The Unique Convergence Of Events: An Update

  • Dr Lockwood Smith
International Trade

Chen & Palmer Business Forum

Thank you for this opportunity to update you on the Government's trade liberalisation agenda.

Those of you who follow these developments most closely will be aware that I have described our trade liberalisation opportunities this year as "a unique convergence of events":

The possibility of progressing a Free Trade Agreement (FTA) with the United States
New Zealand chairing APEC, and
The launch of the World Trade Organisation (WTO) negotiations to liberalise agricultural trade
I think you would agree it is unique to have three such developments all in one year.

It shouldn't be necessary to explain to this audience the importance of trade to economic development.

Since Mesopotamia in around 3,000 BC, growth in trade has been associated with intellectual, cultural and economic growth.

A little more recently, the last quarter century has seen huge growth in regional trade and economic cooperation in East Asia.

As a result, more people have risen out of poverty, and on a greater scale, than at any other time or place in human history.

We all know the huge benefits to New Zealand which have accrued from our CER Agreement with Australia - despite fears at the time that our manufacturers wouldn't be able to compete.

Increasingly, more people are also coming to understand that trade liberalisation benefits you even if you do it alone.

Countries getting rid of their trade restrictions will achieve lower domestic cost structures. Investment will flow to those sectors with greatest competitive advantage.

More economic growth and jobs will be generated in those economies than in those with protection.

In protected economies, companies are forced to pay higher prices for imported inputs, and investment flows to those sectors which are most indulged by politicians, not those with the most potential.

The old idea, that you benefit from reducing barriers only if other countries do too, is wrong.

Trade liberalisation leads to prosperity for all.

But I also don't need to explain to this audience how far from this ideal we are, or how much the world moving towards it would benefit New Zealand.

In our biggest export industry of agriculture, the world reeks of closed markets, tiny quotas, high tariffs, domestic and export subsidies, and phony science being used for unjustified sanitary and phytosanitary (SPS) barriers.

Our manufacturing sector faces enormous barriers when seeking to export to the two most populous nations on earth, China and India.

There are obvious benefits to New Zealand from reducing or eliminating these barriers and getting better access for our exporters.

But putting aside that sector by sector struggle for better access, current trade policy developments are of more general historic importance to New Zealand and the world.

As I've heard Sir Geoffrey Palmer stress at another function, the GATT Agreement has developed an extraordinary amount of new international law: international law.

It is being added to, as World Trade Organisation disputes panel rulings are made.

Chen & Palmer's professional interest in the area reflects good business sense.

International trade law is going to be a growth area for the legal profession.

But Sir Geoffrey's colleague from the Fourth Labour Government, Mike Moore, perhaps sums up its importance to New Zealand best.

He says we're developing a system where the little guy can take on the big guy and win.

The smallest WTO member can take on the biggest and get a binding ruling based on law, not on their relative geopolitical strength.

There is no great power veto like at the United Nations.

It means when New Zealand achieves better access for a product, the agreement becomes part of international law and we can enforce it if the other country reneges.

Looked at from that point of view, the ongoing development of the World Trade Organisation is of huge historical importance, beyond whether we get better access for a product in one year or another.

APEC doesn't operate in the same way, but it too is of historic importance.

APEC is a "voluntary" system. It's not rules-based like the WTO.

It's a unique approach in that APEC Leaders publicly establish joint goals, and then each economy works out the best way to achieve them in the proposed timeframe.

As a check on the system, Individual Action Plans (IAPs) are prepared and submitted to other APEC economies for peer review.

But, unlike the WTO, one APEC economy can't take another to "court" to enforce a goal.

APEC's historic importance is that 21 economies, in which nearly half of the people of the world live, have publicly committed to free and open trade and investment in the first 20 years of the new Millennium.

That includes economic powerhouses, the US and Japan, and major powers, China and Russia.

And while all this is going on multilaterally and regionally, economies around the world are implementing or considering other free trade developments of historic importance.

There was the EU.

In our region, CER was a leading light, and, more recently, the ASEAN Free Trade Area (AFTA) has been established in South East Asia.

In southern Africa, there is the Southern Africa Customs Union (SACU), and elsewhere in Africa there is early talk of free trade and monetary union developments.

In North America, there has been NAFTA and, in South America, MERCUSOR.

There is now talk of a free trade area spanning all of North and South America.

And, of course, New Zealand and other economies are interested in free trade developments with the United States.

All this background is useful, I believe, because it is important to appreciate the scale and scope of what is being attempted in various forums, at the WTO, APEC and elsewhere.

All around the world there is talk - and more than talk - of the biggest world trade developments in history.

The question is whether the world displays the necessary vision and courage to take full advantage of them.

The answer depends to a significant degree on whether we learn from the experiences of 1997/98.

In the last 18 months, there have been economic crises on at least three continents.

The Asian Economic Crisis was the biggest world trading shock in 50 years.

The Russian Crisis created huge additional concern.

There were major questions over Brazil.

Bad times such as these introduce nervousness into the trade liberalisation drive.

The irony, of course, is that trade liberalisation is one of the best ways out of the current slowdown.

The Asian economies that have recovered best, have tended to be those which have continued to liberalise their economies, and reformed their financial systems.

The Korean and Thai economies, for example, are expected to improve this year, and Taiwan is expected to remain relatively robust.

New Zealand, with our fully open economy and corruption-free financial system, appears to have put the Asian crisis largely behind us.

We're growing again.

Other APEC economies, such as Indonesia, Japan and Malaysia, have more uncertain prospects.

The different rates of recovery mean that growth in Asia is now expected to be around 0%.

Globally, the IMF now forecasts growth to slow to 2.25% in 1999, down a full point from earlier forecasts.

The world has two options.

We can panic, stand still, and risk a further drop in international business confidence and even lower rates of growth.

Or we can learn from the different responses in Asia, liberalise trade and investment, and help the process of recovery from the crises of 1997/98.

I don't need to tell you I see that as just one option.

New Zealand will maintain our free and open economy, and we will urge others to follow the same path.

We will use 1999 to progress each element of the unique convergence of events: the FTA with the US, APEC's liberalisation agenda, and the WTO agriculture negotiations.

New Zealand has had a long-standing policy of indicating readiness to enter into an FTA with the US.

However, it's fair to say there is a degree of scepticism about the proposal amongst some businesspeople, commentators and even one or two officials.

That's fair enough.

I accept it is a long-shot.

Were we to complete an FTA with the US, it would be an extraordinary achievement.

But there are several reasons why we are better placed than ever before to advance the issue.

First, our relations with the US are better than they have been since prior to 1984.

Second, our economic reforms since 1984 mean our economy is open already - it would be relatively easy for the US to complete an FTA with New Zealand.

Third, President Clinton is a committed free-trader, with free trade being a very important part of his concept of a "New Democrat".

And except for those totally preoccupied with guns, abortion and school prayer, most Republicans are also committed to free trade.

With the impeachment trial over, there must now be a good chance the President will get the "fast-track" negotiating authority he needs, and which he indicated he would seek in his State of the Union address in January.

In the last few months, key US political figures have publicly expressed support for an FTA involving New Zealand - in particular the chair of the House of Representatives Trade Sub-Committee, Phil Crane.

At the trade ministers' level, I've literally had dozens of discussions with my American counterpart, US Trade Representative Charlene Barshefsky.

At the very highest level, the Prime Minister had very positive discussions about the concept in Washington in January, including with President Clinton.

The concept is to develop a new-generation FTA: clean, simple and transparent.

It could then be used as a model for other free trade developments elsewhere in the world.

Right now, one could most fairly characterise the US Administration's position on the idea as "very interested", but with no announcement yet of going beyond that point.

What now needs to be done is to advance the idea beyond the conceptual and bring forward a more concrete proposal for evaluation.

It is possible the development could involve other economies.

Singapore, like New Zealand, has publicly expressed its interest in an FTA with the US.

The US has given a political commitment to negotiate an FTA with Chile.

Perhaps Australia might be interested in the future or other economies in our region.

The ball is largely in Washington's court.

But I'm currently exploring several avenues to progress the issue.

Despite the scepticism of some, it is my major objective as Trade Minister, because the benefits to New Zealand would be so great.

My other chief objective for the year of course is APEC.

The agenda this year includes work on harmonising standards, modernising Customs procedures, and reducing paperwork for people working and travelling in the region.

There is work to strengthen markets through initiatives on competition policy and regulatory reform.

It is expected we will complete work on principles for free and fair government procurement.

My key APEC work, of course, is on the trade liberalisation front.

You'll all be aware of APEC's so-called Early Voluntary Sectoral Liberalisation (EVSL) programme.

It's a programme to bring forward liberalisation in 15 sectors ahead of APEC's goal of free and open trade and investment by developed economies by 2010, and by developing economies by 2020.

Last year, we worked on the first nine sectors, including big New Zealand exports, forest products and fisheries products.

Targets were set for zero tariffs for forest products by 2004, and for fisheries products by 2005, around the Pacific Rim.

The deal goes this year to the World Trade Organisation to become binding, with participation beyond APEC.

The APEC-driven work at the WTO has a new name, the Accelerated Tariff Liberalisation initiative, or ATL.

New Zealand is coordinating the introduction of APEC's ATL initiative at the WTO, and initial reactions have been open-minded.

The EU, Norway and Switzerland clearly find much in the initiative of interest.

Next month, we'll be progressing the initiative further, taking soundings in Geneva from all key WTO players.

Through this year, APEC will also make progress on the six additional sectors for early liberalisation, including a "food" proposal, meaning mainly horticulture products and some processed foods.

And then there is a separate initiative called the APEC Food System.

Its goal is to achieve a more open, robust food system that efficiently links together food producers, processors and consumers.

I believe it would better assure food security and maximise the contribution of the food sector to the wealth of a region with a growing population.

The proposal was developed by the APEC Business Advisory Council and calls for action in three areas: rural infrastructure development, dissemination of technological advances and the promotion of trade in food.

APEC Leaders have instructed ministers to study the proposal in 1999.

In response to that, the Senior Officials Meeting here in Wellington agreed to a New Zealand proposal for an ad hoc taskforce to undertake the required study.

It will be co-chaired by New Zealand and Chinese Taipei.

Its work will analyse the proposal against APEC's existing goals, objectives and work programme.

It will then identify what work is required for APEC to respond effectively to the business council's proposal.

The results of that work will be known in September.

Work on the APEC Food System through the year would also provide a good lead-in to the WTO agriculture negotiations to be launched in November in the United States.

They were mandated to begin by the end of 1999 by the Uruguay Round Agreement, along with negotiations on services in 2000.

For the agriculture negotiations, the Cairns Group, with support from the United States, is working on strategy to advance our vision of bringing agricultural trade onto the same basis as trade in other goods.

We're looking for open market access and deep cuts in tariffs, the elimination and prohibition of export subsidies and the decoupling of domestic support from production.

However, I now believe it is almost certain the agriculture and services negotiations will be expanded to become a full WTO Round.

That would allow for the trade-offs necessary to achieve the Cairns Group's vision.

To build further support for a Round, New Zealand is working with a group called Friends of the Round.

It includes diverse WTO members, such as Singapore, Hungary, Morocco, Switzerland, Australia, Hong Kong and Norway.

We will also be using our year in the chair of APEC to build support for the new Round.

As the Prime Minister has put it, the Leaders' Meeting in Auckland will provide an opportunity for APEC to speak with one voice about how we want to see the multilateral trading system develop in the first few years of the new millennium.

The Wellington Senior Officials Meeting showed there was considerable enthusiasm for APEC to work in this area.

However, there is not yet universal agreement on the shape of a new Round.

There are those who believe it should be as broad as possible, to provide maximum scope for trade-offs.

But others argue this would allow the slowest ship in the convoy to hold everything up.

They favour a "cluster" approach, involving a series of smaller, continuous negotiations on two or three selected sectors at a time.

That has merit in that it could lead to early results and avoid the negotiations dragging out, as the Uruguay Round did for seven long years.

But the risk of that to New Zealand is that results in easy sectors could be pocketed, leaving more difficult sectors, such as agriculture, untouched.

New Zealand, and our Friends of the Round partners, therefore advocate a "single undertaking" approach; a more traditional Round.

However, we will want to limit the duration of the Round, probably to three years.

Right now, I'm consulting with the business community on issues to be priorities for New Zealand during a new Round.

It's important the business community identifies the barriers and issues causing you the most grief when exporting and working overseas.

Obviously agriculture and services must be part of the new Round, as should industrial tariffs.

I believe it is important to protect the emerging electronic commerce sector from the trade restrictions which have burdened more traditional trade.

It will be very important that we maintain the integrity of the SPS Agreement which currently requires a strict science-based approach if quarantine restrictions are to be allowed.

While we believe very strongly that intellectual property must be protected, we would not want to see extreme protections on the use of traditional expressions being used purely to disrupt trade.

Beyond these more obvious issues, the business sector's input is invaluable to ensure that we go into the Round prepared to deal with the issues our exporters consider most important.

Your input continues to be vital at the bilateral, regional and global levels.

Nothing I've discussed today is guaranteed.

Progress may end up slower than I would like.

It will certainly be slower than the export sector would like.

Nervousness about the state of the global economy risks holding developments up.

But the world right now has an historic opportunity to free up trade and so raise living standards everywhere.

New Zealand has an unprecedented opportunity to have influence in the process.

We'll be working to ensure the world does take full advantage of these developments.

And we'll do whatever we can to deliver much better market access for New Zealand exporters.

That much I can guarantee.