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Jim Sutton speech to Economist conference

Economist Conference,
James Cook Centra Hotel, Wellington
Office of Hon Jim Sutton

Ladies and Gentlemen,

It is a pleasure to be here this morning - albeit so early -
to speak with such a distinguished audience.

I have been asked to speak about my portfolios of trade negotiations and agriculture ? two areas that fit well together, given that 60 per cent of New Zealand's export earnings come from primary products.

That's not to say manufactured goods and the service sector are not important ? they are increasingly so.

But agriculture will continue to underpin this country's future export earnings.

I imagine that will make some of you groan. After all, the glamorous industries these days are all dot.com ones. All the talk is of a knowledge economy and how on earth will agriculture ? traditional farming ? fit into that?

Actually, agriculture already leads our knowledge economy.

Farmers and orchardists have long paid for research and development in their sectors. And they are quick to take up new advances in technology ? such as that developed by Richmond meat company which means that meat products can be traced back to individual farms and animals using computers and dna testing.

Farmers and growers are quick to pick up and promote new varieties of fruit and vegetables ? such as the gold-coloured kiwifruit which Zespri is pouring into overseas markets.

Many of our scientists lead the world in their specialist areas. It is no accident that the Invermay gene link was found here in New Zealand.

Research carried out for MAF shows that rural families are in the forefront of Internet usage. Many use the Internet to buy products and to do their banking.

A poll by Kiwi Dairy company's new Internet site ? fencepost.com ? says 64 per cent of farmers think they are better farmers because of their use of the Internet.

The provision of telecommunications to rural areas is likely to become a hot topic during the next few months and one I am keeping a close eye on as Minister of Rural Affairs

Because of the technical barriers to agricultural trade so prevalent in world trade, agriculture has also been at the heart of the New Zealand government's trade liberalisation focus.

As Prime Minister Helen Clark said recently, given that over 60 percent of New Zealand?s exports come from the farm, forests, fisheries and from horticulture, this is an issue of the highest national priority.

But whether it's manufacturing, agriculture, or services, I like to think that New Zealand is becoming smarter in our approach to trade liberalisation. That means taking a hard-headed look at what our interests actually are and taking practical and realistic steps to pursue them.

We are determined not to make the mistake of others in being so driven by some kind of ideological crusade for an abstract free trade ideal that they actually forget the basic plot: to raise the living standards of our citizens and to maintain their political support for the policies that deliver them.

So what does a hard-headed assessment of our interests tell us?

It tells us that our interests are strongly in favour of opening up markets for our exports - markets that are currently massively protected. It means solidifying the rule of international law - the only thing that stands between us and the law of the jungle on the world economic stage. It means ensuring that our citizens see the trading system as part of a balanced approach that serves their interests and deserves their support - without which no democratic government worthy of the name can expect to stay the course.

Let me touch on those three issues in turn.

First, the question of our interests.

A group of respected economists -albeit that they were Australian- had estimated that even a fifty percent reduction in trade barriers on a global level could basically add about 4 percent to our GDP.

It is pretty clear that there is an enormous amount at stake. It is also clear that the reason there is such a huge potential for gain is that our agriculture and resource based industries are at such a huge disadvantage right now due to huge subsidies and closed markets by our trading partners.

Last year developed countries gave away US$361 billion to their farmers. That?s enough money to pay for every one of the 56.3 million cows in the OECD to fly around the world first class with 1500 dollars spending money along the way.

Our exports face tariffs of well over 100% in many markets.

So when this Government talks about wanting free and fair trade, we are talking about our trading partners starting to give us a fair crack of the whip. Simple as that.

For 15 years we have been leading the world in unilateral tariff liberalisation. New Zealand has few tariffs left. At present, 95 percent by value of our imports enter duty-free; over 90 percent of our current applied rates are at zero; and the average weighted applied tariff is now 0.7 percent.

We aren?t going to backtrack from that.

But it?s also time to get a sense of perspective and set some reasonable priorities. Frankly, we want to see greater effort from some of our trading partners on tariff reductions.

So we have announced a tariff freeze on the few remaining tariffs. The current applied rates will be held for a period of five years, and a tariff review to be completed at the end of 2001 will consider the future course of our tariff policy in the context of the Government?s broader economic strategy. This will give the few industries that still have a small level of tariff protection a little more time to adjust.

But it will also enable us to undertake further tariff reductions on the basis of properly structured trade negotiations, which are mutually beneficial and under which our trading partners are also making reductions.

Something I am often told by my counterparts from other countries is that there is no point in negotiating with New Zealand because we have already reduced our tariffs so much.

This government is taking a different approach, based on reciprocity, but fully in keeping with the APEC Bogor Goals - free trade by 2010 in New Zealand?s case - is unchanged. It is a commitment on the part of all APEC economies to open up. It meets our test of everybody playing their part in a balanced outcome.

We have also made it clear that we are ready and willing to negotiate economic partnerships with other countries that are prepared to give us genuinely reciprocal market access. That way we capitalise on our sound policies instead of squandering them.

I believe we are already seeing the fruits of that. It is shown by our current negotiations on a closer economic partnership with Singapore - which is in its final stages of preparation. And it is present too in our interest in extending this either to other Southeast Asian nations (with Australia) or across the Pacific to Chile or the United States.

That is what I meant by making a hard-headed assessment of our interests. It means taking a strategic approach- building coalitions of support that, in turn, lead to other possibilities. It will take time to see how this approach creates wider options. It is early days yet, but so far there are encouraging signs.

Let me take a moment to touch on matters a little closer to home: our relationship with our closest economic and political partner

Over the 17 years of its existence CER has produced huge benefits for both Australia and New Zealand. In March I agreed with my Australian counterpart, Hon Mark Vaile, that we would look for ways to lift CER to a new level. We intend to discuss this issue further at our annual CER Ministerial meeting in Auckland later this month.

We expect to take a broad strategic view of how CER can continue to benefit both countries in an age of globalisation.

I am keen to have business input for this discussion.

Another proposal being given serious thought is the idea of a linking of CER with the ASEAN nation's trade agreement, AFTA. Let me illustrate what is potentially at stake in an AFTA-CER arrangement.

The Centre for International Economics has estimated that this would be a win-win proposition for both groupings of countries. The overall gains from forming such a free trade area could be at least $US 50 billion over the period 2000-2020 with that being roughly shared between AFTA and CER respectively.

For New Zealand it would mean that our national welfare each and every year for the next 20 years would be 0.6% higher than otherwise. Gains of $8 billion are not to be sneezed at.

To quote a well-used phrase, any government that didn't pursue any such opportunities that would raise the living standards of our citizens would have rocks in its head!

Of course, the best way to do that is to do it multilaterally through the World Trade Organisation. But such regional arrangements can be stepping stones to that. They can also play an important part in encouraging others to get into the game. And, at the very least they can be pursued in parallel with multilateral negotiations in the WTO.

Either way, New Zealand remains absolutely committed to working closely with WTO members on the new agricultural and services negotiations already under way. And, of course, we want to see that folded into a broader negotiating Round.

New Zealand and allies in the Cairns Group have a clear set of objectives for this. We will pursue the elimination of export subsidies, deep cuts in agricultural tariffs, large increases in tariff quotas, and an end to trade distorting domestic support. And we need a Round to make it happen.

So if everyone wants it, why hasn?t it happened yet?

In our view:

the positions of the major players have to come closer together, and the interests of developing countries have to be addressed.

We need a realistic negotiating agenda which can be achieved within a relatively short timeframe. The business community doesn?t have the patience to wait a decade for results.

We need a clear negotiating mandate so that we do not waste time afterwards arguing over what the negotiation is about - a ?quick and dirty? launch would only risk damaging the credibility of the WTO and its members.

And we need a reasonable and ambitious objective for agriculture, as the most distorted sector of international trade.

That underlines the relevance of my second theme: the importance of multilateral rules under the WTO.

Small and big countries alike benefit from a rules-based trading system. As WTO Director-General Mike Moore said about the WTO: ?disputes and differences settled by negotiation based on facts, not force, is the genius of this organisation.?

A small nation such as New Zealand especially values rules-based dispute resolution.

The essence of a rules-based approach is precisely ? fairnesss?. Countries are respected in international law as equals. Without those rules based on a concept of fairnness, all you are left with is the law of the jungle where might makes right.

The hard fact is that it is only thanks to the WTO rules that we are in a position to obtain a fair hearing on trade disputes: whether they are over dairy exports to the European Union and Canada or lamb exports to the United States. Without the WTO we wouldn?t even get a hearing. With it we have a better than even chance of keeping those markets open.

A country with a population the size of New Zealand?s is only going to prosper if we are a dynamic trader and if we are integrated into the global economy. It is surely no surprise that, at the other end of the population scale, China has come to the same conclusion.

But it is important to remember that liberalisation and rules to govern international commerce are not ends in themselves. They are not some sort of idols to be worshipped mindlessly. The reason they are valued is essentially because they are capable of contributing to the well being of our citizens.

But they are by no means the only such policies. They play a part in an overall set of policies that also contribute to that end. And it is important that those policies are balanced and coherent. We certainly do the cause of trade liberalisation no service by pretending or even impying that it is the be-all and end-all of polices that deliver sustainable growth and development.

So that brings me to my third theme: the need to ensure that we have a sensibly balanced approach. Without this we risk alienating the support of our citizens for sound liberalisation policies themselves. That is not a risk that this government will run.

That underlines an area of change in our policy relating to labour and the environment. My Government thinks that legitimate issues of labour standards and environmental concerns need to be integrated better with multilateral trade agreements. Those concerns, however, should not be used as devices to protect against fair competition from developing countries or indeed any country.

I know there is something of a North/South divide among the international trading community on these issues, and that developing countries have a healthy scepticism of the motives of the developed world.

I think we need to persuade developing countries that the debate is not about free trade or protectionism. Rather, it is about the values that underlie the international trading system. I frankly do not believe that any responsible government whether developed or less developed could want anything other than to raise the welfare of its people. That is what liberalisation is for. It is not there for its own sake.

So what we are talking about-or should be talking about- is how we can work together to make sure that we do better for all our people.

On labour, the debate has helpfully evolved away from employment standards and conditions to focus on fundamental labour rights: for example, elimination of forced or compulsory labour or the worst forms of child labour, freedom of association and the right to collective bargaining, an end to discrimination in the workplace.

In doing so, the debate has become less an economic one and more one about basic, universal human rights. The international trading system cannot be exempt from such fundamental values.

Inevitably the question of trade sanctions comes up, and undoubtedly this is why developing countries are worried about bringing core labour standards into the WTO, with its binding rules and dispute settlement. I understand that concern. We should not punish people for being poor.

I continue to believe that there is scope to develop consensus that all the relevant international organisations should get together on this issue. New Zealand strongly supports a more effective International Labour Organisation, which we see as playing the leading role, along with other economic institutions including the WTO.

On trade and environment, New Zealand has key interests at stake. As a country, we have high environmental standards. At the same time, the structure of our economy makes us more vulnerable than most developed countries to protectionist instincts which can threaten exports of agricultural, fish and forest products.

I believe that governments should not be defensive. We can promote outcomes that would be good for trade and the environment. For example, New Zealand has been active in pursuing the elimination of agricultural and fishing subsidies that lead to over-production, damaging the environment and distorting trade markets. We were making important progress in both sectors at Seattle. New Zealand remains committed to pursuing these issues.

In closing, I leave you with one final observation: trade negotiations can be a tricky business - even dangerous.

I attended an APEC meeting in Darwin fairly recently. In my hotel room in Darwin was a very thoughtful letter from the front office manager which read:

?Dear Valued Guest, we trust you enjoy your stay with us at the MGM Grand Darwin. In the interest of your safety, we would like to advise you not to swim at Mindil Beach. A 3 metre crocodile has been seen lurking in the shallow water near the Casino. We also stress to you to please be very careful if you decide to take a walk along our beach.?

I suspect there are still a few crocodiles in the WTO and elsewhere who need to be persuaded that opening markets can raise living standards and should benefit all countries.

Thank you for your attention and I look forward to answering any questions you might have.

ENDS

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