Hon TIM GROSER (Minister of Trade) Link to this
I move, That the Tariff (Malaysia Free Trade Agreement) Amendment Bill be now read a third time. I want to respond to the interesting debate at previous stages of this bill. I thank all the members of the Foreign Affairs, Defence and Trade Committee for their work. I thank all members for their contributions in this debate. I acknowledge the support of the Labour Opposition for the bill. Of course, as members opposite have made us aware in several of their interventions, it is part of a broader pattern by which we have moved quite consciously and quite deliberately to take this issue out of the partisan arm wrestle. In the context of this bill, I want to emphasise the importance of that in a very real and practical sense for New Zealand.
For other reasons that I will not go into, the fact that my mum has just passed away became a matter of wide public comment in New Zealand. I was going through her papers a week or two ago, and, like all mothers and grandmothers and all fathers and grandfathers, she had proudly cut out articles about things that her children and her grandchildren were doing. One article she had cut out was an article written by me congratulating the previous Prime Minister, Helen Clark, and the then Chief Executive of Hong Kong, Tung Chee Hwa, on initiating the beginning of a Hong Kong - New Zealand free-trade agreement. It is a matter of public record that this negotiation failed in its first iteration—or in its second iteration, to be frank. Prior to that, when I was working in the Ministry of Foreign Affairs and Trade and was the principal economic adviser to the ministry, I had negotiated in principle an earlier attempt to have an agreement with Hong Kong, and that too failed, in the sense of not working at that time. Only on the third attempt to implement the strategy did we actually succeed. As Ms Street will recall, she and I went up to the signing ceremony in Hong Kong a month or so ago, and finally New Zealand nailed this agreement.
A couple of interesting lessons that are applicable to this bill have emerged from that. One is the importance of consistency of strategy, and the second is the importance of flexibility in tactics. Our first two attempts failed, but the strategy behind them was correct. In respect of consistency, the reason why we eventually nailed this agreement with the separate customs territory of Hong Kong and Macau was that we were able, as a small country with a population the size of that of Sydney, to maintain a completely consistent policy approach. I repeat: it is very important for this country, with so little material power, to have a consistent policy that can sustain itself over the phase of the electoral cycle, and then to have complete flexibility in tactics. In respect of Hong Kong, what we were trying to do, of course, was push the door open to China. In the event, our tactic did not work. It proved possible only to go right to Beijing and do the real deal with Beijing first, then come back and open the Hong Kong door. So our tactics were not right in terms of the flux of international politics at the highest level—because this is serious stuff internationally—but the strategy was right. That, I think, is a lesson New Zealand needs to bear in mind in dealing with the outside world, remembering that we are 4.5 million people and 0.2 percent of world trade.
The Malaysia - New Zealand Free Trade Agreement follows exactly this pattern. I recall, having launched the Singapore - New Zealand free-trade agreement under the then National Government in the 1990s, being invited up for “secret talks” in Kuala Lumpur. At that stage, the idea of Malaysia doing a free-trade agreement with New Zealand was highly controversial. Now, 13 years have elapsed, to the point where we are now able to address this matter in a formal parliamentary sense, and I celebrate New Zealand’s success once again. But the story is the same. The strategy must be consistent and the tactics need to be completely flexible, because we need to adjust to the political realities of the major trading countries, which are much larger countries than ours; otherwise, we will fail. We were able, in the case of Malaysia, to begin a dialogue when its policy structures were not sympathetic to moving this forward. We were then able to move it forward in the context of AANZFTA—the ASEAN-Australia-New Zealand Free Trade Agreement—negotiations, which are only now being phased in, since the beginning of this year. The lesson, once again, is consistency of strategy and flexibility in tactics.
It is only when we look back that we can see how far we have travelled. New Zealand has travelled a great distance on these issues. New Zealand is a country that I have always argued suffers more than any other country in the developed world from lack of access to markets. Numerous econometric studies—putting aside my own distaste for econometric studies—and other, more rounded economic studies indicated that in the 1980s the impact on New Zealand, which was then suffering from an acute lack of access opportunities for our traditional products, in a relative sense was more negative than that on any other developed country.
In that context I might take up one point that was made by Mr Shearer in his remarks about commodities. I share his frustration, as I think most members of the House would, at our relatively slow progress in taking advantage of higher-value products moving up the value-added chain. The way I would express that concept these days—because we as a country have been debating it for 30 years—is to participate in the global supply chain. And it is a big challenge for us. The global supply chain is where the action is. According to the latest OECD study, 58 percent of the world’s trading goods are intermediate goods. In other words, we do not have vertically integrated production, with everything made in New Zealand then exported; if we want to gain entry into the really sophisticated features of modern international trade, we produce components or bits of the global supply chain. This requires a shift in our thinking as a country, and it is quite challenging for some people who still think in traditional terms—that everything must be 100 percent produced in New Zealand. But if we as a country want to move up the value-added chain, if we want to participate where the real action is, I agree with Mr Shearer that that is where we have to go.
I do not know whether I am disagreeing with him, but I draw his attention to the point that these free-trade agreements address one aspect of that. I will introduce the technical term for it for a minute. It is called tariff escalation. The problem for New Zealand historically in getting out of the commodity trap has been the cost issue of tariff escalation. That means that countries have wished to import our raw commodities, whether they are wood, wool, or dairy products, and then put higher and higher levels of protection around the further processing of those goods. It confined us to being a hewer of water—I have forgotten the familiar biblical phrase.
Chris AuchinvoleI thank the member. It was not because we did not want to move into the higher value-added areas; the structure of tariff protection in our markets prevented us from gaining access. So these free-trade agreements do help to address the issue that Mr Shearer was concerned about.
In the brief time I have available I want to reinforce the points made about the labour and environment cooperation agreements, because I think we need to understand what we are trying to do here. I assure members who have spoken on them that they are more than just clip-ons. I have strongly pushed them forward. I am working with the Opposition in the context of the TPP, or trans-Pacific partnership. Maryan Street will recall that she, Phil Goff as Leader of the Opposition, Helen Kelly as the president of the Council of Trade Unions, and I went to see the president of the American Federation of Labor and Congress of Industrial Organizations, or AFLCIO, and we have been able to carry forward this agreement. In my brief remaining speaking time I want to give assurances to members that it is not just some cynical exercise. We are taking it seriously. In respect of the environment agreement, it is exactly the same. I do see significant opportunities for New Zealand. I am not quite sure whether it is public knowledge yet, so I will be cautious, but there is an extraordinary new opportunity in China involving a pilot project of very significant standing, which will potentially be a massive gain in terms of cleantech, and will have New Zealand involvement.
I strongly support these free-trade agreements. I strongly support their voluntary nature. I think we have to work with developing countries that are sensitive to compulsory models. I think we have a great future.
Hon MARYAN STREET (Labour) Link to this
It gives me great pleasure to rise and speak in the third reading of the Tariff (Malaysia Free Trade Agreement) Amendment Bill. Although it gives me great pleasure, I am sure that it will give Lain Jager and Carol Ward of Zespri Group even greater pleasure to know that the third reading of this bill is now before the House. And so it will pass, in a matter of minutes.
I make the reference to Zespri because, as we have traversed in the second reading and Committee stage the benefits of this free-trade agreement—and will continue to do so in the third reading—it is clear that as far as the exporting of goods is concerned this is indeed a very high-quality free-trade agreement. Within very short order, in comparison with other free-trade agreements, we will see almost all tariffs eliminated from our goods exported into Malaysia. By 2016, 99.5 percent of our goods will be tariff free. Better than that, at the moment of implementation there will be a benefit instantly for kiwifruit and for other primary production items. In the case of kiwifruit, we will see the elimination of a 15 percent tariff on exports.
That is a multimillion-dollar deal for one of our horticulture industries. That multimillion-dollar deal means that profit will be retained within New Zealand and it will not carry the cost of the tariff that has applied until this moment. As I think mentioned in the second reading, along with our other primary products that are exported into Malaysia—butter, cheese, honey, wool, apples, milk-powder, and increasingly now liquid milk, as well—with this free-trade agreement we will see an improvement in the profit margins for all of those industries because of the elimination of the tariff cost.
We have talked quite a lot about the benefit for trade in goods. I now take the opportunity of this third reading to focus a little on those things that I have not had time to speak about in my previous contributions. I want to talk a bit more about the trade in services, which is particularly significant in this free-trade agreement. The services referred to in this free-trade agreement are substantial. The one of particular interest is education. Education is New Zealand’s single most important services export after tourism. Tourism attracts very few barriers, but that sector and the education services sector stack up very, very favourably as the most important services export sectors. What has been achieved in this free-trade agreement is that access for the education services sector has become New Zealand’s highest priority for the negotiation of services in this free-trade agreement. We have a very good deal—a very good arrangement—that includes primary, secondary, and higher education plus additional training, particularly English language training. Making that education available on very favourable terms in Malaysia will boost our education exports here.
Malaysia has agreed to provide New Zealand with most favoured nation treatment in private education. It means that education providers will enjoy the best treatment that Malaysia gives any of its competitors from other countries. Having a most favoured nation status in respect of education exports will make things easier for our very qualified and very capable education sector. I made reference earlier to the fact that Malaysian universities are keen to improve their performance and that the Malaysian Government is keen to improve the performance of Malaysian universities. With the research and teaching record in our tertiary education sector, we can assist in that area, and that also benefits New Zealand.
I will say a couple of other things about this agreement in general. I have spent some time talking about the binding treaty agreements on labour and the environment that are a part of this free-trade agreement. I reiterate the fact that these agreements remain dynamic, as does the free-trade agreement. Should any disputes or issues arise out of the maintenance of labour standards according to ILO declarations and principles, or any application of domestic labour policies that are used for protectionist purposes, there is a process to resolve those issues right up even to ministerial level.
I look forward to additional clauses, I suppose, being added into such free-trade agreements in future, because it seems to me that this will be the way of trade in the future. If we do not care in a cooperative way for the fragility of this planet, then it does not matter how good we are at producing high-quality exports, because there will be no orderly, productive, and sustainable means of continuing trade. I cannot overstate that point. In the end, it remains the most critical basis on which we engage with other countries. Either we have a sustainable planet or we do not, and if these agreements can be used to enhance cooperative arrangements for sustainability, sustainable production, and sustainable trade arrangements, then so much the better. The world is better for it.
This free-trade agreement is significant. When we were in Malaysia, the Minister of Trade talked about it being the icing on the ASEAN free-trade agreement cake. It is just much better in its terms and timing than the ASEAN free-trade agreement, which is a significantly beneficial agreement on its own. We have a long history of engagement with Malaysia, particularly on cultural and educational matters. It is fitting that this House passes this legislation without further delay and that the free-trade agreement with Malaysia proceeds forthwith. Thank you.
JOHN HAYES (National—Wairarapa) Link to this
I rise in support of the third reading of the Tariff (Malaysia Free Trade Agreement) Amendment Bill. It is great to be in a waka with 121 paddlers where all but 11 of them are paddling in the same direction.
This bill will give us new market opportunities. It will help exporters and it will help service providers. It will provide transparency and certainty. Malaysia is our eighth largest export market. It is bigger and more important to us than Germany, India, and Canada. In the period between 2004 and 2008, our exports to Malaysia grew at a rate of 80 percent, which is double the rate of growth of New Zealand’s exports to the rest of the world. Our investment in Malaysia has grown by 77 percent since 2003, and it now sits at about half a billion dollars—or it did in 2008, which are the last figures I have seen. That means that our investors have confidence in the integrity of Malaysia’s systems, particularly its justice system, and in the integrity of its private sector law.
The Green Party contains nine paddlers who are facing the back of the canoe, not the front. I will respond to Dr Kennedy Graham’s request for some practical examples of why the Greens’ understanding of life is, in a practical sense, different from that of the other paddlers in this waka. The Green opposition to the bill is set out in a minority view in the Foreign Affairs, Defence and Trade Committee’s report back to Parliament: “It wrongly assumes that the two trading countries will both be better off as a result.” of signing up to this agreement. How wrong can those members be? How muddled can their thinking be?
I think that the Greens may be using computers. If that is the case, I invite them to type the word “Ricardo”—R-I-C-A-R-D-O—into Google, which is a search engine. Then they should read what it says about Mr Ricardo. His insight is that trade barriers—whether they are subsidies to farmers, regulations prohibiting clothing or textile imports, or taxes—will make us and Malaysia worse off. Ricardo argues that it does not matter whether Malaysia is better at making things than New Zealand. He says that each country should stick to what it does best and should stick to producing whatever its economy is best at turning out. Ricardo argues that even if New Zealand was worse at producing everything than Malaysia was, we should still stick to what we are least bad at producing.
Dr Kennedy Graham asked for some practical examples; I will try to give him one. I have a company in Dannevirke called Metalcraft Industries. Let us say that it produces an electric drill in half an hour. It can also—it has very good people working there—produce a flat-screen television in about an hour. But a Malaysian worker can produce an electric drill in 20 minutes and a flat-screen television in 10 minutes. So if New Zealand and Malaysia do not trade, which is the outcome Dr Graham wants, nothing will change. It will take us 90 minutes to work to produce a flat-screen TV and a drill, while in Malaysia the TV and the drill can made in half an hour. So if we follow the Green Party way of looking at the world, nothing will change. But if we get rid of the trade barriers, as this bill aims to do, both countries can trade and both countries can be better off. The Malaysian worker can make two televisions in 20 minutes and the Dannevirke worker can make two drills in an hour. If we trade one drill for one TV, then both New Zealand and Malaysia will be better off because they save at least one-third of the time involved.
Contrary to Green belief, it is simply not possible for trade to destroy all of the jobs in New Zealand. It is also impossible to import everything from abroad and export nothing. If we did that—if we followed this Green utopia—we would have no cash with which to buy anything. It may surprise the Greens, but goods and money do not just appear and disappear; they are interconnected. No one beyond New Zealand would accept a New Zealand dollar in payment for some other good or service if we were not exporting products like milk, cheese, wool, and timber so that our dollars can be used as a basis for paying back other countries.
Having gone down this road with Ricardo, my second suggestion is that “Dr Green” and his paddlers going in the wrong direction could type into “Mr Google” the words “Abba Lerner”—A-B-B-A L-E-R-N-E-R—and read what is arguably the most important theorem of trade theory. In 1936, before even Dr Kennedy—
—Dr Kennedy Graham was born, Abba Lerner said that a tax on imports is exactly equivalent to a tax on exports, and he proved this.
Finally we could think about the practical examples Dr Graham asked for. We can think about countries that are restricted, like North Korea, and we can think about countries that are open, like South Korea. I then leave it to Dr Graham to determine who is the better-off from that openness of economy. We can think about Austria and we can think about Hungary. We can also think about our recent experience in signing the free-trade agreement with China. As I said in the House last night, in the year to April 2010 our exports to that country increased by $860 million. That is an increase over a 12-month period. That increase is virtually the same size as us finding another export market the size of Indonesia. Opening that free-trade agreement with China has helped every person in this country, and to some extent it has insulated New Zealand from the recession that we find ourselves in.
Finally, I say that this is a good bill. It is a good bill for the people of Dannevirke; it is a good bill for all of the people in the Wairarapa. It is good for all New Zealanders, and it is good for all Malaysians. It has my absolute support. Thank you.
STUART NASH (Labour) Link to this
May I be the first member in this House to offer my congratulations to Julia Gillard, the new Australian Prime Minister. I understand that she won the vote. [ Interruption] Sorry, Kevin Rudd stood down and she put herself forward. I understand that she is also the first female Australian Prime Minister.
Chris HipkinsShe will not be the last, so congratulations to Julia Gillard. I must admit that I tend to agree with John Hayes, in the sense that countries around the world must concentrate on their areas of competency. Having said that—and this is sort of true free-market policy; Michael Porter, as we know, came out about 20 years ago to New Zealand and suggested such—I also take on board Dr Kennedy Graham’s comments. I think my colleague Grant Robertson and maybe even Maryan Street mentioned this as well. We cannot put trade in front of absolutely everything else. There are areas of national interest, or of great importance, where it makes sense to have certain barriers in place to protect them. If we look at the national interest documents for any free-trade agreement there are areas that are protected because they are considered more important than a complete and open free-trade agreement.
I do find it slightly rich that National is lecturing the House on economic policy, because the Budget showed that its economic philosophy is outdated. It dates back to last century. I think this is probably the only Western democracy that is following the economic philosophy of the Regan and Thatcher years. I think National would find that the philosophies followed by the Americans, the Brits, the Canadians, and certainly this Labour Party, are based on much more updated and relevant economic policies that put money in the pockets of every New Zealander and are all about sustainable economic growth.
Although, as I said, I tend to agree with John Hayes that this bill is by far the best for all New Zealanders, there are risks involved. We acknowledge those risks; we understand those risks. However, I am supporting this bill because I think that it is in our national interest.
This free-trade agreement was signed in Kuala Lumpur on 26 October 2009. It provides New Zealand exporters, service providers, and investors with new market access, opportunities, and greater certainty and transparency in Malaysia. It builds significantly on the platform provided by the recently signed agreement establishing the ASEAN-Australia-New Zealand Free Trade Area. As has been noted, Malaysia is New Zealand’s eighth-largest export market. Currently it is more important to New Zealand than, for example, Germany, India, or Canada. As has been mentioned in this House during this debate, it reinforces the fact that our traditional trading markets of Europe have now been replaced by the more dynamic and closer Asian economic block.
The commercial significance of the free-trade agreement is underlined by the robust and growing trade relationship between New Zealand and Malaysia. For an example, between 2004 and 2008 New Zealand goods exported to Malaysia grew by over 80 percent—more than double the rate of New Zealand’s export growth to the world over the same period. In 2008 New Zealand’s exports were worth almost $1 billion, which is not insignificant by any stretch of the imagination. New Zealand’s service exports to Malaysia have continued to grow in a range of sectors, including private education, which we talked about it. They provide the highest numbers of overseas PhD students to our universities, information computer technology, and engineering.
At the same time New Zealand investment in Malaysia has grown, albeit off a relatively low base, by an annual rate of 77 percent since 2003 to almost half a billion dollars in 2008. It is a very important market, but I will outline again my concern that I mentioned a couple of times—that is, that this Government has not provided the companies that are in a position to take advantage of these free-trade agreements with the tools needed to do so. When I asked the Minister about this, he gave some sort of smart answer saying that he is asking people to do more for less. I do not think that actually works. One cannot ask people to do significantly more for significantly less. In this House—and I am assuming this bill is going to be passed, because the vast majority of us agree with it—in the last 24 hours we have passed a free-trade agreement with Hong Kong and with Malaysia. Recently we passed one with China. These markets are incredibly different from New Zealand. They have a different legal system, a different culture, a different way of doing business, and different religions—in fact, everything is different—yet 97 percent of our businesses are small to medium sized enterprises and simply cannot afford to employ an international marketer or an international market development manager.
Mr Groser said he would like to invite me to the next meeting with New Zealand Trade and Enterprise and the Ministry of Foreign Affairs and Trade. Well, I would like to go along to that. I would relay a story. There is a New Zealand exporter who is a very good friend of mine; I am very happy to provide the Minister with his name. He turned up at a pre-arranged time at a New Zealand Trade and Enterprise office for a meeting that had been arranged in New Zealand, only to be told that he should go to the equivalent office of the nation that he was in. He turned up there a little bit annoyed—as one would if one has flown halfway across the world only to be told that one cannot be seen by New Zealand Trade and Enterprise—only to be told by those people that the reason New Zealand Trade and Enterprise did not want to see him was that that was the day of their Christmas party. How professional is that? We want to send a message out there that New Zealanders are professional, we are competent, we know what we are doing, and we know how to do this.
I saw a recent survey; I think it was presented by either the outgoing Minister of Trade or someone who came to the Labour economic caucus. We hear from a whole range of people; members would be surprised at the people who would like to talk to us because they are a little disillusioned with what is happening. The perceptions of New Zealand business people overseas are that we are unprofessional and we do not quite know what we are doing. We are a little bit lax, and there is this old No. 8 wire mentality that all we have to do is turn up, hand out a couple of All Black jerseys, give out a couple of bottles of wine and maybe a pottle of mānuka honey, and the deal is done. Then we sit down and we get pissed with them. No longer is that good enough in the 21st century. No longer is that sufficient to get the deals done. In this day and age of globalisation, we are competing with everyone. This free-trade agreement levels the playing field. Malaysia has free-trade agreements with Japan and ASEAN, and it is negotiating a free-trade agreement with the United States, etc. This is not the first, as it is with China. We are not the first to get in there and make it happen; this is just levelling the playing field.
We need to be incredibly professional and diligent in the way we handle our international business. Quite frankly, having a New Zealand exporter turn up to a New Zealand Trade and Enterprise office, only to be told that he cannot be seen because it is the office’s Christmas party, just reinforces the stereotypes that a lot of overseas business people have of New Zealand, and it has to change. It has to change if we are to take advantage of these free-trade agreements. That is why I have great concern that this Government has cut over $100 million from New Zealand Trade and Enterprise’s budget over 4 years—$100 million. That is not about doing more with less; it is about cutting services. It is about cutting essential services at a time when we are looking to develop markets into a whole new region. This is not about doing business with Australia or the UK, where rugby jerseys and sport are part of the local vernacular; this is about getting there and proving that New Zealand businesses are the most professional and can do the deals. Cutting $100 million from New Zealand Trade and Enterprise is not the way to do that. I would love to come to one of these meetings, I say to Mr Groser, and I would love to relay that story.
Hon Clayton CosgroveThe member is dead right. I would love to see the response of New Zealand Trade and Enterprise. I said to my friend when he told me this story that he should not worry about Tim Groser. He is a very good trade negotiator, but he has no weight around the Cabinet table, which has been proven by how much money has been cut from his budget. My friend should take his story to the Prime Minister. John Key would be absolutely annoyed if he heard that that is the way that officials are dealing with New Zealand businesses. I tell members that if Phil Goff, who has spent a considerable amount of time negotiating free-trade agreements on behalf of New Zealand, heard a story like that he would be ropeable—absolutely ropeable—because that is not the way we treat New Zealand businessmen and businesswomen who are going overseas to take advantage of these free-trade agreements. It is hard enough as it is, let alone with that sort of carry-on.
I support this free-trade agreement. As I said, I take on board Dr Kennedy Graham’s concerns, but having read the national interest analysis, having gone through the costs and the benefits, and understanding where New Zealand has to position itself, I have come to the conclusion that the benefits outweigh the costs of this free-trade agreement. I support it, and I congratulate Mr Groser on getting the ball across the line, so to speak. But also I very much acknowledge that Jim Sutton and Phil Goff did the vast majority of the grunt work for this free-trade agreement. Thank you very much.
Mr DEPUTY SPEAKER Link to this
Before I call the next speaker, I say that the member made an unparliamentary remark earlier on. I do not know whether he realised it, but I just ask the member to be very careful with some of the language. I did not pull him up at the time, but I just mention that. I am sure it was unintended, and I am not asking to take it further.
Dr KENNEDY GRAHAM (Green) Link to this
I appreciate the comments of the previous speaker, my colleague Stuart Nash, in acknowledging the concerns of the Green Party. In fact, I think that both the debate on the New Zealand - Hong Kong, China Closer Economic Partnership Agreement and all the stages of the debate on the Tariff (Malaysia Free Trade Agreement) Amendment Bill have been, with the singular exception of the contribution from John Hayes, very constructive indeed. I welcome that from all other National Party colleagues, not the least of whom is Chris Tremain. I make the point, however, that nothing I have heard—and I have listened very closely to everything that has been said in the debates on both the Hong Kong and Malaysian agreements—changes our view with regard to the current manifestation of trade policy.
In the second reading John Hayes simply said China’s exports have increased by $860 million, and that is fantastic. We recognise that that is a significant thing, but it is not everything. Chris Tremain admonished me to steer clear of theoretical models, and I appreciate that. I assure him that I shall not do that, but that I shall add a touch of practicality now and again to it, to satisfy him and his constituents. But after Chris Tremain offered that admonishment, he basically spoke in tones of awe—and we can speak in tones of admiration, but not of awe—about Zespri. That was his contribution. Cam Calder said the free-trade agreements boost exports, create jobs, and increase income. That is true, but it is not the total story. Tim Macindoe mentioned the environmental protocols, morris dancing, and Asian students in his electorate. I know that very well, having been to Waikato University recently and spoken to students at the Pacific college. Tim Groser said that free trade is not a religion, though he none the less spoke in papal tones, and now and again unctuously.
I just make the point that everything that the Government members have said is focused on exports. At no stage did they really address the issue of the effect on the domestic New Zealand economy, which is only one of the things that we are trying to get this House to focus on. The Government is being either blind or wilful, and it is not focusing.
On the point of style, I just say that at least my colleagues Tim Macindoe, Chris Tremain, and others offered their derision in tones of good humour; that is appreciated. That cannot be said for John Hayes, whose patronising attitude was rendered in supercilious tones. It was quite different from the attitude of the other speakers. I will not reduce the dignity of the House any further by responding in kind, though I could.
On the note of whether we are going to competitively Google—or be Googly competitive—on this thing, I just offer the response that I actually studied Ricardo back in the 1960s; John Hayes and I are much the same age. I know Ricardo’s theories very well indeed; in fact, we can go from Ricardo through Smith, Mill, Malthus, Marshall, Jevons, Keynes, Samuelson, Hicks, and Friedman—yes, Friedman—to understand the theory of economics and the theory of trade. I suggest that John Hayes goes through all of those people, as well. It does not stop with Ricardo; it only began with Ricardo.
And, in fact, having completed that stony pilgrim’s path, John Hayes should then, by invitation from me, investigate the whole theory of ecological economics, which is where the Green Party is coming from. If we recognised each other’s theoretical framework with dignity and explored it, perhaps we could have a reasoned dialogue. I think that every member, except for the chair of the Foreign Affairs, Defence and Trade Committee, will be prepared to do that. I invite members to study these people, whom they can Google: Tim Jackson, Herman Daly, Peter Victor, Robert Costanza, and J R McNeill. Then they will understand ecological economics—both the domestic dimension of it, and the free-trade dimension.
All of that is simply to say the Green Party, having just been misrepresented, requires a reiteration of its policy. The Greens are not against trade, which is what Mr Hayes was misrepresenting. We are against unsustainable trade; we are against unfair trade. The Government’s trade policy rests on a commitment to a neo-liberal—yes, neo-liberal—free trade. Globalised free trade is the manifestation of the problem of the globalised economy. The case for free trade rests on the assumption that trade is voluntary. This is getting at what Mr Hayes suggested we do get at. Both parties must be better off than before the voluntary act. When trade is based on the absolute advantage enjoyed by the countries in terms of the commodities in question, this is self-evident. But the Ricardian theory of comparative advantage also justifies trade even when one country may have an absolute advantage over another in all goods. The theory is that the combined production of all countries trading is greater than if they produced separately, and each country stands to gain individually, even if not to the same extent. That is the Ricardo theory. This theory derives from the fundamental tenets of neo-classical economics, I say again for the benefit of Mr Tremain.
The Green Party considers those tenets to be dangerously obsolescent, requiring refinement with a new approach that reflects the economic conditions of the 21st century. Specifically, let me make a number of points. First, the extra combined production from free trade cannot in fact be achieved without extra resource inputs. There is also the increase in the depletion rate of the natural resource base from which the product is made. What trade economists mean when they say no extra resources is simply no additional labour or financial capital. Neo-classical economics omits natural capital from its theories.
Second, the extra transport costs associated with free trade are not included in the theory. International transport is energy-intensive, often subsidised. Its external costs are omitted from the pricing. Sea trade emits 0.8 billion tonnes of carbon dioxide, 3 percent of anthropogenic emissions. That is expected to grow threefold by 2050. The same is expected of aviation and surface freight.
Third, free trade assumes the cost of specialisation to be negligible. But, in fact, it requires retraining and perhaps physical relocation. As specialisation shrinks, the economic sectoral breadth of the country’s job choice narrows. This comprises a loss to human welfare. The invisible hand has narrowed the freedom to choose.
Fourth, although free-trade agreements have withdrawal clauses such that New Zealand can theoretically opt out if trade becomes disadvantageous, this assumes that specialisation is reversible. But, in fact, the retraining and relocation of a furniture maker to enable that person to become a dairy sharemilker, apart from being socially traumatic, may be irreversible for social, communal reasons.
Fifth, the specialisation resulting from free trade bequeaths a narrow range of sectoral products country by country, making each country vulnerable to the vagaries of the global economy. Taking the argument to the extreme, if New Zealand were to narrow its sectoral breadth—and that is what Mr Hayes, and perhaps even Mr Groser, are suggesting—to become a national dairy farm, surrendering its capacity to maintain our other economic activities, it would become a milk colony to the global economy.
Finally, much international trade is pursued in the name of choice, to ludicrous lengths. When marginally different varieties of ice-cream, biscuits, and crackers pass east and west across the Tasman in the night, such activity not only defies consumer rationality but also, in an age of climate change, defies basic common sense.
There are both theoretical and very practical moral and environmental reasons not to pursue free-trade agreements in the current form that they manifest. For that reason the Green Party will oppose this bill.
JACQUI DEAN (National—Waitaki) Link to this
The Malaysia - New Zealand Free Trade Agreement represents significant opportunities for New Zealand, and although it is my pleasure to follow on from the contribution of the Green member on green economics, I have a slightly different view. That might be because I am a rural-based MP who represents the farming sector.
Here is my take on this free-trade agreement. Dr Kennedy Graham gave us three to four points, so I will give a couple. First, New Zealand is a small country in a large world. Second, New Zealand’s economy relies on exports.
Yes, it does. Third, New Zealand’s primary produce makes up a huge proportion of total New Zealand exports. Fourth, about half of those exports go into the ASEAN region. So for me at least it follows that free-trade agreements—and this one in particular, since we are speaking to the Tariff (Malaysia Free Trade Agreement) Amendment Bill—represent significant opportunities for us in New Zealand.
This agreement follows on from the free-trade agreements with China and Hong Kong. Those bills were debated and passed in the House last night. They represent a huge opportunity as well, as do free-trade agreements with ASEAN countries for primary producers of New Zealand.
Specifically speaking to New Zealand’s major goods that are exported to Malaysia, I mention kiwifruit. It has been spoken of often in this debate but I believe that it bears mentioning again. Currently kiwifruit exports incur a 15 percent tariff from Malaysia. That tariff will go and it will become duty-free by 2012—only 2 years away. That is only one and a half growing seasons away. If that is not exciting for the kiwifruit growers of New Zealand, then I do not know what is. I think it is exciting. Based on the latest figures, New Zealand’s kiwifruit exports to Malaysia have grown by—
The member opposite just said the word “heaps”. That was the kind of simplistic term used by Labour members. However, we can be slightly more precise. Members opposite may say that New Zealand’s kiwifruit exports to Malaysia have increased “heaps”, but I think it bears repeating that it has increased by 173 percent, to be more precise. That is very impressive. Meat, wool, dairy—that excludes liquid milk—fish, and forestry retain their duty-free access as products and are bound in, so that Malaysia cannot reapply tariffs on New Zealand agricultural exports.
Speaking as a representative of a rural electorate where agriculture is incredibly important, I can only repeat my congratulations to the Minister of Trade, Tim Groser, for his good work in negotiating this free-trade agreement with Malaysia, which was not easy. Again, it represents huge opportunities for New Zealand. We should be grateful to the Minister and grasp this opportunity with both hands. With those few words, I commend this bill to the House.
JACINDA ARDERN (Labour) Link to this
It is my pleasure to have another opportunity to speak to this bill in its third reading. In my second reading speech I touched on not only the elements of what makes a successful free-trade agreement but also the context under which they are then, for want of a better word, operationalised. For me, obviously, the first starting point for a successful free-trade agreement is that it is well negotiated, and that we work through some of the many and varied complications that these free-trade agreements present. We see in the detail of this one, in particular, some interesting issues arising out of margarine, at some point. Also there were exceptions in the free-trade agreement around the trade of alcohol, and there were cultural and religious issues. So these are very complex free-trade agreements that are being negotiated, and their success revolves around the prowess of our negotiating teams.
Secondly, I also had an opportunity to touch briefly on the environment under which our exporters operate generally in New Zealand, and the economic framework and monetary policy we have in New Zealand. It has a significant impact on them as exporters, particularly the volatility of our exchange rate. I issue a challenge to the Government to consider that issue if we are truly going to have the export-led recovery it claims. That is the second point I wanted to raise in relation to free-trade agreements generally.
Thirdly, once a free-trade agreement has been agreed, as Stuart Nash and others have pointed out in this debate, it is not a matter of allowing that free-trade agreement to then sit on the table and just exist. There is a lot of investment that can go into making a free-trade agreement a success for our New Zealand exporters by supporting them and boosting our investment in New Zealand Trade and Enterprise to support them appropriately. We can also do that by making sure that we maintain our brand and trade on our brand appropriately off the back of these free-trade agreements. There are other elements that we may not be debating directly as a consequence but that are still incredibly relevant to our success as an exporting nation.
Before I go on to talk about some of the economic benefits of this free-trade agreement, I briefly want to touch on my disappointment at the way Government members in particular have responded to the challenges put up by the Green Party today. I think they were patronising at best and offensive at worst, and we should always—
Strangely, it was not Paul Quinn on this occasion. John Hayes really outdid himself in his contribution this time. The Greens raised some valid issues that are raised around trade almost every time we have this debate. When we are discussing free-trade agreements, there are very valid issues around human rights. The first point I would like to make on that front is that I support a negotiated and agreed rule-based global system of trade. Having said that, it is also very valid that we think about the implications for a broadening of free trade, given our role as a nation that has very strong labour law and that is developed, around the impact we can have on some of our trading partners who may not have entrenched in their systems some of the rules that operate in our own.
I am talking about a level of corporate responsibility being exercised in the way we operate in some of those nations. If the large amount of time we spend talking about how to better negotiate the free movement of butter were spent talking about how we globalise some of the most essential core elements of human rights, then we would be a long way down the track to making some vast improvements to labour laws, for a starting point, globally. So that is just a small point on that issue.
I come back to the economic benefits of this particular free-trade agreement. I think it has already been mentioned that Malaysia is New Zealand’s eighth-largest export market and that it totalled about $1 billion in trade in 2008. It might be a useful comparison to point out that that is the same amount of debt the Government is adding to New Zealand in order to deliver its tax cuts in the last Budget. I think it probably points to the magnitude of both that export market and that level of debt. In fact, we have actually wiped out the benefits of this free-trade agreement in one fell swoop. Between 2004 and 2008 exports to Malaysia grew significantly, by 80 percent. It has been estimated that this agreement eliminates tariffs to 99.5 percent of New Zealand’s current exports by 2016. My understanding is that there are exemptions in that for alcohol, which I touched on briefly. The percentage of estimated duties that New Zealand exporters would have to pay will be reduced by 86 percent by 2016, which is incredibly significant. It is useful to point out that when we compare that with New Zealand, there is duty-free access to 72 percent of imports from Malaysia. I think it is worth making the point that a lot of these free-trade agreements, in particular the one with China, are free-trade agreements that are primarily beneficial to New Zealand in that regard.
There was a lot of discussion over whether the China free-trade agreement should have been used as an opportunity for New Zealand instead to prove a point on our political position on democracy, labour laws, and human rights, and whether we should proceed with a free-trade agreement. It is an interesting debate to have, but at the end of the day the point was well made that when we have, in the same way we have with Malaysia, a situation where that country already has very open access to New Zealand markets, we are in a sense cutting off our nose to spite our face. Having said that, it does not mean that we do not still have a duty to ensure that those issues, where they exist, are put on the table when the opportunity arises in those diplomatic negotiations, or leader to leader, or however we choose. That is a trade-off that was made in that particular scenario.
Finally, there has been great discussion over the benefit of this agreement for Zespri in particular. It is an excellent example of where this agreement has been beneficial. I know that one of my colleagues is not as enthusiastic about kiwifruit as I am. I undertake to find out what benefits it will have for nectarines as I understand that that is Clayton Cosgrove’s fruit of preference.
Charles ChauvelHe is also partial to the feijoa, so I undertake to find out whether that will have a significant impact.
New Zealand steel lines, which currently face a 50 percent tariff, will be tariff free. I would have thought that that would be the perfect excuse for the Government to perhaps reduce the enormous subsidies it is putting in place for such producers by the emissions trading scheme. I understand that my generation will be covering off those subsidies for the next 50 years. Given we are removing tariffs for that particular industry and it will make a cost saving, perhaps we could balance what is currently an emissions trading scheme that has no incentives to reduce pollution built into it. That might be something that one of my other colleagues might like to pick up on in his or her contribution. Otherwise, I reiterate that Labour supports this bill.
Dr PAUL HUTCHISON (National—Hunua) Link to this
I am grateful for the opportunity to speak on the Tariff (Malaysia Free Trade Agreement) Amendment Bill. It is undoubtedly another great achievement for the National Government, although I must note that the genesis of it has been over a long period of time. It would even date back to the days when the current Speaker, the Hon Dr Lockwood Smith—not the Assistant Speaker who is currently in the Chair—was spending time up in that area. Often it takes time to achieve—
Simon BridgesDr PAUL HUTCHISON Link to this
That is right. Undoubtedly, not only will this agreement have the effect of expanding our vital trade with Malaysia and the remainder of the Asian area but also tariff reduction will be sped up at a far greater rate than was expected to occur under the initial agreement that established the ASEAN-Australia-New Zealand Free Trade Area.
There is no doubt that that is wonderful for some of our most important innovative products. Kiwifruit is the classic example. We were absolutely dazzled by the innovation of Zespri the other night. It brought us its new varieties of kiwifruit: a particularly sweet one designed for the Asian market, not to mention the pink one, which would suit the Labour Opposition, but it was a fine fruit. The real point of this—
Dr PAUL HUTCHISON Link to this
There is a huge point, and it is that kiwifruit is a little fruit that had very little significance anywhere in the world until New Zealand innovators grasped it by its skin and made it a highly valuable export product. Obviously, this free-trade agreement is a living example of New Zealand’s benefiting from that approach.
I was intrigued by the contribution of Dr Kennedy Graham. As always it was extremely thoughtful. I must say that we cannot agree with all the thoughts behind it, but I look forward to having a look at the list of names of environmental economists that he read out. For me, a simple-minded physician surgeon, I often think of the words of Galbraith, who pointed out that economics were common sense made complicated. Some of the thoughts of Kennedy Graham did seem to be a trifle complicated.
It was interesting to hear the contribution from the Minister of Trade, Tim Groser, who has made a tremendous contribution not only to this agreement but also to many others. He mentioned that econometric models on the impact of tariff removal clearly are very problematic to rely on, but he went on to say that free trade is a pragmatic way of advancing the welfare of New Zealanders and of the other country that is involved. It is extremely important to realise that this agreement is just one of the many free-trade agreements that New Zealand is entering into. The countries involved do not just include China; before too long they are likely to include India, Indonesia, and the USA, which means almost half of the world’s population. There is no doubt that free trade is a pragmatic way of advancing the welfare of New Zealanders, because we are an exporting nation, and free trade is the pragmatic way by which we will have, if we are successful in exporting, first-class education, first-class health services, first-class welfare services, etc.
But it is also important that we respect the fundamental cultural differences between countries. I keep being reminded of those in the areas of tobacco, yes, and alcohol, etc. but also on a day-to-day basis. I had a group of Malaysian teachers in my office this Monday afternoon up in Pukekohe, and I asked them what they were doing in terms of climate change. They said that pervading their school system was a great and increasing consciousness of practical measures to improve the environment. So it is very refreshing that, for one of the first times ever, environmental protocols are built into this agreement. I think Kennedy Graham was slightly sceptical about that—and he has a furrowed brow on my saying that—but it is a very important start in terms of practical implementation. Hopefully, that will be part of the agreement that has been achieved.
This agreement is incredibly important for an exporting nation such as New Zealand. I was delighted to hear from Jacinda Ardern that steel tariffs will be coming off. That is vital for the area I represent, Hunua, and, clearly, it is vital for the future of New Zealand.
GRANT ROBERTSON (Labour—Wellington Central) Link to this
I am pleased to take a call in the third reading of the Tariff (Malaysia Free Trade Agreement) Amendment Bill. We have had an extremely interesting debate today. Although the matters we are debating in this urgency motion call into question the meaning of the word “urgency”, the opportunity we have been offered here today has been useful. I congratulate members on all sides of the House for their contributions, particularly Dr Kennedy Graham. There is a broad consensus between National and Labour on the issue of free trade, although there are some differences in emphasis and nuance. The Green Party has a different view, and I think it is good that Dr Graham has taken the opportunity to put those views out there. As I have said in earlier speeches, I certainly share some of the concerns he raised about an absolutist approach to free trade. Free trade is not magic and it is not the panacea for all things. To my mind it is an important part of our economic well-being, and it is part of a global economy in which people can get the benefits of their labours, but it is not everything. It should not be put up on a pedestal as being, in some way or other, above and beyond rigorous analysis, and that analysis is what Dr Graham brought to the debate today.
As a number of other speakers have mentioned, this is a high-quality bilateral free-trade agreement. It makes a number of positive moves in advance of the ASEAN free-trade agreement. I think it is good when we are working on free-trade agreements to build on what has been done earlier. The ASEAN free-trade agreement offers a lot of potential for New Zealand exporters, but in a number of key areas this agreement brings in tariff reductions well in advance of that period of time. As with other agreements, there are phased tariff reductions in the Malaysian free-trade agreement, but 95 percent of those reductions will take place on the day that this agreement comes into force, once the House has dealt with it. That is a very impressive achievement, of which all of the officials, not only those from the Ministry of Foreign Affairs and Trade but also those from other departments who have been involved, can be justifiably proud. The final phase of bringing in tariff reductions will be by 2016, and that will get us to, as was stated earlier, 99.5 percent of the tariffs being removed.
This is indeed an excellent agreement. It is one that offers huge scope for manufacturers, exporters, and service providers. Our trade with Malaysia has a large component to do with the export of goods, but it also has a growing component around services and a historical connection to services, particularly in the education area. There is a lot in this agreement that New Zealand can be proud of, and a lot that we can also see an opportunity to exploit. As was stated in earlier readings, the 0.5 percent of tariffs that remain are mainly as a result of discussions on cultural and religious matters, particularly to do with alcohol. I restate the comment I made in the Committee stage that I believe the way the national interest analysis describes New Zealand’s enthusiasm for 100 percent of the tariffs to be removed is a little unfortunate. The recognition from both Mr Groser and Dr Graham in the earlier part of the debate was that we have to respect other countries where there are issues, particularly those of a cultural or religious nature. I think that brings us back to my concern that New Zealand has from time to time in trade negotiations taken a very absolutist stance. That is not only potentially difficult in terms of our respect for other countries’ cultural and religious beliefs but also, from a negotiating point of view, it has sometimes put New Zealand in a less than advantageous position, when we have pretty much given everything away while still trying to negotiate.
The other aspect I want to reflect on again is the importance of the environment and labour cooperation agreements, which are of a treaty status. They sit alongside the free-trade agreement and are to be considered together as being the engine room of the next stage of our relationship with Malaysia. In the past those agreements have sometimes been seen as just add-ons that were there to placate people who think we need free trade to be more than just free trade, and that it should be seen in a wider economic context. I take comfort from the Minister’s statement that he understands that environment cooperation and labour cooperation are now an important part of our negotiations with other countries. There are a lot of opportunities for New Zealanders in the environmental area in terms of services, and I think that the environmental cooperation agreement can be used for leverage for those service providers. We also need to learn from the Malaysians, because all over Asia at the moment issues about sustainable development loom large for Governments and for people. We need to be there, contributing our skill and technical knowledge, learning from what has been developed in those countries, and making sure that as part of our ongoing relationship with these countries we have strong environmental standards and strong labour standards. New Zealand can be proud of the fact that we have led the way in making those a part of free-trade agreements.
I conclude by again congratulating the Minister of Trade, and indeed previous Ministers Phil Goff and Jim Sutton, on having brought us to the position where we are today. I hope that the Malaysia free-trade agreement will not only see an increase in wealth for New Zealanders through increased exports and services but also see a deeper, stronger relationship between New Zealand and Malaysia, across trade, environment, labour, and other fronts.
A party vote was called for on the question,
That the Tariff (Malaysia Free Trade Agreement) Amendment Bill be now read a third time.
Ayes 110
- New Zealand National 58
- New Zealand Labour 42
- ACT New Zealand 5
- Maori Party 3 (Flavell, Sharples, Turia)
- Progressive 1
- United Future 1
Noes 11
- Green Party 9
- Maori Party 2 (Harawira, Katene)
Bill read a third time.