Is Auckland stuck in second gear with China?

A question for my friend and incoming Auckland mayor Phil Goff:  How will you lift the city’s economic relationship with China?

One in 12 Aucklanders now identifies as Chinese; it is the country’s commercial capital and the gateway for Chinese visitors, students and merchandise trade.  But we are some way from realising the full potential on the economic side.  For a city with such a close cultural connection with China, we risk missing huge opportunities in markets from financial services to film, tourism and technology.

Last week the Committee for Auckland released a timely new stock-take of the city’s links with China across five vectors: trade, investment, tourism, education and migration.

The report attempts to set the record straight about what works and what needs still to be done.  It should be required reading for the new Mayor’s economic team.

To put it more simply, Auckland needs to target the premium layer of high value added activity that will drive Auckland’s economic development.  So how do we make this happen?

To begin with, Auckland needs to make greater headway growing trade revenue from higher value exports where the city holds a natural advantage, such as financial and business services, niche manufacturing and technology.  These are challenging areas to grow, and Auckland’s strategic direction for trade clearly needs more development.

We also need to need to raise Auckland’s profile among investors.  Chinese investment in New Zealand is low at just $7 billion, The largest investments to date have been in infrastructure and facilities, but it is the primary and food processing sectors that perhaps holds greatest attraction.  Auckland has an acute need for foreign capital to achieve its growth goals, and we should be thinking more proactively about how to attract Chinese investment in key projects.  There are still too many anecdotal stories of Chinese investors finding little to attract them in Auckland.

For a city that prides itself as one of the world’s most liveable, Auckland could do better at getting Chinese tourists to spend more time here.  If Queenstown remains the jewel in New Zealand’s adventure tourism crown, surely Auckland can become the destination of choice for tourists looking for water based activities, cultural experiences or our natural environment while staying close to high quality accommodation and shopping.  More hotels and more attractions can only come with investment and with facilitated approval processes.

We’re far and away the centre for export education. Some 70% of recent tertiary enrolments from Chinese students are in Auckland.  Yet there is still a perception that Auckland can be an unfriendly and unwelcoming place to live and study.  The number of Aucklanders travelling to China to study is also too low.

Finally, Auckland must be a place that migrants from China, and elsewhere, can readily call home.  Sadly, many face ingrained attitudes and prejudices that make settling a challenge.  The housing debate too often fixates on the impact of Chinese immigration on house prices rather than the broader economic potential of our relationship with China and the contribution migrants make to the city. This needs to change- quickly.

In short, Auckland has a huge stake in a successful relationship with China.  If we want to build a prosperous, dynamic, internationally connected and enterprise-friendly city, we must recognise that a richer relationship with China is a key engine that will drive this.

(Published in the New Zealand Herald online edition, 12 October).

A Trade policy for our times

The Government’s “refresh” of its Trade Policy Strategy is both timely and appropriate.  Hopefully it will prove substantive as well.

The existing strategy coined a generation ago by former Trade Minister Tim Groser, while still an MFAT official, has served New Zealand well.  It saw in the successful conclusion of the Uruguay Round, the inauguration of the World Trade Organisation (WTO) and led to the negotiation of a suite of high quality FTAs, including the as yet unratified Trans Pacific Partnership (TPP).

The world looks vastly different today, but no less uncertain.  Back then it was unknown whether the Uruguay Round would be concluded.  Today we face the same uncertainty with TPP.  Back then we were worried about rising protectionism and being excluded from new trading blocs.  What’s new?

In the interim business has changed profoundly.  Global value chains are transforming business models. Products are no longer made in one country and shipped to another in finished form but made “in the world” in multiple jurisdictions. Trade in services is growing faster than trade in goods, and has done so for the last decade.

The challenges faced by business today are also different.  There is still the urgent, unfinished business of tariff elimination especially for agricultural goods.  Even if TPP is enacted the NZ dairy industry will have duty free access only to around 13 percent of global consumption. Beef also faces ongoing barriers.  TPP delivers duty free access for most other products including horticulture and wine, but sanitary, phytosanitary and other technical barriers to trade routinely arise.

Non-tariff barriers are the highest priority for our agricultural producers as well as for manufacturers and the forest industry.  The needs of other industries are also becoming more prominent.  New priorities include improved conditions for a new generation of services industries, better conditions for outward and inward foreign investment, new rules for the digital economy and e-commerce and new ways of fostering innovation.   SMEs have long complained they find it hard to take advantage of new market openings.  New Zealand’s fast moving technology and creative sectors also want in.  There are new pressures for a better integration of environmental and labour disciplines in trade agreements.

The existing Trade Policy Strategy established a number of “tracks” for achieving better outcomes for New Zealand – the unilateral track focused on domestic reform; the multilateral track established primacy for the GATT and its successor the WTO; the bilateral track targeted individual countries with a focus on Asia, although with the mantra “Asia first, not first and last”; the regional track looked forward to the establishment of a new Asia Pacific Community derived from APEC.

This “multi-track” approach remains relevant.  But here too things have changed.  New Zealand now has FTAs with all the Asian economies except Japan, which would be delivered by TPP, and India, where our negotiation for a new FTA is languishing.  The three amigos of NAFTA – the US, Canada and Mexico – are also covered by TPP.  Outside the Asia Pacific we are making progress with the EU and may succeed in launching a negotiation next year.  Once the UK leaves the EU, we may have another willing partner, though this is likely to take some time.  A refreshed strategy could usefully help identify who our new partners for high quality FTAs might be – if not by naming them, then at least establishing some criteria about how to recognise them, including by considering regions of potential trade growth rather than simply looking to current trade flows.

The new strategy could also address the current situation of the WTO and offer some thinking about how its role as trade liberalising body can be strengthened even while it retains centrality as the holder of global trade rules and settler of disputes.

The big unknown remains TPP and the outlook for ratification in the US.  President Obama hopes TPP can be ratified in the lame duck session of Congress; if not, then the options are bleak.  The incoming President could declare TPP dead and buried, thereby turning her/his back on generations of American leadership on trade.  Or s/he could initiate a re-negotiation, which will be far from easy and will take considerable time.  Or TPP could be adopted, possibly after some ritual face-saving, by the new Congress.  Hope springs eternal in trade policy.

If we have learnt anything about the fractious debate about TPP, it is surely that we have to do more to explain the benefits of trade and investment to a sceptical public.  Those benefits include jobs and livelihoods, a richer variety of goods and services, and new opportunities at all levels.  Yet clearly we have to make trade work even better for people, especially those who face the challenges of adjustment.  That means more and better structures for consultation, more openness where possible, more involvement by business and other stakeholders, and, where justified, carefully-crafted policy approaches that moderate the risks of that adjustment.

Trade Minister Todd McClay has made a good start by holding public meetings about the strategy around the country. Hopefully these are occasions for listening as well as talking.  The times require a new strategy to respond both to the new demands of business and also the public disquiet about the pace and extent of globalisation. That requires more than just a tweaking of what’s there already.

(Published by the Dominion Post, 4 October 2016)