McClay Todd: Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill — Second ReadingText is incorporated into the Bound VolumeMcClay Todd: Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill — Second Reading[Sitting date: 10 September 2015. Volume:708;Page:6565. Text is incorporated into the Bound Volume.]Hon TODD McCLAY (Acting Minister of Trade): I move That the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill be now read a second time. I would like to thank the Foreign Affairs Defence and Trade Committee for its consideration of this bill and the good work that it did not only in consulting with the public on the earlier draft of the national impact assessment but also in the detail of this legislation.This is an extremely important piece of legislation for the House and for the country because it amends New Zealand law to implement our obligations under this free-trade agreement. It is a free-trade agreement that will help to level the playing field for so many New Zealand producers and exporters to Korea who work very hard to send goods there and are at a disadvantage because of tariff barriers that are in place when their goods arrive at the border in Korea. But more than that they are at a disadvantage compared with some of the countries that we compete with for production of these goods that also export to Korea. That is whysuccessive Governments—and I hope the bipartisan approach of good trade policy to help New Zealand business and industry is still shared by parties across the House—have worked so hard in this area: to level the playing field for hard-working diligent New Zealand companies and of course the people who work for them.So the bill will particularly amend the Tariff Act 1988 and will add the Republic of Korea to the list of preferential countries that we trade within note 3 of the Tariff. It also provides transitional safeguard mechanisms contained within the trade remedies chapter of the free-trade agreement so that they are applied appropriately under the circumstances.I want to touch on just a few of the issues I think are important in this bill at least in the agreement and what the bill will implement. The first is this: why is Korea important for us? Well it is our sixth-largest export destination for goods and services and our eighth-largest import source of goods and services. Two-way trade between New Zealand and Korea in 2014 stood at $4.5 billion. That is significant for New Zealand and New Zealand businesses.The free-trade agreement is a significant development in our bilateral relationship with Korea and what this does is it means that New Zealand companies are able to sell more produce to Korea and more goods and more services to Korea. They become more productive. These barriers that some around the world have when we look at the restriction of trade when it comes to tariffs we would say restrict trade. Traditionally when we look at the evolution of trade around the world that is what they were there for.Many years ago the significant barriers that were in place with the European Union were to protect local industry which we know can stifle innovation and to restrict access for goods from others who produce well as New Zealand does. Well this levels that playing field as far as our relationship with Korea goes.New Zealand exports currently are constrained by these tariff barriers. Without the agreement in the Korean market our exporters currently pay approximately $229 million of duties every year—$229 million of duties on our goods that go into Korea. None of that is returned to the New Zealand economy or these New Zealand businesses. So on entry into force of this agreement duty-free access will be bound in and tariffs eliminated on approximately 48.3 percent of exports. That is a saving of $65 million in duty in the first 12 months alone. In the first 12 months of the entry into force of this agreement negotiated by Minister Groser with Korea $65 million of duty will be reduced. That makes our producers more competitive; that makes them more productive; that returns more to them to invest in their businesses and to invest in their workforce.Under the agreement approximately 98 percent of tariffs on New Zealand’s current exports to Korea will be progressively eliminated. That means 98 percent of what we currently export to Korea will go in without a tariff upon it—without any barrier around cost when it arrives there. Extremely important—but that is only what we export at the moment. As you will see with other free-trade agreements particularly the China agreement—under that agreement our trade with China has grown significantly. Under the economic agreement that has been put in place with Taiwan we have seen our trade grow significantly—and $4.5 billion of trade with Korea is already significant. I expect with this free-trade agreement entering into force we will see trade from New Zealand to Korea also grow significantly.There is one aspect of trade agreements that is not often spoken of and that is what happens when you do not have one. Let us take the situation with Korea where others have entered into an agreement with Korea before we have. What this means is we still have the same access and the same relationship but some of these goods that we compete against actually get in there at a preferential rate compared with New Zealand. What that means is we end up competing on a platform that is less than fair. It means our access is eroded because of the preference of others.It is as simple as this: let us take the kiwifruit industry and their trade with Korea. Korea is a very important market for New Zealand kiwifruit. The kiwifruit industry has faced tariffs of about 48 percent from memory into that market. Other countries of the world—Chile for example from memory also produces kiwifruit—export there at a much lower rate. From memory it is around about 10 percent. So those countries have our producers in New Zealand at a disadvantage straight away. The cost of our kiwifruit when they get to the border is competitive but when the tariff rate is applied that competitiveness is no longer as obvious.Under this agreement we will see a significant reduction over a short period of time of the tariff rate against New Zealand kiwifruit to zero—right down to zero. At the same time for countries we compete with that also trade with Korea that will not be the case. So our producers now have an advantage over some of those others and that is a very good thing. That will be worth on average from memory $12500 per kiwifruit grower in New Zealand—cash in hand in respect of the erosion or the taking away of this tariff. So that is really important.But the main point I am making here is that actually without these free-trade agreements without us entering into them without us moving forward with them without us making sure that we remain competitive of two others when our competitors who are trading into markets that are important to us get a preference that we do not—for instance if there is an agreement that we do not sign but they do—then over time and it does not have to be a very long period of time our companies in New Zealand our producers are hampered. They are held back. Their trade is eroded based upon price. Well the good news here is that this agreement with Korea does not do that. In fact it goes in the other direction. It gives us some advantage.Finally I will speak on some of the substance of the agreement that this bill enacts through changes to legislation—a number of wide-ranging measures to help us to facilitate trade both in goods and services and to also assist with investment flows and to encourage cooperation in areas that we must work in together.Investment flows in both directions. So the first around this is that there are improved rules of origin—sanitary and phytosanitary rules are very important for agricultural production in New Zealand—our recognition of standards technical regulations and customs procedures. Procedures—these are not tariffs but these are all barriers that can have the same effect as a tariff. If it makes access more difficult it puts cost upon New Zealand businesses. So us moving forward with this is a good thing for New Zealand.The agreement includes a modern high-quality services framework and commitments that will mean greater service opportunities in both countries. I think there are a number of very good New Zealand businesses that can take advantage of that. A most favoured nations provision means that should Korea give better treatment to other similar nations it must also extend that to us so that is in as far as negotiations that others will have in the future a very large degree of futureproofing.The agreement also includes commitments to facilitate the movement of business people between New Zealand and Korea. I think that is another important aspect. It is often overlooked in new modern responsive free-trade agreements and their negotiation. It is actually not just about tariff lineany longer; it is about facilitating business and giving New Zealanders better treatment when they go into other countries.I will finish by saying that we are a very fair nation. We do not have that many tariffs in place for goods that come into New Zealand. But we are a country of very able producers. We are a country of traders. As a Government and with other members of this House we need to make sure that we look at the very best way to ensure these great producers and traders in New Zealand have at least the best chance at a level playing field in other parts of the world. There are still far too many countries that have significant barriers in place that we view as unreasonable and unfair. That is the reason I commend this bill to the House and this free-trade agreement which is good for New Zealand. Thank you.