THE TRADING RELATIONSHIP AND PROSPECTS PETER HAMILTON DEPUTY SECRETARY OF FOREIGN AFFAIRS AND TRADE AUCKLAND 23 FEBRUARY 2010 (23/02/2010)

Thank you to the Auckland Chamber of Commerce, EU Delegation to New Zealand and New Zealand Europe Business Council for arranging this conference and inviting me to speak this morning. My topic is the trading relationship between the European Union and New Zealand, and the prospects for its further development.

There's no question about the economic importance of the EU to New Zealand. It constitutes the largest bloc of affluent consumers in the world. The EU's share of world economic output is 29 percent, greater than that of the US or of all Asia combined.

Four of the EU's individual members and the EU itself, are represented in the G20, which is establishing itself as the world's leading economic forum at governmental level.

The EU comprises a range of developed economies with emphasis on high-quality manufacturing and services, and as such is taking longer to recover from the global economic crisis than some of developing Asia .

It is very important that events like this Conference afford an opportunity for NZ business leaders to keep up to date with developments in the EU and market opportunities for NZ. The recent headlines about member states like Greece and Ireland in economic difficulties must not blind us to the fact that the EU is and will remain an economic superpower.

The early years of New Zealand's relationship with the EU, especially around the time the United Kingdom joined what was then the EEC, were dominated by questions of agricultural trade: our market access, and Europe's actions in international markets and multilateral trade groupings.

These are now much less significant for the relationship. Problems can still emerge for our primary products – such as last year's re-introduction of EU dairy export subsidies. We made our dissatisfaction known at the time and it is pleasing that the EU has now ended that subsidisation. The EU is to be congratulated for the progress it has achieved in reforming the Common Agriculture Policy. The general picture is one of a mature and forward looking partnership with a broad base of cooperation.

Our cooperation is formalised in a range of sectoral agreements. For trade, we have very valuable agreements with the EU on animal exports and on mutual recognition, the latter recently updated. We're also ready to negotiate a customs agreement. And more broadly, we have a new agreement on science and technology cooperation, and are negotiating an air services agreement.

Taken as a whole, the EU is New Zealand's second largest trading partner. Exports to the EU in 2009 were 14 percent of New Zealand's global total, behind Australia but well ahead of the US and China.

The EU is also a major source of direct investment into New Zealand. Not surprisingly, given historical links, the United Kingdom has traditionally been the single biggest source of FDI. But Germany , Ireland and France - particularly in the wine and food processing sectors – have also established a real and beneficial presence in New Zealand.

Europe is a leading source of tourists here, with an above-average length of stay and high spending levels. And these tourists are important in taking back to their homelands impressions of what New Zealand and New Zealand products stand for.

European consumers want good products at a good price, which New Zealand can supply. But increasingly, affluent consumers in Europe are concerned with issues of the environment, sustainability and animal welfare.

But we have a good story to tell. We can meet the high standards demanded of us by discerning EU consumers. We have a respected presence in Europe , with a positive market image. And we've been able to counter misleading claims that arise from time to time such as the “food miles” controversy.

While food and beverages are the lion's share of our exports to Europe , they're not the whole picture. But our other niche exports benefit from the image around our food and wine. It's an important part of that image that we're seen by Europeans as good citizens.

The EU-New Zealand trading relationship, however, is not a one way street. The EU is second only to Australia as a source of merchandise imports. New Zealand imports from the EU topped $NZ7.9 billion last year - everything from planes and motor vehicles to high end medical equipment and veterinary instruments. Moreover, the EU remains a major source of technology and innovation. Engagement with its highly developed, knowledge-intensive economies will continue to be important as New Zealand seeks to lift its competitiveness through innovation.

But distance is sometimes cited as a disadvantage – but from my perspective as Ambassador in Berlin, I saw it more as one of perception amongst German politicians and business leaders rather than it being an actual hindrance to doing business.

Belying the geographical distance, New Zealand and Europe have a very close affinity. New Zealand is sometimes described as meeting all the conditions necessary for EU membership except for geographical location.

The Maori, Pasifika and Asian strands of our national identity are key parts of our cultural mix and our self-definition. But our institutions and processes are for the most part founded on European models.

Those models are themselves based in values that Europe has, through hard experience, learnt to nurture and defend: values of democracy, openness, the rule of law, and respect for human rights. These are values that we've inherited from and share with Europe. And we see them as universal values, not just as European or New Zealand values.

Reflective of our shared values, we have institutionalised our political engagement through a series of consultations ranging from six monthly ministerial-level New Zealand-EU Presidency consultations to separate annual talks on trade and agriculture.

Yesterday in Wellington I jointly chaired with Mauro the annual trade talks with the Commission. The value of these talks is as much about sharing perspectives on regional and global trade issues – be it the Doha Round, climate change or services and investment– as it is about addressing particular issues in the EU-New Zealand trading relationship.

New Zealand is acutely aware that as an increasingly cohesive player in the global community the EU plays a vital role in establishing international standards and norms, both for values such as human rights, and in technical/economic areas such as regulatory standards. As a result, we see the EU as a natural ally and “force multiplier” for New Zealand in advancing shared interests and promoting shared values internationally.

The difference in size and economic weight between the EU and New Zealand is of course considerable. We believe, however, that in our own region of the Asia-Pacific we can offer the EU a similar benefit as a “force multiplier”.

Our geographical location, and our youth as a nation, give us a special perspective. We are a nation built on imported capital. And from our earliest days trade has been the lifeblood of our economy.

It is in Asia that we see outstanding new opportunity. It's clear that growth in the world economy is going to be driven mainly out of Asia for the foreseeable future. Any country or region that wants to get ahead, or hold its relative position, needs to have a strategy for engagement with Asia .

For New Zealand, our geographical location on the rim of the Asia-Pacific region – which for many decades was seen as a strategic dis advantage – is rapidly, in this century, becoming our major strategic advantage.

We're focussing on the establishment of a network of trading relationships across the region as the key to New Zealand's longer-term economic growth.

These not only assist our exporters and investors, but strengthen our capacity for international influence working with larger partners. Security and stability in our region feed back into strengthened legal and commercial predictability for New Zealanders in the region.

As a small but influential contributor to the developing architecture in the Asia Pacific region, New Zealand has learnt to be flexible and creative in reaching agreements with our partners in the region, without sacrificing quality.

In 2008 we became the first developed nation to sign a Free Trade Agreement with China . This was remarkable not only for the obvious asymmetry but also for its ambition in scope and timeframe. It was groundbreaking in its treatment of labour and environment issues.

This FTA has recently been supplemented by our successful conclusion of negotiations on an FTA with Hong Kong . In addition, in 2009 we not only signed a very complex FTA between New Zealand and Australia and the ASEAN group of nations, but we also concluded an even higher-quality bilateral FTA with Malaysia.

We have now launched free trade negotiations with India and with Korea , and are discussing negotiations with Japan.

President Obama announced at the Asia-Pacific Economic Cooperation (APEC) summit in November 2009 that the United States would join the Trans-Pacific Partnership negotiations.

The Trans-Pacific Partnership, of which New Zealand is one of the four original members, could eventually be a stepping-stone to a trade agreement involving all Asia-Pacific economies. This indeed was part of the original concept, and is explicitly provided for in the text of the Agreement. The new interest from the United States, Australia and others offers New Zealand the opportunity to be part of the design team for what President Obama called a trade agreement for the 21st century.

We know that the EU's interest in the Asia-Pacific region is growing. China alone has become the EU 's second-largest trading partner after the United States. Between 2000 and 2008, trade in goods between China and the EU's current 27 members more than tripled in value.

Last year the EU completed its first FTA negotiations with a developed country, Korea. Later in 2009, the EU signed a Partnership and Cooperation Agreement with Indonesia, the EU's first agreement of such breadth with an Asian partner.

We see that Europe's economic strategies are evolving, not only in response to the dynamism of Asia but also because of uncertainty over the development of the multilateral agenda.

New Zealand, like the EU, places a very high priority on the successful completion of the WTO's Doha Round. But, as I've outlined, that hasn't prevented us from building up a diversified portfolio of bilateral and regional agreements.

As Europe's own involvement with the Asia Pacific region grows, New Zealand can not only assist the EU with the projection of our shared values, but also offer the benefit of our own experience with the Asia-Pacific countries.

A year ago, Commission President Barroso and Prime Minister Key endorsed the concept of a comprehensive bilateral agreement and agreed to explore the potential scope for one.

Since then, officials on both sides have been discussing elements of an agreement. Foreign Minister Murray McCully has outlined the concept to most of his European counterparts, and has been pleased at the level of interest and support.

We hope that, with a new College of Commissioners now in office in Brussels , we can move beyond the exploratory phase and make substantive progress this year.

The comprehensive nature of this agreement would be a new concept for both sides. We envisage that areas of coverage would include: political and security; global peace and sustainability; trade, investment and regulation; justice; science and technology; and others.

We have not hidden from the Commission, or from EU member states, that we believe an agreement would include over time provisions governing liberalised trade access to both the EU and NZ markets. That, in our view, is simply part of a comprehensive package.

We recognise that trade liberalisation in some agricultural goods may be sensitive for a few EU member states. We're prepared to move with appropriate sensitivity on the issue.

But the fact is that, compared with other developed economies, New  Zealand raises few defensive concerns for the EU. And the EU raises few for us. Fuller trade liberalisation would benefit consumers in both New Zealand and Europe .

The potential for achieving “WTO-plus” provisions in areas of interest to the EU, including services, would be a useful step in building the EU's record in the Asia-Pacific region.

Developing such a new and wide ranging agreement will be complex, and will take time. For something so manifestly worthwhile, we are keen to engage actively with the EU.

And in that context, let me say that New Zealand business has a key role to play in building the relationship and helping to draw attention to the possibilities for expanding our trade and economic interaction. We will want to work closely with business to mobilise support for a comprehensive agreement both here in New Zealand and in the EU. We are currently looking closely at how best to do that.

Thank you.