Launch of the Forest Industries Council Study into the Effects of Reform and Liberalisation

  • Lockwood Smith
International Trade

Turnbull House
Bowen Street

It's a real pleasure to participate in the launch of this study.

At the outset, I'd like to thank the Forest Industries Council for taking this initiative.

Earlier this year, as part of the APEC process, we held a seminar in Auckland called "Bridging the Gap".

The seminar's objective was to consider how we could more effectively communicate the benefits of trade liberalisation.

The seminar and its conclusions were very valuable.

Participants agreed that the nature of trade liberalisation posed real challenges to those responsible for communicating it's benefits, because, while the costs of liberalisation are concentrated and highly visible, the benefits are more diffuse, and harder to identify.

Take the recent decision to remove tariffs from imported cars, as an example. The Government didn't make this decision lightly.

In terms of national economic benefit, it would have been more efficient to send each person employed within the industry on holiday forever, and pay them the equivalent of the Prime Minister's salary for the rest of their working lives rather than maintain the tariff barrier and pay the costs of expensive motor vehicles.

Clearly, something had to be done.

The removal of tariffs resulted in the loss of 312 jobs in Thames alone, and you'll remember the high profile coverage that received.

Now I don't want to belittle these people's experience. Losing a job is traumatic, and one of the seminar's conclusions was that as Governments, we have to do better at helping people adjust to change, and re-enter the employment market.

But within a year, less than 10 percent - 30 of the original 312 - remained unemployed.

As a result of this decision, new and better jobs have been created, and the benefits are certainly not limited to Thames.

This is part of the challenge - the new jobs are spread throughout the economy, and it's much harder to demonstrate these benefits.

We can count the new jobs, but it's nearly impossible to prove the linkage between trade liberalisation and those new opportunities.

This means that it's difficult to communicate the benefits of liberalisation to a constituency which is sceptical of the liberalisation process.

And that's the value of this report. The Forest Industries Council, which participated in that APEC seminar, has accepted responsibility to apply its own funds to examine what has driven its growth over the past 15 years, and what will determine its future growth as we move into the next millennium.

It's an initiative that I challenge other industries to follow.

And the report contains many positive messages.

Since 1984, New Zealand's trade in forest products has increased by 400% to $2.6 billion.

The industry's contribution to total merchandise trade has increased from 7.8% to 13.1%.

And as we've heard, the recent levelling of the growth trend has been caused by external market conditions - not an erosion of competitiveness.

And the latest statistics just released show that the industry is back on track with strong export growth in the last couple of months.

But although the industry is internationally competitive, in order to maintain its growth, it's clear that we must actively pursue the reduction and removal of barriers to trade in our offshore markets.

Over the past fifteen years, the real growth has occurred because of low import tariffs for forest commodities in key offshore markets.

And although selling 15 cent seedlings as $150 logs a few years later is good business, the real money, and the additional jobs for New Zealanders, lies in controlling more of the value chain.

We know that milling, processing, and manufacturing products is where the smart money lies, but we can't exploit this while our industry faces tariff barriers in the 30 to 50 percent range, as it currently does, for value added products.

The fact that our industry's productivity and wood recovery rates are internationally competitive doesn't particularly matter when high tariff barriers raise the cost of value added products to levels that preclude market penetration.

It's also important to address non-tariff measures, which distort trade and investment.

Factors like building codes, product standards and subsidised wood fibre all constitute barriers to our industry's success in international markets.

It's clear that in order to maintain it's contribution to the economy, the industry needs to compete in value-added product, and to do this, we need to break down barriers to those higher value products.

New Zealand is doing this through a number of fora.

On a bilateral level, it's no secret that New Zealand is interested in advancing free trade agreements with any economy, provided that any agreement is consistent with WTO principles.

There's some exciting possibilities in this area, and all I can say is, "watch this space".

On a regional level, APEC has advanced liberalisation in the forest products industry.

James and the Forest Industries Council worked closely with the Ministry of Foreign Affairs and Trade to develop the APEC EVSL package, which would see tariffs on forest products removed by 2004.

Unfortunately, the United States could not implement the package without "critical mass", meaning that they needed about 85% of global trade to participate before they could legally ratify the package.

Neither could Japan without negotiation at the WTO.

APEC Leaders therefore agreed to send the package, renamed as Accelerated Tariff Liberalisation, to the WTO for negotiations.

We've already had interest from other WTO members, and we're hopeful of advancing this work as we enter the next WTO round.

Globally, New Zealand is an active member of the World Trade Organisation.

We're also members of a small group, the "Friends of the New Round", which is helping to shape the agenda for the next round of trade negotiations.

Through APEC, New Zealand has this year also had a significant impact on shaping the agenda for Seattle.

In June, APEC Trade Ministers urged the WTO to launch negotiations to liberalise trade in Industrials, which includes forest products.

We're also considering how we can gain early implementation of the ATL package through the WTO system, and Ministers will be discussing this issue later this week during the APEC meetings.

On non-tariff measures, APEC has commissioned a region-wide study on these issues.

Forest Research won the international tender to undertake this research, which will be also considered by Trade Ministers in Auckland later this week.

The Forest Industries Council report shows why this work is so important.

Currently, we've got a very competitive industry here in New Zealand.

But it's constrained from reaching its full potential because it simply can't compete over the top of the extremely high tariffs for value added products.

Until these barriers are reduced or removed, we won't see the new investment in processing, manufacturing, and value-adding for the forest products industry that we need to create more jobs, and a higher standard of living for all New Zealanders.

Until those barriers go we remain trapped in commodity trade, exporting raw logs.

I'm totally committed to advancing this work. At APEC later this week, we're aiming for very ambitious outcomes in relation to the organisation's linkage to the WTO.

Advancing the APEC ATL package, bilateral developments and the WTO negotiations will all be crucial for this industry, which has the potential to generate additional jobs, and valuable foreign exchange for the benefit of all New Zealanders.

You are an dynamic industry. You are poised for extraordinary success.