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Think regional, act global: making the most of the Government's Trade Agreements

Key points

Importance of Asia

• Asia is significant for New Zealand's economy (1 in 5 jobs is Asia dependent).
• New Zealand needs to do a better job educating people about Asia
• New Zealand is seen positively in Asia.
• There are two promising trends:
  • the growing number of New Zealanders living in Asia; and
  • the growing number of Asians coming to New Zealand.
• If we activate these networks, there are huge opportunities.
• The defining difference between business in Asia and business here is that business in Asia is relationship-driven.

Free Trade Agreements (FTAs)

• FTAs bring broad economic benefits. If we want to pursue Growth & Innovation Framework (GIF), objectives we need to this through global linkages. Central government is focusing on competitiveness of firms, and one way to get there is to look at FTAs.
• In pursuing FTAs with Asia, it is useful to think about what linkages we have with Australia.
• The World Trade Organisation (WTO) remains our focus, but then the next priority is China due to the FTA's potential impact.
• Great efforts are being made consulting with firms in New Zealand on FTAs. MFAT plays the lead role and the most effective channel for firms is through business associations.
• The removal of tariff barriers offers the biggest gains, because these barriers are particularly high in agriculture. Non-tariff barriers are best dealt with over the long-term, once a relationship is in place.
• FTA with China has a big impact, but it is more that it is speeding up things; the fundamentals are not changing. FTAs will improve things at the (crucial) margins.

Business in China (a practical perspective)

• What makes China tough is that everything is low-cost and that they can work on low margins. They are strong, very competitive traders. Goods are available at any quality level.
• Intellectual Property protection is a tricky issue. One has to show suppliers in China how to manufacture. By choosing several suppliers one can make sure no single supplier knows everything.
• The lack of due diligence and of good partners with China experience are the key reasons for failure. There is also a need for good middle-management.
• There are many opportunities but it is important to figure out what you are good at. A firm will only be competitive globally for a very limited number of products.

What Needs to Be Done

• What is holding NZ back is not lack of opportunities, but lack of capabilities onshore.
• Business capability is important for market entry. At present, 150 companies account for 90% of exports.
• NZTE builds support and offers grants by categorising firms; some not ready to export. Different toolkits are on offer.
• EDAs and NZTE are already working closely together, with the latter contracting out some services. Some EDAs are well advanced.
• Local authorities need to be committed but level of commitment varies across NZ. NZTE is looking to influence.

The Role of EDAs, Councils and Sister-City Relationships

• Cities can play key roles because of their networks, but there is a gap in terms of how sister city relationships are used to build business relationships.
• Sister city relationships are often not sustained, they are one-offs. One key task is therefore for EDAs to define a long-term strategy.
• Sister cities are not well used, because NZ doesn't understand potential leverage: important people in sister city relationships often have key links to government
• Central government acknowledgement that EDAs have a lead role for developing these relationships would be helpful, as this would provide political backing.
• Many ratepayers do not see building international strategies as a priority. Explaining that social benefits will flow from economic progress is a way to make councils focus more on economics.
• We need to define what the comparative advantage of sister city relationships are - it is relationships.