Strengthening International Linkages - Areas for Focus
Continuing to improve trade access through multilateral (WTO) and bilateral channels will benefit New Zealand exporters. The challenge is to find ways to maximise the benefits of access through assisting firms to identify and develop new opportunities.
- New Zealand continues to give the highest priority to achieving a successful outcome to multilateral trade access negotiations under the WTO Doha round. The multilateral process provides the greatest potential leverage for small countries.
- Like other countries, New Zealand is also pursuing key bilateral trade initiatives. These agreements can tailor and fast-track trade liberalisation opportunities. There is also a risk that other countries will negotiate preferential arrangements ahead of us, putting our exporters at a competitive disadvantage.
- While trade access is a key objective, so also is addressing constraints on trade arising from technical regulations, including standards and conformity assessment requirements - the so called "behind the border issues".
- New Zealand lacks the large firms that dominate exporting in other countries. Small firms face a daunting challenge in bearing the fixed costs of developing markets and moving into exporting. Scaling up production to meet the volumes demanded for many markets is challenging.
- The most productive firms in an industry are those that successfully make the transition to exporting. Export facilitation policies should target these firms and shorten the learning curve to international competitiveness.
- Country-specific export facilitation strategies that take account of market specific issues and the capabilities of New Zealand firms and sectors will help New Zealand firms make the most of the opportunities presented by Free Trade Agreements.
Removing or reducing a wide range of regulatory and institutional barriers to New Zealand firms doing business in Australia will help extend the scope and scale of New Zealand's domestic economy. Despite substantial progress, significant barriers remain - but we need to be clear about the desired path forward, the risks involved and strategies for managing them.
- A more seamless Australasian business environment would reduce business compliance costs and provide mutual benefits to Australia and New Zealand in better protecting their respective interests in the other country. The larger market would provide greater scope for economies of scale and improved returns from domestic innovation and enterprise, and thus spur productivity growth.
- Current and planned work on trans-Tasman regulatory harmonisation or cooperation covers regulation for the banking and insurance sectors, administration of intellectual property rights, the development of common accounting standards, coordination of competition policy, and trans-Tasman court proceedings and regulatory enforcement.
- The advantages of regulatory harmonisation with Australia need to be tempered by the extent to which this may move us away from world practice. The highly-integrated nature of Australasian capital and labour markets makes Australia our most important partner, and it is also our largest trading partner, although it accounts for only 20% of our trade.
- Establishing joint institutions may confer additional benefits - such as the ability to influence Australian decision-making over time. But there are also downside risks - how do we respond when New Zealand and Australian interests do not coincide?
- A Single Economic Market (SEM) increases the risk of trade diversion should we not keep pace with Australia in the negotiation of FTAs.
- An SEM also makes it easier for firms to relocate activity from New Zealand to Australia - highlighting the need for a broad raft of policies that keep New Zealand an attractive place to do business.
R&D Intensity by Country and Main OECD Region, 1990-2002
Source: OECD (2005), Main Science and Technology Indicators 2005-1, July 2005.
China's rise as an economic power provides opportunities and challenges for New Zealand firms - and should be a prime focus for enhanced linkages and adjustment strategies.
- The scale, growth and openness of the Chinese economy will increasingly have a major regional and global impact, both in terms of its demand for global resources and its low-cost manufacturing capacity. Large scale relocation of manufacturing to China is taking place, and today many New Zealand firms are investing in a Chinese manufacturing base. Consumers everywhere are enjoying falling prices.
- For many New Zealand firms, this will require shifting to new models of manufacturing production, with lower-cost functions being performed off-shore. In turn, this will demand changes to managerial skills - with enhanced ability to manage logistics and reassembly across borders.
- Rising incomes and rapid economic growth in China are providing a growing market for New Zealand goods and services. An FTA with China will open new opportunities.
- Rapid economic growth in China is one factor keeping the price of oil and other industrial raw materials buoyant, as well as pushing up the costs of shipping in the Asia Pacific region. This is having effects on profitability for New Zealand firms and exporters. If sustained, these changes in relative factor prices will precipitate adjustment in our economy.
- China is an increasingly strong player in R&D and innovation - the R&D intensity of the Chinese economy is comparable to that of New Zealand, despite a much lower income per capita. China has strengths in biotechnology and biogenetics (for instance), which could be complementary to New Zealand's research specialisations.
- Chinese investors are increasingly looking for international investment opportunities - particularly as a means to secure supply of the resources needed for their economic growth.
- Over the 1990s, New Zealand has experienced strong migration by ethnic Chinese, including from China itself. New Zealand firms can build on their knowledge and experience in strengthening links with China.
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