New Zealand's Perspective on Agricultural Trade Liberalisation in the WTO

  • John Luxton
Food, Fibre, Biosecurity and Border Control

Guelph, Ontario

Introduction

I am very pleased to be here today to give a New Zealand perspective on agriculture liberalisation and the forthcoming agriculture negotiations in the WTO. While our principal exports are different, New Zealandand Canada are both important agricultural exporting nations. For us,the terms and conditions under which we can have access to other countries? markets for agriculture products - or whether we can at all - make a critical difference to our economies.

Unfortunately for us both, the barriers which many countries put up against imports of agricultural products are enormous. On a daily basis, we both face extraordinarily high tariffs, import administration systems that frustrate our trade, delays in approvals of our products and any number of other ingenious methods protectionist import regimes devise to impede our access and the achievement of fair returns toour producers. The action taken by North Dakota farmers in recent weeks is a case in point. While this action was not mandated by the Administration, it is a graphic example of what we are frequently up against in agricultural trade.

I am particularly pleased that this presentation is taking place in Guelph - in the heartland of Ontario agriculture and at a leading centre for agriculture research in Canada. Research is a key component inthe development of greater competitiveness in the agriculture sector. It is through high quality research and product development that producers in New Zealand and Canada have kept abreast of ever-changing consumer, government and societal demands. The products we produce and export today are qualitatively different to the products we produced last century.

I have been asked to give you a New Zealand perspective onthe forthcoming WTO agriculture negotiations. I would like to do that by first discussing where we have come from and what we have achieved so far. Then I will go on to talk about the deficiencies which remainand how we could address them.

Background: the GATT

The establishment of the GATT - the General Agreement on Tariffsand Trade - in 1948 heralded a new era of international trade. Successive rounds of tariff reductions - which have reduced average tariffs on industrials from 40% to 4% - and the banning of export subsidiesand import quotas on industrial goods have helped fuel an explosive growth in world trade and world output over the last 50 years.

Unfortunately, agriculture trade was not able to share in these benefits - or contribute to them to the extent it should have. Agriculturewas excluded from many GATT disciplines, enabling unfair and distortive trading practices to abound and increase. As industrial tariffs were coming down, most developed countries erected barriers - some insurmountable - to agricultural imports. Their prosperity grew, largely because of the relatively open trading system for their manufactured products, at the expense of agricultural economies particularily in the third world.

Hand in hand with trade barriers went lavish domestic price support policies. Farmers in the developed countries responded by producing unsaleable surpluses. To dispose of these surpluses on world markets governments had to provide further subsidies.

By 1992, total transfers to agriculture from consumers and taxpayers in the countries of the OECD amounted to an estimated US$354 billion.

Expenditure on this scale represented a massive mis-allocation ofthe world's productive resources. By generating surpluses it also depressed world market prices for agricultural exports and so stunted development of the world's poorer countries.

The policies operated also to the detriment of efficient agriculture producing countries and efficient agricultural exporters such asNew Zealand and Canada.

Over time, agricultural policies in the developed countries were becoming unsustainably expensive, in financial, political and might I say environmental terms. The economic costs of self-sufficiency were also becoming too obvious to ignore.

Uruguay Round

It is against this background that the Agreement on Agriculturewas negotiated as part of the Uruguay Round of WTO negotiations. That agreement was the first attempt at reform of international agricultural trade and domestic agriculture policies. For the first time, agriculture was to be fully integrated into an international system of rules and disciplines.

Let me recap briefly some of the key outcomes of the Uruguay Roundfor agriculture:

1 limits have been placed on the provision of export subsidiesand the volume of subsidised agricultural exports is being cut by 21 percent and budgetary expenditure by 36% from 1986-90 base levels;

2 non-tariff barriers have been converted to tariffs (ie ?tariffied?) and are being reduced by a minimum of 15% - 36% on average;

3 new minimum market access opportunities of 5% of domestic consumption are being opened;

4 limits have been placed on the amount of trade-distorting domestic support countries can provide and this limit is being cut by20% from 1986-88 levels; and

5 clear rules on the imposition of sanitary and phytosanitary (SPS) measures have been established, to ensure they are only imposed to the extent necessary to protect human, animal or plant health, according to objective scientific criteria.

These elements are mutually reinforcing: access opportunities would mean little if governments remained free to impose arbitrary SPS standards. Similarly, restrictions on export subsidies would be ineffectual if governments were free to compensate producers by providing unlimited internal support.

The question being asked by agricultural interests everywhere is:has the Uruguay Round been good for trade in agriculture products? I believe the answer to that is a resounding ?yes?.

By and large, implementation of agriculture commitments has been good.

In many cases pre-existing market access has been guaranteed bythe outcome and is no longer subject to the whim of politiciansand pressures from agriculture sector lobbyists in protectionist countries.

Additional access has been opened up in lucrative markets such as the EU and Japan through tariff quotas. In some cases, significant levels of trade is also occurring outside the tariff quotas.

Export subsidies have declined and the disciplines are genuinely constraining subsidised exports in areas such as the EU's cheese exports.

In negotiations on the accession of new members to the WTO, weare able to insist on good market access commitments and limit theuse of subsidies. For instance, China and Chinese Taipei have agreed that they will provide no export subsidies. We will be seekingthe same commitment from Russia.

As a result of the Uruguay Round, there is now a system of binding and compulsory dispute settlement. This is a major achievement: not only do we have rules for agriculture trade, but we havethe teeth to enforce those rules. Neither New Zealand nor Canadahas been slow in using these provisions to defend our respective agricultural interests in the face of protectionist actions taken by our trading partners. The Uruguay Round's Deficiencies

I said earlier that the Uruguay Round had been a resounding success. That does not mean it has been perfect - or that significant improvements are not required.

In fact, to New Zealand's way of thinking, the Uruguay Round made a good start but left just about everything unfinished. As Winston Churchill said in another context, it is not the end or even the beginning ofthe end, but it is the end of the beginning. Let me give some examples:

Export subsidies, although somewhat constrained, continueto disrupt world markets. World prices of some commoditiesare depressed, resulting in increasing pressures from some agriculture industries in some countries to expand the use of export subsidies, to the further detriment of unsubsidised exporters.

Government guaranteed export credits are not subject to effective disciplines, as negotiations in the OECD are no longer making progress. Lack of effective disciplines is allowing some countries to subsidise exports to countries hit by the financial crisis,and gain market share at the expense of non-subsidised exporters.

In many cases, tariffs have been set at artificially high levels. Tariffs of 300% or more are not uncommon - and at that level, trade is unlikely to flow in significant volumes. Greater relative distortions between agricultural sectors have been created bythe fact that tariffs in more highly protected sectors were generally reduced by less, and in some cases, access is being impeded by poor administration of tariff quotas and the imposition of additional duties in the form of the agriculture special safeguard on small, insignificant volumes of product.

Domestic support disciplines were arguably the weakest outcome from the Uruguay Round. The reductions were taken from high levelsand countries are not finding it difficult to continue subsidising farmers at very significant levels. Now it will come as no surprise to any of you I?m sure that I feel bound at this point to mention some of the difficulties New Zealand experiences in exporting to your market. Unfortunately some ofthe problems not sufficiently addressed in the Uruguay Round persist here in Canada.

The over 300 percent out-of-quota tariff I mentioned earlier currently applies to butter imports into Canada.

The arrangements for the administration of New Zealand's tiny butter quota which is placed entirely in the hands of the Canadian Dairy Commission are far from satisfactory.

And, as everyone here knows, New Zealand has taken a case against Canada in the WTO about the special milk classes regime which we contend is an export subsidy.

Lest you think all we care about is dairy, let me add that we have at various times expressed concern about management of the beef quota as well as other issues.

The point here is, I think, that it behoves agricultural exporting countries like New Zealand and Canada to set an example for the rest of the world to follow. As we in New Zealand have found in both agricultural and industrial sectors, reducing protectionism at home makes us stronger advocates for freer trade abroad.

The Next Steps

Fortunately, the Uruguay Round agriculture negotiators recognised that the agreement they had negotiated was only a start. They built in provisions for new negotiations, which are due to get under way bythe end of next year.

These agriculture negotiations will take place at the same time as negotiations in other areas. Further negotiations on servicesare mandated to commence at that time. It is likely that other issues will also be added to the negotiating agenda, resulting in a broad-based round of negotiations.

WTO Ministers, meeting in May this year, agreed to put in place a work programme to prepare for those negotiations. A meeting was held in Geneva just two weeks ago at which the preparations were begun.

New Zealand is supportive of a broad-based negotiation. We believe that such a negotiation would provide the scope for all WTO members to have their interests and concerns addressed - and allow for the sorts of trade-offs that would permit even greater liberalisation of agriculture trade.

In New Zealand's view, recent international economic developments provide an additional reason for pursuing further liberalisation through the WTO. Closing markets, restricting trade or increasing subsidies is a temptation for some in the current circumstances. But the last thing any country needs now is the choking off of their capacity to trade globally on a competitive basis. Indeed, we all need to work to ensure that the multilateral trading system allows economies to regain prosperity through trade.

New Zealand believes that WTO members must maintain the global trade liberalisation momentum, recognising the now compellingly demonstrated interdependence of our economies and the essential positive contribution of international trade to economic growth and development. With international trade increasing at three times the increasein production, it is untenable to insist on trade liberalisation selectively on the basis of any countries perceived comparative advantage. It has to be across the board as each economy has different strengths.

We need to continue to target the existing distortions by subsidy or trade restrictions across our economies. Each represents an additional cost to the internationally competitive parts of our respective economies.

Priorities for the Negotiations

So what are N ew Zealand's objectives for the next agriculture negotiations? In a nutshell, faster and deeper liberalisation of international agriculture trade, resulting in trade in agricultural goods being put on the same basis as trade in other goods. Thekey elements of this have been spelled out in the Cairns Group Vision, which Cairns Group Ministers adopted in April of this year.

Export subsidies: There is no justification for maintaining these. The Cairns Group regards it as essential that the forthcoming negotiations ensure the early, total elimination and prohibition ofall forms of these distortive and inequitable policies. Strong rules must also be put in place to prevent circumvention of export subsidy disciplines and government subsidisation of agricultural export credits should be ended. The outcome of export subsidies is essentially dumping which most economies actually outlaw in their own environment.

Market access: There should be a major expansion of market access opportunities for agricultural products, through deep cuts toall tariffs, including the very high ones - the so-called tariff peaks. Tariff escalation is setting tariffs to protect domestic agricultural processing sections. It should be removed. Trade volumes under tariff quotas must be increased substantially, and better rules on the administration of tariff quotas should be developed to ensure thatthe way in which they are administered does not diminish the value ofthe market access opportunities created. The highly excessive extra protection provided by the special agricultural safeguard must also be removed. In fact, market access should be placed on an escalating principle of increasing each year.

Domestic support: I mentioned before that these were the weakest outcomes from the Uruguay Round. Internal subsidies must therefore be dealt with more effectively this time round. Trade-distorting domestic support should be eliminated with only non-distorting forms of support permitted. Close attention will need to be paid to alternative support measures, to ensure that these are targeted, transparent and fully decoupled so that they do not distort production and trade. Thenow popular, though, frankly, meaningless term ?multifunctionality? mustnot be used as an excuse to subsidise agricultural producers. Domestic support needs to also be reduced each year. Measures in these three areas - market access, export subsidiesand domestic support - will form the backbone of the agriculture negotiations. But there are a number of other areas where certainlyNew Zealand - and we are sure other Cairns Group members - will be looking to ensure that measures are not introduced or adopted with the aim or effect of creating obstacles to agriculture trade. Securing market access commitments is of no practical benefit if other requirements effectively block access to the market.

Areas we will be looking at closely include:

any attempts to move away from a wholly science-based approach to SPS measures by incorporating so-called consumer concerns;

requirements being imposed in relation to approvals for biotechnology products which do not allow consumers to take advantage of advances in science through international trade;

the imposition of arbitrary or unnecessary labelling requirements; and

any moves to extend intellectual property protection to so-called traditional expressions in the wine area. That, in a broad sense, is where New Zealand is coming from as we go into the preparations for the negotiations. We are in the process of refining priorities among these broad objectives and consideringhow they might be translated into negotiating outcomes. For example, we could look at formula approaches to tariff reductions which reduce high tariffs more quickly.

Role of the Cairns Group

Of course, achieving these objectives requires support from the rest of the WTO membership. That is why the Cairns Group is such an important entity. It provides a critical mass of like-minded countries whocan work together within the WTO to strive for change. We successfullydid so in the Uruguay Round and will be doing so again in these negotiations. Within the Cairns Group there is a diversity of interests and products we export. New Zealand, for instance, exports mainly dairy products, red meats, horticultural products and wine. Canada exports large quantities of wheat, barley and pigmeat. Even though the products we export are different, we have a shared interest in reducingthe barriers to agriculture trade. That is the strength of the Cairns Group, particularly for a smaller country like New Zealand.

In the preparatory period for the agriculture negotiations, ie overthe next year, individual Cairns Group members - and indeed all WTO members - have a responsibility to look forward to the reality of the outcome of those negotiations and ensure that their own domestic house is readied for the negotiations.

Preparing for the Negotiations

In the Uruguay Round, some countries were able to reap the benefits of liberalisation in other countries, while maintaining protective barriers in their own. That is unlikely to be possible this time around. Countries cannot have it both ways - free trade in their exports, without opening up their own markets. It is therefore important that countries look now at how they might restructure support to farmersand open up market access so that they can put themselves in an offensive, rather than defensive position in the agriculture negotiations.

For New Zealand, this has meant taking a realistic look at the future of our producer boards, some of which are state trading enterprises under WTO rules. Our boards act fully in accordance with the relevantWTO provisions. They are fully commercial and do not receive subsidies or other assistance from Government. They do not distort or inhibit international trade in agriculture products. Despite that, we are aware that the United States has on its agenda for the negotiations, tighter disciplines on such state trading enterprises. We know that theNew Zealand Dairy Board - and the Canadian Wheat Board - are ?targets? of this exercise, despite the greater costs and trade distortions imposed by import monopolies around the world in both the public and private sectors.

This has been one of the factors behind the New Zealand Government's decision to look at New Zealand's producer boards and consider whether their continued statutory backing is in New Zealand's long-term economic interest. We have asked the rel evant industries to consider how they might operate in a deregulated environment.

In Canada's case, you will be aware that you can expect to come under pressure to increase access to your dairy market. I do not think your dairy industry should fear that. Rather you should look now at ways in which the industry could cope with that. Perhaps your internal structures need looking at. Perhaps the sector needs to concentrate on those products which are of higher value and less commonly traded in bulk. Perhaps the sector could become more export orientedin speciality branded products: something which should become easier as further constraints are placed on others? ability to subsidise dairy exports and greater market access is opened up. There are literally hundreds of markets out there which are under-developed for dairy products. The New Zealand dairy industry is exploiting many of them, but is certainly not big enough to supply them all. In fact, in size it represents about one percent of world production. There is plenty of room there for others, including Canada.

I realise I have singled out the dairy industry. But I expect these comments could apply equally to other sectors as well. The fact is that there are certain realities that have to be faced if we are to make progress for the benefit of all in the forthcoming negotiations.

I can assure you that similar messages - across a far broader range of issues are being delivered by New Zealand - and the Cairns Group - to countries such as the members of the EU, the United States and Japan, all of whom have a lot of changes to make if they, their farming communities and their consumers are to reap the benefits which flow from agricultural trade liberalisation.

In the remainder of our small economy we have continued to remove protection of import licensing and tariffs previously as high as 55 percent. We now have no import restrictions other than WTOSPS agreement. Tariffs are on just 4 percent of imports and we have just announced a programme to become tariff free by 2006 ahead of APEC's 2010. Interestingly, as tariff protection has been removed, the economy has just gone through the best period of growth in 20 years seeing a nearly 20% increase in jobs in the workforce.

The New Zealand Experience

What shape is New Zealand agriculture in as we head towardsthe negotiations? Let me start with agriculture support in New Zealand. Our agriculture sector is market oriented and export focussed. Our production subsidy equivalent was 3% in 1996 - the lowest in the OECD. That expenditure goes to research, pest and disease control, environmental programmes, sanitary/phytosanitary and animal welfare measures, infrastructure services and some limited payments for relief from natural disasters.

In the late 70's and early 80's, the New Zealand Government provided various agriculture subsidies out of the national budget. At one stage this expenditure reached more than 30% of the value of output. Inthe case of sheep farmers, it was calculated that more than 40% of their income came from the Government.

By 1984, those in the New Zealand agricultural sector risked becoming as insulated from the world market as many other OECD countries. Therewas a realisation that it could not go that way. And that realisationwas led by the farmers themselves. Radical change was called for. Farming leaders were amongst those calling for this policy change.

I should make it clear that it was not just New Zealand agriculturebut the entire economy that was in disarray in the mid 1980's. One commentator has written: ?The year 1984 dawned with an economy subject to tight controls and a scale of government intervention greater than at any time since the [Second World] War.?

A series of reforms was started in the mid 1980's, beginning withthe abolition of direct subsidies. Things changed quickly. Markets were opened to the outside world. Subsidies eliminated. The exchange rate was floated. Agriculture was largely deregulated. The reform was swift and effective.

Of course it was not painless.

Some farmers were forced off the land. Official predictionshad been that 8,000 farms would fail out of around 80,000. Butthe reality was that only about 800 farms - one percent of the total number of farms in New Zealand at the time - faced forced sales in the late 1980's.

Farm incomes declined, but the falls were not solely the result of the removal of government support.

Farmland prices also fell from their peak in 1982, demonstrating the extent to which government support for agriculture had been capitalised into the value of farmland. However, since around 1990

just five years after the beginning of the reforms - farmland prices, especially dairy, have increased steadily.

Land use has become more diversified as a result, as farmers have been able to make decisions about what they want to produce without subsidies clouding their judgement. The end result is a highly competitive and efficient agriculture sector which prefers to stand on its own feet rather than rely on Government support. The farming sector actively rejects hand-outs, not least because it means they can continue to push for the removal of subsidies and protection elsewhere in the economy and thereby reduce agricultural input costs. The fact is that farmers like to farm. Land and animals are managed to produce what consumers in New Zealand and the world marketplace want, not what government dictates through artificial supports. Farmers do not want to go back to what was there beforethe reforms. There is an increasing diversity in our agriculture sector today and land use change has been an important outcome now based on markets, not subsidies.

Conclusion

New Zealand and Canada share much in common as we approach the coming negotiations in agriculture. The next few years are going to be interesting and difficult as we continue the fight for better international trading conditions for agricultural products.

The challenge for us both is to overcome the few differences we haveand to unite our efforts. To be able to convince others we must ourselves be beyond reproach. That has been a key element in New Zealand's economic and agricultural reforms.

New Zealand looks forward to working with Canada and with its other allies in the Cairns Group at this critical time for our industries - for the benefit of not only our agricultural sectors but also our wider economies, which can only come from freer trade.