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New Zealand Economic and Financial Overview 2016

Principal Trading Partners

China: China overtook Australia in 2013 to become New Zealand's largest trading partner, with bilateral trade amounting to $17.9 billion in the year ended September 2015. A Free Trade Agreement between New Zealand and China commenced on 1 October 2008 when New Zealand became the first developed country to negotiate such an agreement with China. In the year to September 2015, exports to China comprised 17.6% of New Zealand's total exports, with the major categories being milk powder, logs, meat, wool and a wide range of other primary products. China supplied 19.8% of New Zealand's total imports, with the major categories being computers, telecommunications equipment, furniture and apparel.

Chinese demand for New Zealand commodity exports, especially dairy products and logs, has risen rapidly in recent years and has been a major factor supporting New Zealand's commodity prices and terms of trade. China is expected to become increasingly important for New Zealand in coming years. Despite an expected slowdown in China's rate of growth, the country's increasing industrialisation, urbanisation, rapidly growing incomes and increased dependence on consumption will mean that it requires more of the agricultural commodities that New Zealand produces.

Australia: Australia is New Zealand's second largest trading partner after China and held the number one position prior to 2013. In the year ended September 2015, two-way trade amounted to $14.4 billion, with Australia taking 17.0% of New Zealand's exports and supplying 11.9% of imports. Australia is New Zealand's top destination for overseas investment and New Zealand's largest source of foreign investment. As at March 2015, New Zealand had $55 billion invested in Australia, while Australia had $111 billion invested in New Zealand.

Trade with Australia has flourished under CER. CER is a series of agreements and arrangements governing bilateral trade and economic relations, built on the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) which took effect on 1 January 1983. Full free trade in goods was achieved on 1 July 1990, five years ahead of schedule. CER was extended to cover trade in almost all services from 1 January 1989. CER creates a market of more than 28 million people. It increases the effective size of New Zealand's domestic market more than five-fold and provides Australia with access to another market almost the size of Queensland.

The original ANZCERTA has been extended and added to as the relationship has developed. Other key aspects of CER now include mutual recognition of goods and occupations, a free labour market and joint agencies in certain regulatory areas.

Building on CER, successive New Zealand and Australian governments have committed to the long-term goal of establishing a seamless trans-Tasman business environment - the Single Economic Market (SEM). The SEM builds on the freer trans-Tasman trading environment created by CER by addressing "behind the border" barriers to flows of goods, services, capital and people through a broad range of initiatives. Ongoing work to coordinate Australian and New Zealand business law takes place within a Memorandum of Understanding. Both sides also coordinate banking regulation and supervision through the Trans-Tasman Council on Banking Supervision.

New Zealand's main exports to Australia include light crude oil, gold, wine, food preparations, cheese and timber, as well as a wide range of manufactured items, while New Zealand's main imports from Australia include aluminium oxide, motor vehicles, wheat, medicines and heavier crude oil, as well as a wide range of manufactured and consumer items.

United States: The US is New Zealand's third largest single trading partner with bilateral merchandise trade amounting to $11.7 billion in the year ended September 2015. Exports to the US comprised 11.8% of New Zealand's total exports, and the US also supplied 11.8% of New Zealand's total imports, the major categories being aircraft and parts, medical and veterinary instruments, motor vehicles and computers. New Zealand's major exports to the US are beef, dairy products (whey and casein), wine, lamb and a range of manufactured goods. The development of trade in dairy products has been constrained by long-standing quotas on these items.

Japan: Japan is New Zealand's fourth largest trading partner, with bilateral merchandise trade amounting to $6.1 billion in the year ended September 2015. Japan takes around 6.0% of total exports and accounts for a similar share of imports. Key exports to Japan include aluminium, dairy products, fruit and vegetables, forestry products, beef, lamb and seafood.

Japan is also a major supplier of New Zealand's imports, providing 6.3% of total imports in the year to September 2015. Imports from Japan are dominated by motor vehicles, trucks and mechanical equipment, petroleum products and a range of technology-intensive equipment and appliances.

The Republic of Korea: The Republic of Korea is New Zealand's fifth largest trading partner, with bilateral merchandise trade of $3.4 billion in the year to September 2015. New Zealand and the Republic of Korea completed negotiations for a free trade agreement covering both goods and services in November 2014. Major export products include beef and logs, while major imports include refined oil and motor vehicles.

European Union: Although trade with the members of the European Union (EU) has declined in value terms, taken as a bloc the Union would be New Zealand's fourth largest trading partner and is an important market for exports such as sheepmeat, fruit, wine and wool. Together, EU members take around 10% of goods exports (in value terms) and provide around 18% of imports (mainly motor vehicles, aircraft, medicines and a range of manufactured equipment). Bilateral goods trade amounted to $14.3 billion or 14.1% of total merchandise exports and imports. Services, particularly tourism, are also an important element of EU/New Zealand trade.

Other Asian economies: Other Asian economies are taking on more importance as New Zealand's trading partners. This is providing benefits to New Zealand as the area is one of the fastest growing in the world. While most of the developed world experienced a gradual recovery from the GFC, Asia provided significant demand for New Zealand's exports, especially commodities. Trade with the economies of Taiwan, Hong Kong, Malaysia, Indonesia, Singapore, Thailand, India and the Philippines is growing in importance. All are in the top 20 largest export markets for New Zealand and together account for around 12% of total exports.

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