Getting Better Market Access for Forestry Products

  • Dr Lockwood Smith
Foreign Affairs and Trade

Te Papa: Museum of New Zealand Wellington

President Nick Roberts, CEO Rob McLagan, Ladies & Gentlemen.

It's great to have this opportunity to keep in close touch with an industry I admire greatly. I thoroughly enjoyed my nearly two years as Minister of Forestry, and I'm pleased that I can continue to work with you as Trade Minister on many of the most important issues facing the industry. The theme of your conference this year says something very positive about the forestry industry. After the year you've had, you could be forgiven for being a little negative. That you're looking firmly at the medium to long term - "Turning Potential Into Profit" - is to your credit.

It has been a tough year for the industry. Exports to your two key markets, Japan and Korea, are down more than a quarter. In those two markets alone, you've lost nearly $300 million in export receipts. Elsewhere, though, there was some progress. Exports to the US were up 25% to $170 million. To China, we saw a 26% increase to $41 million. In Hong Kong, it was a 32% increase to $64 million. India also looks like it might have potential. While exports to India during the June quarter were down, for the year they almost doubled. The net effect of all this is that the negative effects from Asian have been minimised as much as possible. Despite being down more than a quarter in your two key markets, across the board the decline has been 6% in the year to June - not good, but not totally disastrous as some would have us believe.

While you're down, you're far from out. Like you, I still have tremendous confidence in the future of the industry. And the important issues for turning potential into profit in the medium to long term have not changed. I'd say there are three main issues:

investment in processing
better market access, including environmental issues and
compliance costs which the Prime Minister discussed earlier today.
My speech last year was devoted almost entirely to the first issue: investment in processing. Optimists - and I have a policy of being one - suggest that investment in processing of between $4.5 billion and $6.5 billion could conceivably open the door to an extra 30,000 and jobs and up to $5 billion a year extra in foreign exchange receipts. It would make forestry by far our biggest export earner. Regardless of the strict accuracy of those figures, no one doubts that, with the radiata harvest set to increase 70%, new investment is required. No one disputes that new investment means new jobs. And I would hope that no one here disputes that some of the investment will come from New Zealand and some from overseas.

Last year, I discussed the OECD's proposed Multilateral Agreement on Investment, or, rather, the very dishonest campaign against it. In the following months, it became clear that the negotiations in Paris were not going as well as originally hoped. A good example was investment incentives. The New Zealand team believed that an agreement on investment needed to make progress towards preventing other economies from providing incentives like tax holidays. We weren't getting far. In April, New Zealand and others decided to call for a six month pause in negotiations, a pause which expires shortly. We're currently considering our position.

That call for a pause is not to say the Government is not committed to ensuring New Zealand continues to have a business environment conducive to job-creating investment from overseas. As the Prime Minister told you earlier, we will maintain the five pillars of our macroeconomic policy, and we will continue to improve the environment for business through initiatives like the progressive removal of tariffs announced last week.

Other initiatives are planned. Earlier today, I announced a study into a new scheme called Kiwi Innovation, which is part of our Policies for Progress programme. It's designed to encourage ordinary New Zealanders to invest in fledgling New Zealand business who may otherwise have difficulty raising the capital necessary to begin exporting. It is like a private sector venture capital scheme. And later this month, I expect to make further announcements under the Policies for Progress banner. One will involve encouraging greater overseas investment in New Zealand. We'll obviously seek your guidance as we develop the programme further.

The need for new investment in the industry is largely driven by the forecast increase in the harvest. But, of course, at the same time, we have our best chance ever to get much better access for higher value products into your key markets. I'm talking of APEC.

Since I addressed your conference last year, we have made more progress towards freeing up markets for forestry products than anyone would have expected. In Vancouver at the end of last year, you'll know that we achieved agreement by APEC leaders for forestry to be one of the first nine sectors for early liberalisation around the Pacific Rim. Along with fisheries, it was the first time a major international forum had agreed to free trade in primary products. That meant it had implications beyond the two industries.

The private sector played a very important role in getting the initial agreement in principle. When I arrived in Vancouver last November, I was advised we faced an uphill battle to put together a package of more than just a few sectors. New Zealand and likeminded economies persisted. What probably swung it was the input from the private sector. It meant we did end up with the more comprehensive package of nine sectors, designed to give each APEC economy some immediate benefit. For some of the Asian economies, that required courage and leadership given the onset of the Asian Economic Crisis.

Since then, the package has faced a rockier road than first hoped. I had hoped to get everything settled at the Trade Ministers' meeting in Kuching in June. We nearly got there. Economies with enormous difficulties like Korea, Thailand and Indonesia again showed courage in sticking with the package. We achieved near consensus on product coverage, timing and tariff rates. For forest products, the target is zero tariffs by 2004. But what flexibilities should be allowed was not resolved, given the concerns of one economy, Japan. It meant the deal could not be finalised at that time.

The critical meeting is now the APEC Summit in Kuala Lumpur next month. I predict it will go to the wire. We are going to have to accept that for some sensitive products in some developing economies there will need to be an extended phase out period for tariffs. Our objective will be to get the great bulk of APEC trade in forest products fully liberalised by 2004. We would want as few exceptions as possible after 2008. It would mean we would have achieved free trade in virtually all forest products by then.

The economic situation as we approach the APEC Kuala Lumpur meetings is far from ideal. But open markets have a vital role to play in the reinvigoration of economic growth and investment in the APEC region. The completion of the deal would be an important test of APEC's credibility. We are urging all APEC economies, including Japan, to make their maximum contribution to achieving this outcome.

If we are able to enhance APEC's credibility by completing the deal next month, New Zealand would want the initiative introduced onto the World Trade Organisation's agenda. The goal would then be global free trade in forest products.

You'll be aware that the WTO is to begin negotiations to liberalise trade in agriculture at the end of 1999, and in services in 2000. I expect those negotiations to be merged and expanded to become a full Round. Forest products, as potentially our biggest export earner in years to come, will obviously be a major priority for New Zealand. The Uruguay Round led to gains for New Zealand valued at $1.6 billion over five years, but the objective for this next round will be far more comprehensive. The ultimate goal will be free trade, pure and simple.

I take some personal satisfaction from the fact that we've been able to move ahead on these issues faster than I would have expected this time last year. But, again, it is the private sector which is pivotal. Your work, and the work of some of your competitors in other economies, through the APEC Business Advisory Council, is a major driving force behind these developments. It's difficult for politicians and bureaucrats to argue that a particular sector of their economy will be devastated by trade liberalisation if representatives from that sector are saying the opposite - in fact urging the process to go faster. You don't need to worry about lobbying me or the New Zealand Government. It is the work you can do with your industry counterparts in other economies that is of the utmost importance.

Right now, we have major problems with the United States' market. In July, the US District Court in San Francisco issued an injunction stopping the issue of new permits or the renewal or amendment of existing permits for the import of non tropical timber from New Zealand. New Zealand's view is that there is no justification for the injunction. A study of pest intercepts in the US between August 1995 and March 1998 shows no intercepts on logs and lumber from New Zealand. Our view is shared by the US Animal & Plant Health Inspection Service, an agency of the US Department of Agriculture.

We are now expecting a hearing to be held in early January 1999. Should the Court decide in favour of the plaintiffs, I expect that US APHIS would immediately appeal that decision, and apply to the court for the injunction to be lifted pending the hearing of the appeal. But even if the decision is the APHIS's favour, it is likely the plaintiffs will appeal. Either way, litigation could continue for years. Should litigation lead to changes in regulations for imports of New Zealand timber, we would obviously need to consider whether this would put the US outside of its international obligations.

The issue does underline the importance of maintaining impeccable credentials on environmental issues. Unsustainable logging of rimu in the South Island remains controversial, as do Timberland West Coast's sustainable beech plans released yesterday. The Government has a very clear policy that we are prepared to consider plans for sustainable harvesting of indigenous forests. But we are equally clear we want to end unsustainable logging as soon as possible. Apart from the obvious conservation issues, there is another very good reason why we see this as important.

We all know that consumers around the world are increasingly worried about environmental issues. Their governments are too, particularly following the Earth Summit in Rio in 1992. It is possible that key markets in the future will require eco-certification as a condition of access. That's not necessarily a bad thing for New Zealand. We have a good image in terms of our management of the environment. We're well placed to latch into green values. What's more, given that 90% of the global harvest comes from indigenous forests - much of it unsustainably harvested - we're well placed to fill the gap if this harvesting comes to an end. China has already been an example of that.

However, unquestionably, eco-certification would require guarantees that products come from wood which was sustainably harvested. That, in itself, is not a problem for us. But it may go further. It may well be that eco-certification would require that all forestry in the country of origin was sustainable.

At the governmental level, the Intergovernmental Forum on Forests is considering whether to work towards a legally binding convention on the sustainable management of forests. New Zealand is yet to be convinced that a compulsory convention is necessary, and I can assure you we would sign no agreement on any issue without detailed analysis of its implications. But were work to start on such a convention, even if it were voluntary, it is important we have leverage to ensure it is sensible. There are some in the world who are not convinced that even clearfelling of planted production forests is legitimate and environmentally sound.

New Zealand's international negotiating strategy is based on the fact that we are ahead of the game, be it in quota removals, tariff reductions or environmental issues. Being a small country, we have no inherent geopolitical strength. Our ability to introduce common sense into international negotiations comes from our ability to say "Yes. New Zealand agrees with that. We've done it already. And it has worked just fine." You have no idea how powerful that is. It allows us to achieve what New Zealand industry needs. It makes sense for us to remain ahead of the game, across the spectrum of issues.

Next week, I head off the India to seek better access for our forest products. Next month, it's APEC. And, next year, the focus will turn to New Zealand's chairmanship of APEC and the likely start of the WTO Round. I see myself very clearly as your minister, serving your interests at those international fora. I look forward to working with you as we take advantage of the best chance we've ever had to progress free trade internationally. Best wishes for the future.