to this

I will start by acknowledging Tim Groser’s input on this bill, and also the explanation that he just gave, as well. Having somebody with that sort of experience in his field is clearly of benefit to the country, and is able to build on the work that has been done on the Malaysia - New Zealand Free Trade Agreement, which the previous Labour Government initiated in 2005. Obviously many people have said that a bilateral agreement like this is less favourable than a more wide-ranging global trade agreement or even a regional trade agreement. But, nevertheless, I think New Zealand has been very successful and adept at being able to forge, and to be a vanguard in pushing forward, bilateral free-trade agreements to its advantage. Ultimately, with such a small internal market, we are an exporting nation and we rely absolutely on our export growth in order to prosper. On that, I will touch on a point that was raised earlier regarding being sensitive to cultural aspirations of the countries that we forge agreements with. The same can be applied in reverse in the sense that the agreements we have signed have also acknowledged the Treaty of Waitangi. So we receive reciprocity from other countries in terms of acknowledging our particular cultural areas of sensitivity and the importance they have for us.

This free-trade agreement—and I am very pleased to hear that the Malaysian Minister of Foreign Affairs is coming tomorrow, because I think it is particularly appropriate that we are discussing this in Parliament the day before he arrives—will inevitably bring about an increase in the export activity that is currently under way between Malaysia and ourselves. I notice that between 2004 and 2008 export growth grew by 80 percent. If we look at our free-trade agreement with China we see that in a very short period of time, a couple of years, our export growth has risen by over 60 percent. Although we are not necessarily expecting the same with Malaysia, it could quite easily see big increases in exports, particularly in milk, with the duties and the quotas eliminated; steel products, where 50 percent of the duty on that is removed; kiwifruit, where 15 percent of the tariff is removed; and so on. There will be an estimated $10 million of savings annually.

Something Maryan Street brought up is important, too: to put into this agreement the effects on the environment and on labour—the environment in particular. Our ability to sell high-value goods and commodities in the world is dependent on the way we are seen as being an ethical, environmentally responsible producer of those goods. That is fine from our side, but not so long ago, I think just a few years ago, there was definitely some discussion about the environmental standards, for example, in logging and forestry in Malaysia. If this free-trade agreement can in any way assist in the environmental standards and not denigrate or degrade those standards in Malaysia, then I think it is also in that respect a positive move.

I want to touch on the fact that although we are at the vanguard of free-trade agreements, I suspect we are not keeping up with some of the other parts of our economy that can really push and further our export growth. The importance of, for example, monetary policy being much more predictable and far less erratic is something that comes up, invariably over and over, when I go around to talk to exporters, particularly, but not necessarily, in the high-tech area. They start off with an assumption that the New Zealand dollar might be at an exchange rate of 66c, but they find that a little while later it is at 75c and then it drops down to a figure that is much less than that. This gives them an extraordinarily difficult time in trying to predict their profitability and therefore the actual life of the company.

We have relied very much on inflation control measures to balance this. I notice that the International Monetary Fund recently stated that it is probably foolish for us to rely on a single tool with which to modify our interest rates. I believe there is scope for lateral thinking on that. We may not want to go as far on the issue as Singapore does, which has banded its exchange rate, but nevertheless, as we enter these free-trade agreements, and this one with Malaysia, I think we need to look at some of the other aspects of our exports that are perhaps not getting the attention that free-trade agreements like this one are getting.

My colleague Stuart Nash mentioned the drop that New Zealand Trade and Enterprise is going to receive through a cut in funding of $101 million. That does not inspire a huge amount of enthusiasm or hope that we have a Government that is really committed to exporting across the board. It cannot just be in freeing up markets, it has to be in all the aspects behind that, to ensure that we are able to put our goods into markets.

On that note, again, I say that this free-trade agreement with Malaysia will largely—not wholly—benefit the production of our commodities. Another recurring theme that is coming through in pretty much every analysis I have read is that our commodities, over time, have actually declined in real value. If we look, for example, at comparably sized countries, like Denmark, like Finland, we see that where they are getting the additional value in their economy and in their commodities is not in the lightly processed commodities that they send overseas but in their high-value manufactured goods, both in terms of their labour productivity and also in terms of their ability to export real value. Sixty-six percent, or more, of our exports come from commodities.

I was reading just the other day an interesting account of a seminar series, called the Waipuna seminar series, that Mike Moore, the former Prime Minister, had conducted in 1993. Actually, Clayton Cosgrove was one of the principal authors of that book. Exactly the same issues in that seminar series are the issues we are facing today. We are exporting commodities that are declining in value despite the increase in dairy products, despite all the optimism that there will be a protein shortage around the world. Those are declining, and we need to be diversifying and adding value to our exports. The challenge is how we do that.

We can rise to challenges. We did rise to challenges in the early 1970s when 75 percent or more of our exports were going to Britain and to Europe, and suddenly, 10 years later, it was less than 20 percent. We are able to adapt. We are able to move our exports in a different direction. We have not been able to adapt in the export sector as successfully as we would like. Despite the $6.5 billion worth of exports in the high-tech sector—nearly 80 percent of that $6.5 billion is exported; it is an incredibly valuable, highly productive sector—we have not been able to grow that. Other countries around the region are doing that, Malaysia being one of them, and Singapore being another, as well as Taiwan and Korea

GRANT ROBERTSON (Labour—Wellington Central) Link to this

I will take a brief call on two or three matters. The first is my response in part to Dr Graham’s comments, particularly in relation to the question of how the national interest analysis discusses the missing 0.5 percent. I appreciate the Minister’s explanation about those issues, and indeed I understand the point particularly about alcohol. I am not sure that we could make quite the same point about firearms and tobacco, but I endorse Dr Graham’s comment about the way in which the national interest analysis raises this matter. I think that something for future thought is the fact that the language and phrasing in the analysis does not pick up the spirit of the Minister’s comments, and indeed of others in the House, about showing our respect for other cultures, and our belief—and I was perhaps diplomatic in my language earlier—that we do not need to do that. We do need to respect and understand other countries and the limitations of these free-trade agreements, and I think that some of the language in the national interest analysis on that issue perhaps left a little to be desired.

The second point that Dr Graham raised that I will respond to, concerns the importance of environmental cooperation agreements, and the actual discussions that take place as a result of them. One agreement I know a little about was with Chile in the Pacific Three Closer Economic Partnership, which is now morphing its way into being the Trans-Pacific Strategic Economic Partnership Agreement. I know that significant work was done there, with a number of meetings, particularly in the eco-tourism area. A lot of information was shared about how to grow that sector, but also about how to ensure that the effects of tourism were mitigated on the environment. There was significant exchange. The Ministry for the Environment in New Zealand was actually the lead agency. It brought in a number of eco-tourism operators who were able to share their experience, but they heard equally from the Chilean side. In fact, in talking to a number of the eco-tourism operators who were involved in that, I discovered that they felt they learned as much from the Chileans, even as the learning went the other way. That is the advantage of those agreements.

That brings me to the point that I will raise, to build on Maryan Street’s comments about the environmental cooperation agreements. Those agreements were seen, as I said in my second reading speech, somewhat as tack-ons. I think it is important that in this House we make clear that the expectation of parliamentarians is that those agreements are much more than that. They are treaty-level agreements that are of significance to us. They round out our relationship with countries so that it is not just about free trade and tariffs, it is actually about building a stronger and deeper relationship, in which environmental cooperation has leveraging possibilities for services. But it is more than that, as well. It is in fact a sign of our values, and that is why the labour cooperation agreement is significant and important as well.

There are obligations in the agreement to set up committees and to have those committees meet, and I implore the Government to continue to see those parts as important parts of free-trade negotiations. It is true that in the early years of this century a number of other countries were reluctant to have those parts, but New Zealand has pushed on. As Maryan Street said, we have in fact led the way in those agreements. We are the ones who have said no, those must be part of our free-trade agreements. I think we now need to back that up with further action and ensure that they are meaningful.

I do not believe, I say to Dr Graham, that such agreements are a sign that the Green Party should recommence morris dancing—in fact, nothing should encourage the Green Party to recommence morris dancing—but they are a sign that there is an understanding of the importance of environmental cooperation, the importance of labour cooperation, and the fact that, as Maryan Street said, we are referencing International Labour Organization agreements and the outcomes of the Rio Earth Summit. That is important. It gives great stability to those agreements to have international agreements alongside them. I think it is important to note that environmental cooperation agreements and labour cooperation agreements are rising in their importance, that their status has been increased by being at a treaty level, and that they are now a very important part of free-trade agreements.

Dr KENNEDY GRAHAM (Green) Link to this

I am saddened to hear the discouragement from Mr Grant Robertson about the morris dancing. I now have to advise the House that no invitations will be issued to anybody for that. I add that from time to time there is a touch of Handel and Fauré in there between bouts.

I will not take up much of the time of the Committee. I have just two queries to make, if I may, and I address them to the Minister in the chair, the Minister of Trade. I thank him very much for his answers. He missed one, and Grant Robertson touched on it a moment ago: the environmental and labour protocols. I ask the Minister to forgive me if it has been provided in the past; I have not noted it. Could we perhaps please have, from the officials, for the benefit of members of the Foreign Affairs, Defence and Trade Committee, a list of the meetings held under both environment and labour protocols under each free-trade agreement since the beginning of each agreement, with details of when they met, where, and, if possible, transcripts, or at least a report.

My second and final point is that he mentioned that truckloads of studies were done within New Zealand about the effect of free-trade agreements on the domestic economy. I would have intuitively assumed that to be the case. I just offer the view that I made two inquiries on the number of studies. One inquiry was with a senior economist from a university. He consulted with his colleagues, and the answer was none. That came as a surprise to me. The second time I asked was within the committee. I asked officials and I was told no, but there was an Asian Development Bank report pertaining to Europe and the USA, which is why I mention the comments. If there are such studies specifically—it may be a matter of definition—on the effect of free-trade agreements on the domestic economy in New Zealand, then on a purely factual basis, I personally, and perhaps other colleagues, would benefit if the Minister and his officials would be good enough to give us a bibliography. I certainly will explore it. Thank you.

Hon TIM GROSER (Minister of Trade) Link to this

Very briefly on that point, there certainly have been specific studies on the CER, which was our first free-trade area agreement. Off the top of my head, I cannot give Dr Graham references, but most certainly I have written some myself and read many others. In respect of more recent free-trade agreements, there was a long period between drinks; our second free-trade agreement after the one with Australia in 1982 was the one with Singapore, and I recall that it was concluded in 2002. I doubt whether it is profitable to try to examine the near-term effects of any specific free-trade agreements, because they will be bound up in a general analysis of the impact of removal of tariff protection. The removal of tariff protection comes from a variety of different sources: from Uruguay round commitments, from unilateral liberalisation, and from free-trade agreements with Singapore, Thailand, and, eventually—when this bill is passed, and we assume the House will pass it—Malaysia. I think it would be impossible for any economist to disaggregate the effects of the removal of tariff protection. The studies will show the effects on the New Zealand economy of the removal of it, but I think it is highly unlikely that we will see a disaggregated analysis, other than in respect of the CER agreement with Australia, firstly, because of the significance of that agreement, and, secondly, because of the longevity of that agreement.

STUART NASH (Labour) Link to this

I enjoyed Tim Groser’s contribution to the debate. There is no doubting his competency, experience, and ability to represent New Zealand’s best interest when overseas, and that is very good. But I would like to ask the Minister of Trade one political question. There were advantages in having a Minister of Trade like Phil Goff sit round the Cabinet table, because Phil Goff understood the politics of politics. He knew when to push hard, he knew when to pull back, he knew whom to talk to, he knew whom to massage, and he knew when to get money.

I will bring up again what I have mentioned a couple of times. Although the agreements we have debated today and last night, and also the China free-trade agreement, are no doubt exceptionally good for this economy, I have some slight concerns that we do not have the processes in place to allow the 97 percent of small to medium enterprises that may have the ability to scale up and look at export markets to do so. I am worried that we do not have the tools in place to allow that to happen. As mentioned, our whole trade focus has changed. It used to be Eurocentric, and now it is pretty much focused on Asia. Fifteen percent of our exports now go to Europe, but it used to be nearly 100 percent. Mr Groser knows those figures a hell of a lot better than I ever will.

In the 2009 Budget National cut the funding of New Zealand Trade and Enterprise by $101 million over the next 4 years. As Mr Groser will be aware, the Labour Government increased New Zealand Trade and Enterprise’s funding for market development assistance from $6 million to $54 million, and it is now just under $10 million. Although I do not doubt Mr Groser’s absolute ability, skill, and competency around the trade negotiation table, I ask whether he feels that he has the confidence of his caucus colleagues or the skills and experience round the Cabinet table to now stand up and fight for the money that is necessary for our companies to take advantage of these free-trade agreements. What I would have liked to see in the Budget was not a cut to the funding of New Zealand Trade and Enterprise or to anything related to trade development; it would have been great to see a massive increase in funding, because, as the Minister of Finance has said, New Zealand is an export-led economy, and he hopes that New Zealand will drive its sustainable growth through export growth. So the rhetoric does not quite match the action.

I do not know whether the Minister has time or is willing to answer those questions, but that is a concern I have.

Hon TIM GROSER (Minister of Trade) Link to this

I say very briefly, and not in the spirit, I am sure, in which the member asked the questions, yes, I am afraid shock waves are going through the New Zealand Public Service as a result of the election of the National Government, because the truckloads of money that have been pouring through the front door in the last 9 years, leading to an increase in core Government expenditure of some $30 billion, has stopped. Public servants are now experiencing the shock waves caused by having to be asked to do more with less. In respect of the idea that we do not follow up on these free-trade agreements because New Zealand Trade and Enterprise has somehow switched off, I will be sure to make a point of personally inviting Mr Nash to the next New Zealand Trade and Enterprise - Ministry of Foreign Affairs and Trade seminar on free-trade agreements. I opened two seminars last week in which we did exactly as Mr Nash was proposing.