1999: A Year Of Unique Opportunities For Waikato & New Zealand

  • Dr Lockwood Smith
International Trade

Waikato Chamber of Commerce & Industry Breakfast The Hamilton Club Hamilton

Most New Zealanders would agree with the statement that New Zealand is a trading nation.

But not everyone realises just how much more important trade is to New Zealand than to other developed economies.

Of every 10 dollars of New Zealand's national income - GDP - around three dollars comes from exports.

The OECD average is only around two dollars out of every ten.

That means exports are around 50% more important to our standard of living than to other developed economies.

And when it comes to our biggest export industry - agriculture - the difference is even greater.

Around 18% of our GDP comes from agricultural exports compared with only around 2% for the OECD average.

That means agricultural exports are around nine times more important to New Zealand than to the average developed economy.

Most New Zealanders probably also know that we face trade restrictions - they remember the drama of the old annual negotiations with the EU.

But, again, I'm not sure if everyone understands the full extent of the problem.

The Waikato has one of the best environments for producing milk anywhere in the world and some of the best dairy farmers.

You'd think that if the Dairy Board were doing its job, fancy cheese from Waikato would dominate all the fashionable delis across the United States.

Unfortunately, it's just a dream.

Trade restrictions mean we have access to just half of one percent of the US cheese market, and butter's no different.

The dairy product that might be sent to the richest market in the world instead gets sent to markets in the developing world.

But market access problems aren't restricted to dairying or even to agriculture.

Our manufacturing sector faces huge tariffs when seeking to export to the two most populous countries on Earth - China and India.

The number and scope of global trade restrictions are formidable, and our exporter's success should be seen in this context. Our export sector does a brilliant job in a difficult world.

1999 is the year we have our best chance ever to significantly reduce the trade restrictions faced by our exporters.

This year there's a unique convergence of events to push trade liberalisation:

the possibility of developing a Free Trade Agreement with the United States New Zealand chairing APEC The launch of World Trade Organisation negotiations to liberalise agricultural trade. I can't see three such promising developments ever again converging in just one year.

Since becoming Trade Minister I've been talking with my American counterpart about the concept of a Free Trade Agreement between our two countries.

Last month in Washington, the Prime Minister was encouraged by presidential-level support for the concept.

You may ask what the US could possibly have to gain from a Free Trade Agreement with an economy as small as ours.

The idea is to develop a new-generation agreement that could serve as a model for other free trade developments elsewhere in the world.

New Zealand is also exploring opportunities to involve other, like-minded economies.

Progressing the concept depends on the US Administration - the President - securing the necessary "fast-track" negotiating authority from the US Congress.

Without that, it really can't proceed.

"Fast-track" goes far beyond the relatively unimportant issue - in global terms - of a Free Trade Agreement between New Zealand and the United States.

Whether the President secures "fast-track" affects all other major trade policy developments around the world.

The passage of "fast-track" is almost a litmus test of whether the US Congress wants the US Administration to be able to continue to fulfil its leadership role in world trade developments.

If a New Zealand minister makes an international commitment, other countries can have confidence the deal will stick back home.

With the US, the Congress can re-litigate international agreements clause-by-clause and unravel them.

"Fast-track" stops that. It means the Congress can vote only "yes" or "no".

It means the rest of the world can have confidence when negotiating with the United States that any deal will stay together.

From his remarks in his State of the Union address, it is clear President Clinton sees securing "fast-track" as a major priority this year.

It would allow negotiations on a Free Trade Agreement to commence, and it would ensure much faster progress could be made at APEC and the World Trade Organisation.

It would put new impetus into world trade developments.

New Zealand chairing APEC is the second element of the unique convergence of events.

It's worth giving you a sense of the scale and scope of APEC.

Over one third of all the people in the world live in an APEC economy.

It involves 21 economies around the Pacific Rim, including the powerhouses of the United States, Russia, China and Japan.

It represents half of world production and half of world trade.

It involves an extraordinary diversity of people, language, culture and economic development.

Its programme is bold and ambitious.

It includes ambitious trade liberalisation work, of course, but it goes much further.

It's other two strands are trade facilitation and economic and technical cooperation.

There is extensive work on harmonising standards throughout the region to help facilitate trade.

There are initiatives to reduce paper work for people doing business and travelling in the region.

We are working on modernising Customs procedures.

This year we will conclude work on principles for free and fair government procurement.

APEC work is proceeding on competition policy and regulatory reform to help strengthen markets.

The Economic and Technical Cooperation - or ECOTECH - programme - is assisting developing economies to get maximum benefit from APEC.

As part of that programme, for example, APEC is helping Viet Nam develop its tax system. Indonesia and Thailand are developing bankruptcy laws, with APEC assistance. Across the region, there are 410 co-operative projects underway.

When you see extreme academics, professional protesters and student politicians marching against APEC, it's worth remembering that they are marching against these kinds of initiatives.

The work where I'm in the driving seat is of course the trade liberalisation work.

APEC's most well-known goal is free and open trade and investment by developed economies by 2010, and by 2020 for developing economies.

APEC's process towards the goal works largely as a matter of honour.

APEC Leaders publicly commit to a goal and then each economy works out the best way to achieve it.

Economies then record their intentions in Individual Action Plans and submit them for peer review.

It's a process which is delivering to our exporters.

Chile, for example, has recorded in its plan its intention to reduce applied tariffs across the board from 11% to 6% by 2003.

Indonesia has cut all tariffs on all food items to a maximum of 5%.

China has announced it will cut 5,700 industrial tariff lines to an average of 10.8% by 2005.

It will eliminate tariffs on 185 IT products by the same year.

All New Zealand's last-remaining tariffs go by 2006.

By the end of this year, the majority of APEC economies will have submitted their plans for peer review, including the two economic giants, the US and Japan.

And this year, we'll be undertaking a full scale assessment of how far the process has taken us towards our 2010/2020 free trade goals.

But, at the same time, we're moving ahead of those goals in certain sectors - what we call the Early Voluntary Sectoral Liberalisation (EVSL) programme.

Last year, we worked on nine sectors, two of which are major New Zealand export earners - forestry and fisheries.

The Asian Economic Crisis obviously made progress more difficult.

But, in the end, the package stayed together.

APEC showed it could continue to make progress even when times aren't so good. That was very important.

We set targets of zero tariffs by 2004 for forest products and by 2005 for fish products.

And we committed ourselves to working to finalise the deal at the World Trade Organisation this year.

That would make it a binding and enforceable agreement with participation beyond just APEC.

This year, attention at APEC turns to another six sectors for earlier liberalisation, including food - essentially horticultural products and some processed food products.

Another more comprehensive proposal, known as the APEC Food System, is also under consideration.

The APEC Food System was recommended by APEC's Business Advisory Council, and APEC Leaders last year requested it be studied in 1999.

In my view it is the perfect APEC initiative.

It picks up all three of APEC's pillars: trade liberalisation, trade facilitation and technical cooperation.

The benefits to New Zealand from the proposal are obvious: the freeing up of trade in food throughout the region.

But benefits would accrue to all APEC economies.

More efficient production and distribution of food is vital to meeting the needs of a region with a growing population.

I see it as a key step towards securing APEC's goals of security, stability and prosperity throughout the region.

Making progress on the food proposal this year would also set us up well take advantage of the third element of the unique convergence of events - the World Trade Organisation negotiations to liberalise agricultural trade.

For seven long years we all read about the Uruguay Round.

It was tremendously significant for New Zealand because it was the first time agriculture had been on the world trade agenda.

And there were huge benefits to New Zealand from the final agreement, estimated to be worth around $1.6 billion to New Zealand upon full implementation.

But because it was felt there was more progress to be made, it was also agreed that agriculture negotiations would resume before the end of 1999 at the World Trade Organisation.

That commitment has been kept, and the negotiations will be launched in the United States soon after the APEC Leaders' Meeting in Auckland.

Already, the Cairns Group is developing strategy for the negotiations.

In April last year, we settled on our joint vision for the negotiations.

We want trade in agricultural goods put on the same basis as trade in other goods.

We want to abolish tariff quotas and achieve deep cuts in tariffs.

Export subsidies we believe should be eliminated and prohibited.

Domestic support should be decoupled from production so we no longer see things like the EU wine lakes and butter mountains of the past.

We see this as a realistic agenda.

But we recognise that it is unlikely to be achieved in full without trade-offs with other economic sectors.

We're working to expand the agriculture negotiations into a full, comprehensive trade Round.

New Zealand is working with a group of WTO members called "Friends of the Round" for that very purpose.

I believe a Round is now almost a certainty.

The European Union has been a leading advocate.

President Clinton announced his support in his State of the Union address.

We now need to ensure that it does not become a seven year extravaganza like the Uruguay Round.

It needs to deliver solid, substantial results, and relatively quickly.

The Cairns Group strategy will seek to ensure that it does.

As businesspeople, you know that the problems our exporters face are immediate and real.

And I know that the solutions I'm working on can often sound slow and surreal.

But I do believe this year presents a unique opportunity to make real, measurable progress.

It will never arise again.

And I can even offer one guarantee: no stone will be left unturned by me or by my negotiators as we seek to progress developments as far and as fast as possible.