New Zealand Institute of International Affairs Seminar

  • Dr Lockwood Smith
International Trade

A WTO Round has never been more clearly in sight.

The EU has been a strong supporter.

President Clinton has called on the nations of the world to gather in Seattle to liberalise trade.

The Friends of the Round group has been working behind the scenes since last year.

The G8 strongly reiterated its support last month.

Now, just yesterday, all 21 APEC economies announced that they wanted industrial products added to the mandated negotiations to liberalise trade in agriculture and services.

And officials will report to us in September on other priority issues.

We're ready to go, to further liberalise trade within a rules-based system.

The importance of a rules-based system for global trade - particularly to smaller countries such as New Zealand - can scarcely be exaggerated.

The rules state clearly what's allowed and what's not.

And the disputes settlement system ensures they can be enforced.

It enables the small guy - like New Zealand - to take on the biggest guy.

And if the international law and the science are on our side, we can win.

We can achieve a binding ruling that must be complied with.

Think of what a big change that is.

In the past, if we had a dispute with the EU, all we could do was appeal to the UK for help.

Now we can take the EU, or anyone else, to "court".

But a rules-based system that simply gave legality to a huge tangled web of subsidies and protectionism would not be enough.

We must look for a rules-based system which supports genuine free and open trade, globally, with appropriate provisions to protect biosecurity.

Subsidies and protection create two things long-term: poverty and war.

At the end of this century, we can look back at some of the best examples - I should say the worst - of that truth.

The rise of mercantilism was a major contributing factor to the 1930s Depression, and it made it worse.

And it was that Depression that contributed to the worst war in human history.

The notion of "me exporting good, you exporting bad" led to poverty and misery on an almost unimaginable scale in the second quarter of this century.

To some extent we learnt from that.

As a global mechanism, the GATT was established in 1948.

In Europe, there was the European Coal and Steel Community, which led to the EEC, which became the EC, which became the EU.

Closer to home, ASEAN was established in South East Asia in the 1960s.

Elsewhere, we are seeing other developments to achieve greater economic and political integration.

Who would ever have thought that those countries that 50 years ago were sending their sons to war, to defend their national sovereignty, are now willing to cede some elements of their sovereignty to a supranational organisation based in Brussels?

They did it initially to avoid another war.

They are building an ever-closer Union because they have learnt that greater economic integration is in the interests of all the people of Europe.

What we need to seek are those economic benefits on a global scale.

Comparative advantage is an indisputable law of economics.

I'll do what I'm good at. You do what you're good at. We'll trade, and we'll both be better off.

That leads to greater economic interdependence.

It builds greater people-to-people contact, and social understanding.

Both economic interdependence and social understanding lead to an ever more peaceful world.

To give meaning to those principles, this new Round is vital.

We're still a long way from our ideal.

Most countries still maintain subsidies and protection that - from a global perspective - are monstrously harmful to both general economic well-being and the environment.

The EU's Common Agricultural Policy is one of the best examples - again I should say the worst.

Swallowing an enormous proportion of the EU's entire Budget, the CAP encourages economically and environmentally harmful farming practices, and over-production.

So inefficient has the CAP made European agriculture, that the surplus product cannot be exported at the world market price.

That means the poor EU taxpayer has to fork out again for export subsidies.

But, worse, those subsidised exports mean that the developing world can't compete and therefore can't establish viable agriculture export industries.

It traps the people of the developing world in poverty.

In response to that poverty, the EU taxpayer is called upon again for aid funding.

And many Europeans - and others from very wealthy countries, such as New Zealand - also help fund private aid agencies out of their after-tax pay packets.

Would it not be better for Europe to produce what it is good at, as efficiently as possible, and allow millions of people in the developing world to take themselves out of poverty by producing and exporting agricultural products?

It is not just agriculture and it is not just Europe.

OECD research shows that across the developed world, approximately US$280 billion dollars is spent each year on agricultural support.

Many countries maintain high tariff peaks on selected industrials, while others have high general levels of tariffs, - including the two most populous nations on earth, China and India.

The US - the champion of free trade - protects many of its industries, including agriculture, and is considering the unwise and unjustified move of protecting its lamb industry from fair competition from New Zealand and Australia.

The new Trade Negotiations must address these issues - and solve them - and it must also take into account how global business is changing as a result of electronic commerce.

Without opening every package that came into a country, how could a country protect, say, its bookshops, if people are able to buy books over the Internet and have them posted anywhere in the world?

How could you protect your services industries in a electronically networked world?

I don't see that you can - not without Luddite measures against the Internet or grave attacks on freedom of speech and association.

It is important we use the Round to ensure the rules-based trading system is robust enough to allow for developments in technology, many of which we cannot yet imagine.

Another issue which may need to be considered is enforcement of WTO disputes panel decisions.

All these issues will present major challenges to negotiators.

The Round is not yet assured, but, as I said at the outset, it has never been more clearly in sight.

The EU, the US, the G8 and the Friends of the Round all support one.

And yesterday at APEC, I was able to announce that all 21 economies support adding industrial products to the mandated negotiations on agriculture and services.

We'll consider other sectors in September, and we want the negotiations to be complete in three years.

I see that as a global breakthrough, to have achieved such an agreed position from all 21 APEC economies, almost half of global trade.

I am almost certain that we will indeed launch the Round in Seattle in November.

To make significant progress, however, it is vital we build community support for trade liberalisation in every WTO member.

It is indisputable that trade liberalisation benefits those who liberalise, as well as their trading partners and the developing world.

But many people don't see that, and there are two reasons why.

It is a difficult communications challenge.

The adjustment costs of liberalisation are localised, visible and invariably, on the front page.

The far, far greater benefits are dispersed much more widely throughout economies and the world, and stuck in the business section, if they are in the newspaper at all.

It's easy to see a factory laying off a thousand workers.

It's difficult to see a thousand factories all employing two more people.

The second reason why people don't see the benefits of trade liberalisation is, frankly, poor communication by politicians and bureaucracies.

We talk to one another. We talk to the finance editors in the media. We try to talk to people, but we talk jargon. We fail to communicate.

What is needed is for us to research the economy-wide benefits of trade liberalisation and the specific benefits to industries and communities.

And then we need to be highly innovative in getting that information across.

It is not about releasing reports in capital cities, or ministers and experts giving speeches to one another.

It is about touching base with people's values and explaining the benefits of trade liberalisation in a way relevant to their experiences.

It is about finding new ways of doing that, using a range of creative strategies.

And trade policy experts are probably not the best people to be doing the communicating.

I see this communication issue as perhaps the most important of all.

I have seldom met a trade minister anywhere in the world who is not convinced of the benefits of trade liberalisation.

I don't believe in their heart of hearts that those US politicians who have been promoting tariffs on our lamb really believe protectionism is the right thing for their farming sector.

But in almost every economy, there is the political problem that people find the notion that trade liberalisation can be good for the liberaliser to be counter intuitive.

The new Round is on its way.

The governments of almost every WTO member recognise the benefits of trade liberalisation.

If we can address our communication problem, then I believe we can make progress to an extent we can scarcely imagine right now.

I look forward to hearing the results of your deliberations on these matters at this seminar.

I am pleased to open this important seminar. It could not be held at a more appropriate time.

I wish you all the best.