Hong Kong may seem a long way away from New Zealand, but the World Trade Organisation meeting there next week (subs note: from Tuesday December 13, 2005 through to 19 December, 2005) has the potential to affect the lives of all New Zealanders.

We are a trading nation, heavily dependent on agricultural exports. These exports face the most heavy tariffs and other barriers to trade which it is hoped the Doha Development Round of the WTO will eliminate or reduce.

The last major trade agreement, the 1993 Uruguay Round, was significant because it included agricultural trade for the first time. It earned the average sheep, beef, and dairy farmer in New Zealand an average $11,500 extra every year.

So far, there have been significant commitments, such as to eliminate export subsidies (the most pernicious distorters of international market prices) and the agreement on affordable access to drugs to enable poor countries to tackle pandemics such as AIDS.
But the way the WTO works is that nothing is agreed until everything is agreed – and all decisions are made by consensus.

There are 149 members – so consensus can be hard to achieve.

Why are the negotiations so difficult? The simple answer is that in each of the main market access areas under discussion - agriculture, industrial goods, services mean require some major changes to domestic policy settings in the more protected markets, such as dairy products, rice, sugar, and cotton, for example.

Defensive sensitivities tend to carry much more weight politically than the offsetting welfare gains of trade liberalization. To put it another way, the vocal opposition groups tend to get more media coverage than the trade advocates. One hears little about what would benefit French consumers, for example, but plenty about French farmers’ objections.

But there is no real dispute that free and fair trade fosters development and reduces poverty. The core purpose of the WTO is to provide predictability for traders and a basis for continuing economic progress.

The credibility of the institution depends on being able to keep the liberalisation agenda moving ahead. It’s the old bicycle theory--if you stop pedaling, you fall over.

To make the negotiations work, every member has to compromise. Take, for instance, the example of New Zealand - a nation that has gone further than most in deregulating its economy. In the mid-1980s, we ended all production subsidies to our farmers, and we opened our markets, with significant tariffs remaining primarily in the textiles, clothing, and footwear sector. On top of that, we were one of the first to give the 50 poorest countries on Earth tariff-free access to our market for all their products.

It’s true that some developed nations have benefited from the inherent unfairness of a system that has liberalized trade in manufactured goods but maintained horrendous distortions in the trade of agricultural, forest, and textile products. And it’s time that those rich countries gave up that protectionism for the benefit of developing nations.

The costs of failing at the Hong Kong WTO are such that no country can afford. If we don’t get a solid result from the Doha round, the whole viability of the institution will be called into question and the dispute settlement system – one of the WTO’s most effective functions, especially for small nations such as New Zealand who have used it effectively to make big nations such as Canada and the United States drop illegal barriers to our goods - will be eroded.

Also, because the US President’s Authority to negotiate trade agreements, without every local Member of Congress trying to amend them, expires after the end of next year, it could spell the end of global trade talks for the next decade or more. As the U.S. Trade Representative Rob Portman put it: “This is a once in a generation opportunity”.

In short, we have no other option but to work as hard as possible over the next week at Hong Kong and in the following months to achieve a result.

The level of commitment being shown by key players is reason to hope that we can eventually pull a deal together.

At the same time, the European Union’s struggle to put together a sufficiently substantive offer on agricultural market access should remind us how hard it is for governments facing major changes in policy settings in sensitive areas. We may need simultaneous conditional offers from major players, across all the main pillars, in order to highlight the potential gains.

I don’t think we can expect to make as much progress at the Hong Kong meeting as we had originally hoped. There will be further tough political choices to be made in 2006, more meetings, and we are desperately short of time.

But thankfully, it seems to me to be universally understood that we cannot afford to fail. Success in this round is critical for the development agenda, for companies and countries wanting to take advantage of the opportunities the global economy offers, and for the long-term health of the multilateral trading system.

We must persevere.

ENDS

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