The WTO: New Opportunities for Business

  • Lockwood Smith
International Trade

International Law Association
National Library Auditorium
Wellington

Sir Geoffrey Palmer; WTO Deputy Director-General Dr Kim Chulsu; Ambassadors Hughes and Beeman: Sir Kenneth Keith; Justice David Baragwanath; Distinguished Guests; Ladies and Gentlemen.

May I add my welcome to that of Sir Geoffrey to our distinguished guests attending this conference. I'm pleased to see the New Zealand legal community demonstrating its interest in the development of the WTO and trade liberalisation. Our progress on the trade liberalisation front over the next few years will be critically important to the future growth of our country and the world. There are certainly implications for the legal profession, and you also have a role to play in promoting the free trade agenda.

This is my first speech in New Zealand since returning to Wellington three hours ago from the APEC meeting in Vancouver - a meeting where we succeeded in negotiating our most important trade deal since the Uruguay Round. Following an instruction from APEC leaders last year to consider sectors for early liberalisation, New Zealand, Canada, Indonesia, and the US, had nominated forest products. With Canada, Indonesia, Thailand and Brunei, we had nominated fish products. Both were controversial. The chances of success for both seemed slim. But succeed we did.

For the first time, at a major international forum, the forestry and fisheries industries were included in a comprehensive trade liberalisation package. They are industries which, around the APEC region alone, are worth $3 billion to New Zealand in export receipts each year. It is the first time agreement has been reached to reduce tariffs to zero for primary product sectors. It was a major, major coup for New Zealand achieved at an extraordinary meeting. At the outset, many members were talking about three sectors only - the easy ones: toys, gems and jewellery, and environmental goods and services. By the end, we had an historic deal with nine sectors due for liberalisation in 1999 - a highly credible package including the primary products which are so important to New Zealand.

The deal will provide a major boost to New Zealand's forestry and fisheries industries - creating new jobs in sectors with high levels of Maori and low-income involvement. The end of subsidisation will help stop overfishing around the Pacific. In fact, the full agreement involves 15 sectors, including food, to be liberalised ahead of APEC's 2010 and 2020 goals for free trade throughout the Pacific Rim. It went far beyond the expectations of most participants.

What's even more important, is that the package will now act as a catalyst for liberalisation of these sectors through the WTO. We already have an important demonstration of how liberalisation at APEC can lead to liberalisation throughout the world. Last year, when APEC agreed to liberalisation of the Information Technology sector, it provided a critical mass of economies which led to the WTO agreement to eliminate tariffs on IT products. If the same could be achieved for forestry and fisheries next year, that would be the first time at a global level that there would be agreement for full trade liberalisation of primary product sectors. The support at APEC for that is already greater than it was for the Information Technology Agreement.

From New Zealand's point of view, obviously, a WTO deal for forestry and fisheries would set a very important precedent. It would boost the arguments for further liberalisation of primary products, including agriculture. It would strengthen the case I intend to take as trade minister when the next round of WTO agriculture talks begin by the end of 1999. And imagine how much stronger again our arguments at the WTO would be if, at its meeting in Auckland in 1999, APEC agreed to the details of food liberalisation throughout the Pacific Rim. The 1999 WTO talks are critically important in ensuring that the rules for world trade keep up with the changing global technological environment.

We are probably all suffering from overload hearing about the combined impact of advances in technology and the globalisation of business. Some economists now go so far as to say that their combined impact will mean the end of the business cycle as we know it. Advances in technology will drive continuing economic growth. Global competition will keep prices down. Just how great the impact will be remains to be seen. But what is clear is that these trends have demanded - and continue to demand - changes in the rules of trade.

Up until recently, the structure of world trade has resembled a collection of feudal fortresses with, in many cases, lords handing out largesse to the serfs. For some goods and services that still seems to be the preferred model. It is clearly not the most appropriate model in today's age.

When we can transport goods around the world at a fraction of the cost of yesteryear, it makes no sense for governments to maintain nationalistic notions that it's important for a particular local industry to be supported against economic logic. We should produce the goods we're good at producing, and buy the ones we're not. With world per capita food production having increased by nearly 25% since 1961, according to the FAO, it's global distribution not local production that determines whether a country's population has food. Security of food supply is now better assured through promoting trade liberalisation than subsidising local farmers. When it is no longer quite clear which country a bank, insurance company or professional firm is based in, it doesn't make much sense for governments to try to restrict their people and business sectors to using just a "local" one. In just which country is the Internet based?

Our ultimate goal in today's age must be to have rules for global free trade covering all trading nations and all goods and services. While I have no illusions that that will be achieved during my time as trade minister, that's the goal New Zealand is working towards. It will require substantial political will.

The first tentative steps towards rules for freer trade occurred at Bretton Woods following the Second World War with the signing of GATT. GATT did reduce industrial protection around the world but it excluded many important issues, like textiles and agriculture. What's more, back in the 1940s it would have been difficult to foresee the huge extent of growth in trade in services. They too were excluded. For us, the next important step didn't really begin until 1986 with the beginning of the Uruguay Round. That seven year process tested the patience of saints - in our case Mike Moore and Philip Burdon.

The Uruguay Round Agreement and the establishment of the WTO was critically important to New Zealand for several reasons. It established rules for trade which apply equally to all 132 members, and included services and agriculture. For the first time - finally - we actually have rules to govern agricultural trade, backed up with enforcement procedures. There were commitments to reduce export subsidies and levels of domestic support. We have seen some opening of markets.

And the system is working to our advantage. Through the WTO, we joined with others to successfully challenge Hungary which had blatantly exceeded its export subsidy commitments. We successfully worked with the US on the EU hormones case. We are taking a case to the WTO over the EU's refusal to admit our spreadable butter under the agreed quota. That there are now rules, and a recognised and respected world body for us to seek redress when they appear to be broken, is a major step forward for New Zealand and the world.

But perhaps more important for the long term, the Uruguay Round established a built-in agenda for further negotiations on trade liberalisation. We're now past the half way mark between the end of the Uruguay Round and the beginning of the next round of agricultural negotiations, scheduled to begin before the end of 1999. We should be under no illusions about how difficult they will be. Huge amounts of political capital will need to be expended for them to be successful.

Last December in Singapore, at the WTO trade ministers' meeting, for example, it was difficult enough even to get countries to agree not to walk away from their commitment for the 1999 talks to take place. To get countries to agree to begin a work programme to help prepare for the talks was another thing again. The Cairns Group countries insisted. Japan, Korea and the EU resisted. But eventually, agreement was reached that a "process of analysis and information exchange" should begin. To my mind, that's a work programme by another name. But the difficulties we experienced achieving it demonstrates the challenges we have ahead to keep momentum going.

Cairns Group trade ministers met again in Brazil in June and agreed with New Zealand's proposed strategy leading up to the 1999 WTO talks. The primary goal of the Cairns Group will continue to be to bring agricultural trade onto the same basis as trade in anything else. We will seek continued improvements in market access through reductions in tariffs and non-tariff barriers. We'll be targeting domestic support levels, asking them to be recognised for what they are - social welfare. Export subsidies should go altogether, but let's not underestimate the challenge of securing that goal.

This will all take time. The Uruguay Round, remember, took seven years. And other factors will influence the negotiations and their speed. Reform of the EU's Common Agricultural Policy is one. Renewal of the US's Fair Trade Act in 2002 in another. A vote next year on whether to grant the Clinton Administration fast-track powers to negotiate trade agreements - powers extended to every US president since Johnson - will be pivotal, as will the result of the 2000 presidential election.

It is inevitable, in my view, that negotiations on particular sectors, like our 1999 agricultural negotiations, will need to be folded into wider negotiations. An agenda for negotiations on services is also built in. We need to acknowledge that, while for us agriculture is critically important, that is not the view of all other countries. They may not be prepared to negotiate agricultural liberalisation in isolation from other issues and may wish to bring in other sectors to talks. The phrase the "Millennium Round" is already being used informally. The title is not important. The important thing is the assurance that we will keep moving towards our ultimate objective.

The outcome of the next round of negotiations by WTO economies will be critically important in determining how far the world is prepared to go towards our ultimate objective: free trade, covering all trading nations and all goods and services. To my mind, two other things are important. First, we need to ensure that as many economies as possible are brought into the fold of the WTO. Second, we need to demonstrate that free trade works in terms of creating jobs and economic growth, and delivering lower prices for consumers.

World trade rules which do not cover economies like China, Chinese-Taipei and Russia obviously do not deliver what we are looking for. New Zealand was the first country in the world to complete our bilateral negotiations with China on its accession to the WTO. Our achievement helped to provide impetus to China's bid, with that economy now having completed negotiations with such countries as Korea and, on goods, with Japan. Our negotiations in August led to the promise of substantial reductions in the tariffs our wool exporters face when exporting to their biggest market. The negotiations resulted in the elimination of many of the barriers which made exporting to China difficult and costly. That is a tangible example of the benefits of having countries like China engaged in the WTO accession process.

However, there remains some controversy about China's accession to the WTO in some countries, most notably the United States. New Zealand's view is that it is far better for all concerned to have China inside the WTO rather than have such a major and growing economy operating outside the mainstream of world trade, not beholden to follow the rules. We will continue to support the accession of all countries which meet the WTO's standards and demonstrate a commitment to further liberalisation. Indeed, we will help them meet the standards in areas where we have expertise. An example is New Zealand's programme to assist Vietnam upskill their trade officials in preparation for WTO accession negotiations in the near future.

My second point - the need to demonstrate the benefits - is just as important in terms of strengthening our arguments for trade liberalisation, and ensuring that politicians, globally, gain or retain the political will they need to make progress. If you look around the world, it is those industries without protectionism which are the most dynamic and innovative. It is inconceivable, for example, that the global software industry would have grown so enormously over the last two decades had Bill Gates spent most of his time in Washington arguing for subsidies or bans on competition from overseas.

Agriculture in New Zealand is an example closer to home. Since subsidisation was removed the industry has made remarkable progress. In the sheepmeat industry, not only has the industry regained all the ground in terms of farmgate returns for lamb that it lost when subsidies were removed, returns are now higher than they were back then. There are now more people employed on New Zealand farms than there were when Sir Robert Muldoon was Prime Minister.

More controversial is our textile industry. Exports of textiles have increased over recent years, despite - or perhaps because of - the industry having to face up to the rigours of international competition. It has been forced to take its eyes off Wellington and put them on the world market, producing higher value and higher quality products. The industry took advantage of its intellectual and design advantage, rather than seeking short-term, ultimately counterproductive advantage from Wellington.

When New Zealand signed CER with Australia, there were some fears we would be swamped by our bigger partner. It hasn't happened. It helped us globalise. It forced us to become more competitive. The benefits of tough competition with Australia prepared our industries to expand into third countries. It created jobs.

These are New Zealand examples. In North America, the Clinton Administration has claimed that one third of the 13.5 million jobs created in the US over the last five years was because of the NAFTA Agreement.

The development of APEC, in my view, is of greatest importance in terms of winning the argument globally. APEC is different from the WTO in that it does not establish rules for regional trade. Agreements are voluntary. APEC relies on peer-review and moral pressure. But, as I've outlined, with its 18 economies including powerhouses like the US, China and Japan, it can have a powerful effect on work through the WTO. APEC offers us the opportunity to demonstrate here around the Pacific the benefits of free trade in primary products, and all goods and services.

My approach as Minister for International Trade will always be to accentuate the positive. I don't believe in being negative. The potential benefits to New Zealand and the world of global free trade, spanning all trading nations and all goods and services, are too great for us to put issues in the too-hard basket. I believe we are now at a fork in the road. The WTO's built-in agenda gives us the opportunity to make real progress towards our ultimate objective. The APEC meeting has started us along the right road.