Trade Network Promotes ‘Smart, Active’ Trade

Media Release – 16 August 2002 www.tln.org.nz

Trade Network Promotes ‘Smart, Active’ Trade Policy

New Zealand needs a ‘smart active’ trade policy says outgoing Executive Director of the Trade Liberalisation Network Stephen Jacobi.

“New Zealand cannot afford to be an observer or passenger in the process of trade liberalisation. We cannot claim a seat at the table by virtue of size. We have to be a contributor of ideas, an innovator and a problem solver”.

In addresses to farming and agribusiness groups in Wellington, Masterton and Havelock North Stephen Jacobi advocated a strong role for government and business to work together to bring down barriers to trade and create more effective trade rules. “New Zealand must commit heavily to this process – an under-investment in resources required for the negotiation will not help New Zealand get back into the top half of the OECD growth table”.

Mr Jacobi said there had been significant progress in recent weeks both in the World Trade Organisation negotiations and with the US Administration receiving Trade Promotion Authority. “ What is now clear is that the Administration is fully in a position to commence negotiations if it decides to do so”.

Noting that the WTO negotiations provided the best opportunity for addressing the problems that had beset New Zealand agriculture for three decades and more Mr Jacobi praised the work of outgoing WTO Director General Mike Moore. “Mike is an extraordinary New Zealander and his enormous contribution to the world economy and to promoting justice for developing nations is severely under-estimated back home”.

“Is trade liberalisation really possible ?” asks Stephen Jacobi.” We have to believe it is. And work hard to make it so”.

Note to media
A copy of Stephen Jacobi’s complete address is attached.
Stephen Jacobi leaves TLN on 23 August to take up the role of Chief Executive of the New Zealand Forest Industries Council. Pending the appointment of a successor, Philip Lewin, TLN Board member and Chief Executive of the Wellington Regional Chamber of Commerce will be Acting Executive Director.

For further information
Brian Lynch, TLN Chairman, cell 0274 452 958
Stephen Jacobi, Executive Director, Cell 021 490 974
www.tln.org.nz

ADDRESS TO FARMING GROUPS

WELLINGTON, MASTERSTON, HAVELOCK NORTH

AUGUST 2002

STEPHEN JACOBI
EXECUTIVE DIRECTOR
NEW ZEALAND TRADE LIBERALISATION NETWORK

“FROM DOHA TO WASHINGTON – IS TRADE LIBERALISATION REALLY POSSIBLE?”

It’s hard to ignore that we’ve just had an election – one in which there were at least two parties, the Greens and the Alliance, who took a radically different view about the importance of trade from the others.

At the beginning of the election campaign Green Party Co-Leader Rod Donald had this to say about the prospect of freer and fairer trade in agriculture:

“ It must be obvious to virtually everyone in the country, bar the Labour Government and the Trade Liberalisation Network, that George Bush is as likely to open up trade for New Zealand agricultural exports as he is to remove the blockade against Cuba”.

I’m grateful to Rod Donald for setting the scene for what I have to say to you this evening.

I’d like to tell you a little more about the TLN and to outline why we think the prospects for trade liberalisation have improved in recent months both in the World Trade Organisation and with the United States.

About the TLN

A while ago I came across a dialogue from an old Woody Allen film, Sleeper.

Two doctors are discussing the untimely demise of a patient.

‘This morning for breakfast, uh, he requested something called wheat germ, organic honey and tiger’s milk.’

‘Oh yes, said the other doctor, those are the charmed substances that some years ago were thought to contain life-preserving properties.’

‘You mean there was no deep fat? No steak, or cream pies or hot fudge?’

‘No, the doctor’s friend replied, ‘Those were thought to be unhealthy. Precisely the opposite of what we now know to be true’.

This dialogue reminded me of the debate about trade liberalisation.

Those convinced of the merits of trade for the New Zealand economy may be tempted to believe that those opposed to further trade reform will sooner or later come round to our way of thinking.

Those opposed just think we’re plain mad - “When will they learn ?” was Rod Donald’s hand-wringing refrain at the Green Party conference.

The international development agency Oxfam in its recent report on trade Rigged Rules and Double Standards said this world-wide debate was between “globaphiles, promoting the pure, free trade agenda, and globaphobes leading the anti-globalisation movement”.

I’m proud to be counted as a globaphile – with one important distinction.

What we are promoting through the Trade Liberalisation Network is not a “pure free trade agenda” in the sense of a text book theory but something which we believe to be in the best interests of New Zealand and New Zealanders.

Trade liberalisation is about bringing down the barriers to trade and creating effective trade rules – rules which enhance the sovereignty of nations by holding countries to their commitments and protecting smaller nations from the illegal actions of larger, more powerful trading partners.

What those comments by Rod Donald and Oxfam reveal is the extent of the new public debate about the impact of trade liberalisation both in New Zealand and around the world.

There is nothing wrong with this – it’s healthy – but it has given rise to a much greater need for stronger advocacy of the benefits of trade to a small, trade-dependant economy like New Zealand.

That’s where the Trade Liberalisation Network comes in.

We are an organisation entirely funded and led by business.

Our membership is nationwide and drawn from across agriculture, manufacturing and services sectors. Between them our members account for around 70 percent of New Zealand’s exports.

I’m pleased to say we have particularly strong support from agricultural sector.

Our Board is chaired by Brian Lynch of the Meat Industry Association and includes Federated Farmers President Tom Lambie and Ken Geard from Fonterra.

The Meat Industry Association, Meat NZ, Federated Farmers, Fonterra as well as several meat companies and suppliers of agricultural services are among our corporate members and financial sponsors.

What brings these individuals and organisations together is that they see trade as providing the sort of economy most New Zealanders want to have, and making possible the lifestyles they have become accustomed to.

Our website www.tln.org.nz contains information about us and a wealth of resources and news about trade developments of interest to New Zealanders.

I encourage you to visit our site, sign up on the public mailing list or even become an individual member of the TLN so that you can participate in the public debate on trade.

Our response to the Green Party, to the Alliance and to anyone else who doubts the value of trade is that “Trade Rules OK !”

That’s the theme of our public campaign and of the brochures that you have before you today.

Our hope is that you as farming leaders can take the message about the benefits of trade and the importance of trade rules back to your own communities.

In the face of challenges posed by the ‘global anti-globalisation’ movement, and its little echo here in New Zealand, it’s the role of TLN to identify and resource the champions of trade liberalisation so that together we can work to build broad public understanding and support.

The promise of Doha

From a trade liberalisation perspective there is no doubt that the best news since the conclusion of the Uruguay Round in 1994 was the successful outcome of the meeting of WTO Trade Ministers in Doha in the Gulf state of Qatar in November 2001.

I was fortunate to attend that meeting as a business sector adviser to the New Zealand delegation.

Doha was significant for two reasons.

First, because it managed to do what the Seattle meeting had so spectacularly failed to do – launch a new round of global trade negotiations to counter the rising tide of economic uncertainty and recession and to promote growth and opportunity, including for the least developed and most marginalised of countries.

And second, from an agricultural perspective, because it held out the prospect of finishing what the Uruguay Round had started - end high levels of protection and subsidy and creating a more level playing field for developing countries and efficient agricultural producers alike.

United States Trade Representative Bob Zoellick said that Doha had “removed the stain of Seattle”.

From the ashes of the terrible tragedy of 11 September arose the promise of Doha Development Agenda.

WTO Ministers gave themselves an ambitious three year timetable to complete the work they started at Doha.

Since then we have had an up and down ride as the US first resorted to increased protection for its ailing steel industries and then to the massive increase in subsidies through the Farm Security and Rural Investment Act (the Farm Bill).

At times in recent months it has seemed like the cause of trade liberalisation is all but dead – certainly those opposed to trade reform have been quick to say ‘I told you so’.

But for New Zealand farmers the stakes of this negotiation remain incredibly high.

Farming is rapidly coming out of one of the most prolonged periods of success ever.

Trade liberalisation has played a role in this alongside high commodity prices, a low dollar, some good weather and a whole lot of productivity, innovation and skill down on the farm.

Trade Minister Jim Sutton says that the Uruguay Round benefited dairy, beef and sheep farmers to the tune of $600 million – or $11,500 per farm - in 2000.

The cuts to tariffs in one year alone – that is to say amounts importers of New Zealand products would have paid without the Uruguay Round – are in the order of $191 million for meat and $131 million for dairy.

And that’s just for one year.

What this tells us is that the benefits of trade liberalisation are not just theory:- increased and more secure access to key markets in the EU, the US, Canada and Japan combined with greater disciplines on export and domestic subsidies can and do impact on the bottom line.

But even as we take this cheque to the bank, we have been reminded by the OECD how far we still have to go.

The OECD’s latest report on subsidies to agriculture shows that they decreased for the second year in a row in 2001 but remain above their lowest level reached in 1997.

Total OECD subsidies amounted to US$ 311 billion in 2001 – just shy of US$1 billion a day – or 1.3 percent of total GDP.

Support for agriculture – measured in terms of the OECD index of ‘producer subsidy equivalents’ -is lowest in – you guessed it – New Zealand (1%) and Australia (4%) and highest in Iceland, Japan, Korea, Norway and Switzerland (around or over 60%).

The EU was about half way between (35%) and the US, Canada and Mexico – before the Farm Bill – just below the EU (at around or below 20%).

In masterly understatement the OECD’s conclusion is that “although there has been some progress in agricultural policy reform, it has been slow, variable and insufficient”.

If these sobering statistics show us the magnitude of the problem they also point to the size of the opportunity.

That’s why the Trade Liberalisation Network believes that doing something about these obscene subsidy practices and the trade-distorting behaviour they encourage must be at the heart of any government policy aimed at restoring our country’s growth rates to the top half of the OECD.

Indeed it’s hard to think of any other single policy outcome that would have the equivalent impact on our country’s prosperity than achieving significant international trade liberalisation.

A study by the Australian Department of Foreign Affairs and Trade pointed to a gain of 4 percent to our GDP if trade barriers were halved – about NZ$4 billion in total.

Now you can argue about the figures and about whether a halving of trade barriers can realistically be expected to be achieved in the lifetime of all of us in this room.

The point is that no amount of spitting the dummy or huffing and puffing will change the environment in which our competitive, unsubsidised agricultural industries have to operate.

Nor is this environment something we can change by ourselves.

It can only be changed by negotiation between governments and hence the importance of the agreement reached at Doha.

So how far on are we in the process ?

Progress in the Doha negotiations

Let me quote from a fax we received from Mike Moore in Geneva last week in which he gives his assessment of progress:

“After previous launches, especially Punta del Este (which launched the Uruguay Round), it took several years to do what we have done in six months. Since Doha we have established our negotiating structure, committees, chair people, timelines and deadlines … We have a roadmap that includes meetings with Minister, high officials etc. Within a few weeks of Doha we had a major increase in our budget … We have doubled our training activities … These stories are never headlines nor should they be but unless this detailed work is done we will not succeed …”

Mike is an extraordinary New Zealander and his enormous contribution to the world economy and to promoting justice for developing nations is severely under-estimated back home.

Mike is certainly right in that we are further ahead now in the negotiating process than we were at the same time during the Uruguay Round.

In agriculture the negotiations are proceeding on the basis of the Doha mandate which by and large was satisfactory for New Zealand and its allies in the Cairns Group.

Admittedly the wording is tortuous, reflecting EU instransigence almost to the very end.

Ministers have agreed to negotiations aimed at “substantial improvements in market access, reductions of, with a view to phasing out, all forms of export subsidies, and substantial reductions in trade-distorting domestic support”.

The EU was careful to insert earlier in the mandate the phrase “without prejudging the outcome of the negotiations” and was also successful in introducing “non-trade concerns” into the scope of the negotiations without specifying what these are or how this would be achieved.

But while we might have preferred stronger language on export subsidies and less woolly reference to non-trade concerns this gives us a useful basis on which to proceed.

The Agriculture Committee has got down to work, has appointed a highly competent Chair in Stuart Harbinson of Hong Kong and has agreed that the ‘modalities’ of the negotiation – the formulas for cuts to tariffs and subsidies but without the numbers – will be settled by 31 March 2003.

The final package will only be adopted by the target end date for the whole negotiation of 1 January 2005.

The process for the negotiation is by and large in place.

Just as significantly we are now starting to see signs of real engagement from the major players in the negotiation.

As my Chairman Brian Lynch said recently, “the tectonic plates that move and shape the global trading landcape are at last beginning to stir”.

It is true that the process has been complicated by the Farm Bill.

To quote the Miami Herald, the Farm Bill “recently emerged from the legislative process in much the same way as a steaming wad of processed vegetation emerges from the digestive tract of a cow” .

The problem with the Farm Bill is not so much that the US might breach its existing and future WTO commitments.

The Farm Bill provides for corrective action in the event that existing or future US WTO commitments are exceeded.

The real problem is that it gives comfort to other subsidising nations like the EU, Japan and other non-EU European countries that their own discriminatory practices can be continued even while Doha proceeds.

Since the Farm Bill two developments have come as something of a relief - the EU’s mid term review of the Common Agricultural Policy and the comprehensive US proposal on agriculture in the Doha negotiations.

The EU’s review provides for a major reorientation of the CAP away from direct trade-distorting support for farm production and towards environment, animal welfare and food safety.

I’m reminded of Louis XIV who in 1789 asked “Is this a revolt ?” and was told “No sire, it’s a revolution”

And so this CAP reform may prove to be – a revolution, at least by EU standards !

The ambitious US agriculture proposal recently put on the table in Geneva is also good news.

It provides for a quick removal of export subsidies, the significant lowering and eventual removal of tariffs and the reduction of inside-tariff quota duties to zero.

If this is a concerted US effort to take the high ground over the EU in the negotiation and to deflect attention away from the Farm Bill it’s the sort of action we like to see – even if the Cairns Group has proposed a faster removal of export subsidies and the US proposal includes only a 20% increase in tariff quota volumes over a period of five years.

With the Farm Bill the US seriously raised the stakes of the whole negotiation.

To justify any future revision of the Farm Bill to Congress will require a big outcome on market access and export subsidies.

That seems to be the direction the US is now headed.

New Zealand and its allies in the Cairns Group can hardly wish otherwise but whether too high a level of ambition might complicate the negotiation remains to be seen.

At this stage the important thing, as Mike Moore told us in the same message I quoted earlier is that there are substantive proposals on the table from most of the players large and small.

“The next thirteen months are but a preparation for the last 75 hours of the next Ministerial meeting (scheduled for 10-14September 2003). I wish this was not the way the place works, but it is”.

Prospects for a NZ/US CEP

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

Indeed New Zealand has been in the forefront of moves to promote trade liberalisation in APEC and with individual trading partners like Singapore and Hong Kong as well as with the ASEAN group of countries.

New Zealand needs a ‘smart, active’ trade policy.

We cannot afford to be an observer or passenger in the process of trade liberalisation.

We cannot claim a seat at the table by virtue of size. We have to be a contributor of ideas, an innovator and a problem solver.

The WTO remains the big prize but as a colleague of mine said recently we are currently “swimming in an alphabet soup” of different trade agreements both existing and under negotiation.

I want to touch just briefly on the prospect of a free trade agreement with the US.

The New Zealand/US Council has been established to provide a vehicle for business to work closely with the Government to improve the chances of an FTA with the world’s largest consumer market, our second largest trading partner, and source of investment capital and business ideas.

The Trade Liberalisation Network is a founding member of the Council.

Rod Donald clearly thinks the idea of an FTA is a pipe dream.

Certainly no-one I have talked to in business or government thinks it will be easy to unhook this deal.

What is now clear is that the Administration is fully in a position to commence negotiations if it decides to do so.

Since 1994 the Administration’s hands have been tied by the Congress which under the US Constitution has the power to regulate commerce.

The situation changed dramatically on 7 August when the President signed into law the Trade Negotiating Authority Act which had gone through Congress the week before.

This ‘trade promotion authority’ considerably strengthens the President’s hand in trade policy– it means trade deals have to be voted up or down by Congress and cannot be picked apart.

This is good news both for the Doha process I’ve just described as well as for negotiations with individual trading partners.

For New Zealand specifically there are several big roadblocks to overcome.

First, our market is only of limited interest to the US. While a recent study suggested US exports to New Zealand would rise by 25 percent under an FTA that’s still pretty small beer.

Second, there would be obvious opposition from US agriculture interests likely to be affected by enhanced competition from New Zealand.

Third, even now TPA is secured, New Zealand is in a long line of other countries wanting to do similar deals.

In this context our best hope is and always has been Australia.

By ourselves we have no chance of getting to first base.

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 freer 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.

Both President Bush and Trade Representative Zoellick have confirmed that they are interested in exploring a deal with Australia.

In Washington 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

Is George Bush as likely to open up trade for New Zealand agricultural exports as he is to remove the blockade against Cuba ?

I confess to having no particular ability to fathom the mind of George Bush. Any more than the mind of Rod Donald !

But what I do know is that trade liberalisation is vital for New Zealand.

The Doha process marks the best opportunity we have for dealing with the problems that have beset our agricultural exports for three decades.

Doha got off to a positive start but there have been challenges and promising developments on the way.

New Zealand must commit heavily to this process – an under-investment in resources required for the negotiation will not help New Zealand get back into the top half of the OECD growth table.

New Zealand must also seek to do what it can to make progress individually with other trading partners.

For this to happen the Government must have confidence that the public supports this effort.

We have to confound the nay-sayers and convince the public that ‘Trade Rules OK’.

This is the rationale behind the establishment of the Trade Liberalisation Network.

I encourage you again to visit our website www.tln.org.nz and to sign up to our public mailing list.

Is trade liberalisation really possible ?

We have to hope that it is.

And work hard to make it so.

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