Monday, April 28, 2008/
A great trade alliance goes into battle for the Anzac economies. TIM HARCOURT Anzac Day is always a special time for Australia and New Zealand. It is part of our shared history of sacrifice and the Gallipoli landings signified a coming of age for both of us as nations.
Since the beginning, Australians and New Zealanders have often joined forces for our mutual protection and most Australians are proud of New Zealand’s achievements (the outpouring of grief and respect for Sir Edmund Hillary on his passing is evidence of that) and feel their pain if there’s a catastrophe or setback in New Zealand (such as the recent tragedy involving North Island school children on a nature excursion).
But this year we also can reflect on an anniversary of a different sort. This year is the 25th anniversary of the Closer Economic Relations (CER) trade pact between Australian and New Zealand.
The CER – signed in 1983 – was the first free trade agreement of its kind in the world (in fact it was the first “NAFTA”, the New Zealand Australia Free Trade Agreement, and was well in place before the North Americans even began talking about their trade pact) and is considered a model for dismantling trade barriers and harmonising regulations between two economies. As a result, Australia and New Zealand are now more economically dependent than ever before and in some ways we operate as a trans-Tasman market on both sides of the ditch.
Has CER been successful? Well, there’s no doubt from a trade point of view that CER has delivered. From Australia’s side there have been huge gains in trade under CER. Australian exports to New Zealand were $1.6 billion in 1982 now over $12.7 billion (achieving an annual average growth rate of over 9% growth in exports per year). New Zealand ranks as Australia’s fifth most important market in terms of trade, sixth in terms of exports and 10th in terms of imports.
CER has also given Australian small businesses a chance to export by getting their training wheels on in the New Zealand market before taking on Asia and the rest. According to Austrade research, over 17,800 Australian companies now export goods to New Zealand alone, and the land of the long white cloud is number one in terms of small and medium sized enterprises (SMEs) with more than 35% of all Australian exporting SMEs selling across the ditch. New Zealand is also a major foreign investor in Australia, ranking sixth in terms of foreign investment and number eight in terms of foreign direct investment.
That’s all very well for Australia, but has CER delivered for the Kiwis? Many businesses attest that it has. It is said in New Zealand business circles that before CER you had to get Cabinet approval in Wellington to import a case of frozen peas from Australia. The data certainly bear out a strong relationship with Australia. According to Scott McHardy, Economic Counsellor with the New Zealand High Commission, “trans-Tasman trade has grown at an average of 9% a year under CER, whilst New Zealand trade in general has grown by around 6.3% over this period”.
As a result, Australia is New Zealand’s number one export destination and import source accounting for 22% of all Kiwi exports and almost 21% of all imports to NZ.
So that’s the economic data, but how about in terms of real business successes? According to Tim Green, Trade Commissioner in Sydney for New Zealand Trade and Enterprise: “CER has effectively created a single regional domestic market five times the size of the NZ market by itself.”
Green points to great success stories such as: “New Zealand now boasts the number-one selling white wine in Australia in Oyster Bay, Fonterra processes over 20% of Australia’s milk and there are many familiar New Zealand brands in Australia such as Mainland Cheese & Butter, Bega dairy products and Regal Salmon,” he says.
Without wishing to inflame a trans-Tasman fashion war, Green points out the success of NZ clothing brands in Australia: “There’s Karen Walker, Trelise Cooper, Kate Sylvester, Zambesi, Rodd & Gunn and of course Canterbury that provides the Wallabies with their rugby jerseys to make them look good!” he says.
And given the Anzac flavour to this last weekend, Green points out the strong defence trade ties between Australia and New Zealand. “New Zealand-owned manufacturing and engineering companies are also responsible for maintaining the engines in the Royal Australian Airforce’s fleet of F1-11 combat aircraft and on a number of Australian Navy vessels,” he explains.
Michael Crawford, Australia’s Senior Trade Commissioner and Consul-General in Auckland, says CER has given new exporters a leg-up into exporting. “New Zealand is a strong market for Australian businesses of all shapes and sizes from major blue chip corporates to SMEs. But for first-timers in rural and regional Australia, the CER has allowed many local businesses to go global for the first time. This has been very important for wages and employment prospects in regional Australian economies,” he says.
The classic case is Ducats, a Shepparton-based milk-processing manufacturer that started selling ice creams to Dunedin in 2002 after 83 years of Australia-only sales. Ducats may not quite be selling ice to the South Pole but Dunedin is almost the last tram stop before Antarctica – except for Invercargill and the Auckland Islands.
Other Australian exporters to do well in New Zealand include Attaché, an accounting software exporter, and supermarket company Foodland. There have been joint ventures in professional services (such as Minter Ellisons and Rudd, Watts and Stone in setting up ANZ LAW and the Commonwealth Bank forming an alliance with New Zealand bank ASB).
Even old Wallabies get in on the act. Former Wallaby Barry Honan established Brisbane-based Digisport, a sports multi media training company. Using Austrade’s education programs, Digisport selected New Zealand as its first market through a distribution arrangement with Roadshow NZ.
Crawford’s own experience running Business Club Australia (BCA) at the Rugby World Cup in 2003 and the Commonwealth Games in 2006 has been an asset in Auckland. “We all know that New Zealand is rugby mad so we use the major events such as the Bledisloe Cup to get business people together to forge potential trade and investment deals. The trans-Tasman sporting relationship helps to forge ties and there’s plenty of commercial spin-off. The BCA program in Beijing is based on the success we’ve had with these events,” he says.
In fact, there’s talk that the trans-Tasman rivalry may be extended to Turkey with as special sporting event based mainly on football to commemorate Anzac Day and the Gallipoli landings (but that’s another story).
Despite all the trans-Tasman rivalry, trade experts are keen to point out that the CER has facilitated as much collaboration as competition between Australia and New Zealand. There’s been a sort of “Russell Crowe” trade effect with Australia and New Zealand combining together using the CER as a springboard for an Australasian push into the rest of the world.
As Green points out, the single Australasian market has enabled New Zealand companies to create businesses of greater scale, from which they can expand more successfully elsewhere in the world, with Nuplex, Pumpkin Patch and Heinz-Watties being classic examples.
According to Green, the single Australasian market under CER has fostered “Anzac partnerships” in a number of areas, including: PGG Wrightson Genomics and the Australian Molecular Plant Breeding CRC, which are jointly developing new grass varieties to reduce gas (and therefore methane emissions) made by cattle; and New Zealand’s BioPacific Ventures providing funding for Australian company Horizon Science, developers of the world’s first low-GI sugar.
Then there’s the New Zealand Government and Solid Energy (state owned coal exporter) partnering with Australian organisations on the C02CRC’s multi-million dollar geosequestration project, and the Australia-New Zealand Biotech Partnership Fund, whereby New Zealand companies are encouraged through grant funding to partner with Australian firms to commercialise high-value research to promote “Australasia” as the world’s fifth largest biotech hub.
So in conclusion, we can celebrate the fact that Australia and New Zealand have many shared successes that we can both be proud of. Like Phar Lap, Fred Hollows, Sam Neill, Russell Crowe, many great Australian successes have New Zealand origins and in a way, they are great Australasian exports. So we should celebrate our Australasian successes just as we both celebrate the importance of Anzac Day.
Gains from trade – what did CER give both economies?
- Huge gains in trade – Australian exports to New Zealand were $1.6 billion in 1982 now over $12.7 billion (over 9% average growth in exports per year).
- NZ ranks as Australia’s number five most important market in terms of trade, number six in terms of exports and number 10 in terms of imports.
- 17,800 companies export goods to NZ alone, and NZ is number one in terms of small and medium enterprises (SMEs) – over 35% of all Australian exporting SMEs sell across the ditch.
- NZ is number six in terms of foreign investment, number eight in terms of FDI.
- Australia is NZ number one export destination and import source accounting for 22% of all Kiwi exports and almost 21% of all imports to NZ.
Tim Harcourt is Chief Economist of the Australian Trade Commission and the author of Beyond Our Shores and The Airport Economist. See: www.austrade.gov.au/economistscorner
By chance, Tim is also distantly related to the late Sir Edmund Hillary but he has only climbed mountains of trade data in his career.
Thanks are due to Scott McHardy, Tim Green, Jenny Graham and Frank Bingham for their help with this article.
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