PM’S Washington Visit Timely

PM’S Washington Visit Timely To Enhance Trade Prospects

Prime Minister Helen Clark’s visit to Washington in March would not yield an immediate agreement to start trade negotiations with the United States but should aim to position New Zealand to join negotiations, in parallel with or alongside Australia, once the US is ready.

In an address to the Newmarket Rotary Club, Trade Liberalisation Network Executive Director Stephen Jacobi said the Prime Minister was doing “absolutely the right thing” by going to Washington but the US Administration is not yet in a position to commence negotiations because it lacks the necessary “Trade Promotion Authority” from Congress.

Mr Jacobi acknowledged that Australia had some success in getting a leading place in the queue of countries wanting to negotiate with the US. New Zealand however had support in the Congress and the US business community. “At the end of the day there is every likelihood that the US will want to negotiate with both of us because CER is a model free trade agreement and the US is more interested in creating a demonstration effect for others to follow than it is with increasing trade with relatively small markets like Australia and New Zealand”.

Mr Jacobi rejected the notion promoted by groups opposed to trade liberalisation that New Zealand was placing too much emphasis on export markets. Exports account for 37.6 percent of GDP but New Zealand laggs behind others such as Ireland (88 percent), Sweden (47.4 percent) and Norway (46.6 percent).

New Zealand faced high trade barriers in overseas markets. The World Trade Organisation provides the best way of dealing with these. “We pursue opportununties in the WTO and with the United States not because some textbook tells us to but because these agreements are in the interests of business, farmers, workers and New Zealanders generally”, concluded Mr Jacobi.
A copy of the full address is attached.

President Martin McGahan, ladies and gentlemen

Thank you for the opportunity to be with you today.

Having attended secondary school near Newmarket, it’s good to be back in the neighbourhood again.

I’m very conscious of the role that Rotary plays both in New Zealand and around the world in building strong local communities.

And so its about community building and the contribution made by trade that I’d like to speak today.

The Trade Liberalisation Network which I represent is a new business organisation – entirely business led and business funded.

Our aim is to promote broad public understanding and support for trade.

It seems odd that we should have to do this in a country that is so dependent on our links with the outside world.

But there is a new debate about trade in New Zealand.

Take for example this letter to the editor which appeared in the Otago Daily Times in January of this year.

The writer - whom I hope is related to no-one in this audience- takes issue with a decision by the local company to import apricots for canning:

“Your report on the canning of apricots at Roxburgh brings to light the shadow side of world trade. From where exactly are these other apricots being sourced? What are the conditions of workers and their wage structures ? Will the WTO and globalisation introduce such conditions into New Zealand ?”

I’m not sure that the World Trade Organisation had anything directly to do with all this but implicit in this letter is the belief that the “WTO and globalisation” are forcing New Zealand to do things we would rather not do.

Today I’d like to shine some light on the “shadow side of world trade”, to illustrate the importance of trade for New Zealand and to provide a brief update on two initiatives – progress in the WTO and the proposal to negotiate a Closer Economic Partnership with the United States.

Why trade is important

It was economist Thomas Babbington who said in 1824 that “free trade, one of the greatest blessings that a government can confer on people, is almost in every country unpopular” .

I’m not sure if Babbington ever visited Roxburgh but it is quite clear that in New Zealand in 2002 there is something of a gap between public perceptions of trade and the benefits it brings.

The Trade Liberalisation Network has been set up precisely to help bridge that gap.

The plain fact is that this country lives by international trade.

Exports account for 37.6 percent of GDP, and imports 34.7 percent. The ratio of exports to GDP has increased significantly in recent years – not bad for a country so far away from its major markets.

But compared to others around the world we have some way to go. We look pretty good in relation to Australia (19.9 percent) but look at Ireland (88.7 percent), Sweden (47.4 percent) and Norway (46.6 percent).

Why this is relevant ?

Because our success in exporting is directly related to our success in creating jobs, particularly for workers with lower skills.

New Zealand’s export industries - agriculture, forestry, fishing, horticulture, food processing, niche manufacturing as well as tourism employ a large number of unskilled workers, women and Maori.

Unfortunately some of these sectors, especially agriculture, face the highest trade barriers internationally.

A dizzying array of import duties, quotas, rules and regulations, subsidies, safeguards and other assistance measures exist to frustrate the entry of our fine products.

Last year Trade Minister Jim Sutton drew attention to the absurd nature of some of these restrictions by distributing chocolate to a group of diplomats at a function in Wellington.

The chocolate he gave out - 2 kg in total – represents the entire amount of chocolate New Zealand is allowed to sell in the United States in any one year!

This sort of mindlessness is by no means isolated or restricted to the United States.

It underscores that New Zealand’s future economic wellbeing depends on briging down the barriers to trade, securing better market access, eliminating export and other trade-distorting subsidies and securing better trade rules.

That applies to our farm sector but equally to our fish, forestry, manufactured or services exports.

All this would not be so bad if New Zealand could forget the rest of the world and rely on its own market.

In his reply to the Prime Minister’s recent statement releasing the Government’s innovation strategy, the Green MP Rod Donald said that “putting all our eggs in the export basket is sheer foolishness. The global economy is fickle and fragile”.

Unfortunately our small economy is simply not large enough to consume all the food and other products we produce or to generate the economies of scale required to produce the goods we import more efficiently.

We need to export to pay for imports. It takes a lot of kiwifruit to buy a car let alone a plane or a frigate.

And exports provide only one side of the picture.

Both export and import sectors create jobs.

Imports provide the materials from which many export products are made and for a greater variety of products and for goods which are less expensive for consumers, particularly for those on lower incomes.

Trade is not just a theory.

It is trade which provides the sort of economy most New Zealanders want to have and makes possible the lifestyles they have become accustomed to.

Trade fosters competitiveness and innovation and must be at the heart of any strategy to increase New Zealand’s economic performance and prospects.

Progress in the WTO

Getting things right at home is critically important but the problem of the barriers facing our exports remains.

There is no better way of addressing this problem than through the World Trade Organisation.

Again the public perception of the WTO is somewhat at odds with reality.

The WTO is criticised for not acting decisively enough.

The Uruguay Round of trade negotiations took seven years to complete; the Seattle WTO meeting two years ago ended in protest and failure and the most recent meeting in Doha teetered on the brink for 48 hours or so.

It was not for nothing that the WTO’s predecessor organisation, the General Agreement on Tariffs and Trade, the “GATT”, was nick-named the “General Agreement to Talk and Talk”.

At the same time the WTO is said, as we have seen, to be part of the “shadow side of world trade”, imposing its will on nations and overriding their ability to make sovereign decisions.

Yet the WTO is the creation of its 144 member governments.

Decisions are made not by faceless bureaucrats, or even by our own familiar-faced Mike Moore as Director-General, but by governments acting largely by consensus.

It’s the process of consensus building which, as any Green Party member will tell you, takes time. Sometimes, as we saw in Seattle, it doesn’t succeed.

But as long as sovereignty resides with national governments it is the only way for the WTO to work.

Happily at the meeting of WTO Trade Ministers in Doha last November, which I was fortunate to attend, there was a consensus on the need to launch an ambitious new round of international trade negotiations.

The “Doha Development Agenda” as it is called paves the way for a comprehensive negotiation over a three year period to open up world markets for all WTO member countries, to reduce wasteful subsidies, notably in farming and fishing, which penalise efficient producers and damage the environment, to put in place more effective trade rules and to provide a fairer deal for developing countries.

Since Doha the WTO has moved quickly to organise the negotiation by reorganising its staff resources, setting up a structure for the negotiation and appointing chairs to oversee the various negotiating committees.

This is only the beginning of a long process.

The world is not a fair place and the WTO is not a perfect organisation.

But it is important for New Zealand, for our trading partners and for developing countries, that this start has been made for making world trade freer and fairer.

Prospects for a NZ/US CEP

Even while we are waiting for the WTO it is possible to make progress at other levels.

With the Prime Minister’s visit to Washington next month, attention is also turning to the prospect of a Closer Economic Partnership with the United States.

Business and government are working closely together to improve the chances of a closer economic partnership with the world’s largest consumer market, our second largest trading partner, and source of investment capital, entreprenurial flair and business ideas.

The New Zealand/US Council has been established to provide a vehicle for that co-operation, with the Trade Liberalisation Network as a founding member.

The Prime Minister is doing absolutely the right thing by going to Washington at this time but it is clear that the visit will not yield immediate agreement to start negotiating.

The US Administration is not in a position to commence negotiations because it lacks the authority from Congress to conclude them.

Even assuming this “Trade Promotion Authority” is secured, New Zealand is in a long line of other countries wanting to do similar deals.

Australia has had some success in getting a leading place in the queue and while we might have preferred to have approached the US as CER partners the two governments are keeping in close contact.

Our cause can only be helped by Australian success – at the end of the day there is every likelihood that the US will want to negotiate with both of us.

Why ?

Because we have strong support in the Congress and in the US business community.

But more importantly because CER is a model free trade agreement and the US is interested more in furthering the cause and example of free trade and creating a demonstration effect for others to follow than it is with increasing trade with relatively small markets like Australia and New Zealand.

Through our ongoing work in APEC and the WTO and our ground-breaking agreement with Singapore and negotiations with Hong Kong, New Zealand is already well-positioned in the forefront of efforts to free up trade internationally.

In the US our strategy needs to focus on ensuring that New Zealand is well positioned to join a negotiation alongside or in parallel with Australia as soon as it can get off the ground.

Conclusion

I mentioned at the outset that trade builds stronger communities.

This is because trade, at the service of the community, contributes to expanding markets for business, creating jobs and building the economic growth and wealth required to enhance social well-being.

Trade is not an end in itself.

We pursue opportunities in the WTO and with the United States not because some text book tells us to but because these agreements are in the interests of business, farmers, workers and New Zealanders generally.

The shadow side of world trade is not as dark as some believe.

Yes, the global economy may be “fickle and fragile” but it is only in the global economy that the competitive industries of this small nation of our’s can find their customers, suppliers and partners.

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