Bridges Weekly Trade News Digest • Volume 13 • Number 22 • 17th June 2009

WTO Praises New Zealand’s Economic Policies, with Some Caveats

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Volume 13 Number 22 PDF • 0.2 MB

New Zealand has achieved one of the world’s most open economies due to its “prudent macroeconomic policies,” but the country should work to boost productivity and decrease its reliance on foreign borrowing, according to the WTO’s most recent Trade Policy Review (TPR) conducted on 10 and 12 June. As a result of its continued liberalisation and restructuring, New Zealand has enjoyed GDP growth averaging 3.2 percent over the past six years.

In the six years since its last WTO review, New Zealand has reduced or eliminated many of its already low tariffs, particularly on agricultural products. The country has also limited its use of non-tariff barriers to trade in plant and animal products that raise health concerns.

The WTO concluded that New Zealand’s economic fundamentals have remained sound since its last TPR, but recommended that the country address setbacks such as low labour productivity and over-reliance on foreign borrowing in order to achieve sustained growth. The WTO also forecasted that New Zealand’s GDP growth will slow this fiscal year due to the global economic downturn and encouraged New Zealand to address the recession with policy tools that will not compromise its long-term macroeconomic goals.

Labour productivity is still a problem for New Zealand, despite the fact that productivity grew 1.1 percent every year between 2000 and 2007. New Zealand lags behind the United States on this output measure by roughly 45 percent and has fallen 25 percent behind the group average for the Organisation for Economic Co-operation and Development (OECD). As a result, New Zealand’s standard of living is approximately 16 percent lower than that of other OECD countries. Despite this, New Zealand enjoys a “high human development” status, according to the UN Human Development Index, ranking 20th out of 179 in 2008. New Zealand’s government lists improving productivity as a priority.

The country has also seen a dramatic increase in its current account deficit. New Zealand’s deficit grew from NZ $ 6.7 billion (4.8 percent of GDP) in 2003/2004 to NZ $ 14.2 billion (8 percent of GDP) in 2007/2008, an increase of 112 percent. The WTO attributed the deficit growth to a rise in overseas borrowing, due to increased domestic consumption and a shortfall in domestic savings.

New Zealand has remained committed to the Doha Round of multilateral trade negotiations and believes that a successful conclusion of the talks “is a key component in the mix of global policy approaches needed to respond effectively to the global financial crisis,” according to the government’s report to the WTO Trade Policy Review Body.

In addition to Doha, New Zealand has pursued bilateral and plurilateral trade agreements with most of its major trading partners. New Zealand and Australia have one of the world’s most open trade agreements, and the two parties are committed to developing a single economic market (SEM). Australia is New Zealand’s largest trading partner.

New Zealand also has free trade agreements with China and the Association of Southeast Asian Nations (ASEAN) and is negotiating an expansion of the Trans-Pacific Strategic Economic Partnership Agreement to include the United States, Australia, Peru, and Vietnam.

ICTSD reporting.