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Sutton Speech: American Chamber Of Commerce

Speech Notes

Hon Jim Sutton

22 March 2002

American Chamber of Commerce seminar

Auckland

Ladies and Gentlemen: We in New Zealand have a unique view on the world - we're at the bottom, a long way from anywhere else.

If you centred the world on Finland's capital city Helsinki, and drew a 2200 kilometre radius circle around it, it would take in 39 nations - most of Europe - about 300 million people.

If you centred the world on Wellington, and drew the same circle around it, you'd get New Zealand and as Reserve Bank Governor Don Brash says, rather a lot of seagulls - and nothing else.

That gives us here in New Zealand a different perspective on things - a long-distance view, you might say. Perhaps that distance makes it easier for us to see some things.

Trade has always been important to New Zealand.

In the 19th century, our indigenous people, the Maori - particularly those in the Bay of Plenty - had set up market gardens and were not only supplying northern towns here with fresh fruit and vegetables, but they were also exporting to the colony of New South Wales.

The colony of New Zealand was always thought to have been set up to be Britain's farm in the South Pacific.

The first multilateral round just after World War II started with 23 members in the GATT - with New Zealand one of that select number, I should add.

Why was trade so important to the early New Zealanders? And why does it remain so important now.

First, perhaps it is because we are so far away and our nation is built of immigrants. There is no natural population here. All peoples living in New Zealand are the products of immigrant groups who moved here one after the other? Trade is just one aspect of how we like to keep in touch with where we once came from. But trade is vital for a small country such as ours that wishes to maintain a high standard of living. Our market is too small to viably produce a full range of the essentials of modern life. We can't afford to pay for that, without selling our products overseas.

To support a world class life-style, we must exhibit world class productivity. This means we must concentrate on the relatively narrow range of goods and services we do well.

But our domestic market is simply too small to absorb all such goods and services we produce, and too small to sustain a full range of internationally-competitive enterprises, so we must export them.

The world is changing, and if we stand still we'll get left behind. We need to be open to new ideas and new technology if we are simply to keep pace with the world, let alone move back up the rankings of the developed world.

Trade is a good way to boost your economy.

For some empirical evidence, take a country like South Korea, which has recorded remarkable growth since the 1950s on the back of open markets. If you ever wanted to see what might have been, had a different approach been taken, just look at its neighbour North Korea. One closed, one open - and the results speak for themselves.

Look back a few years to the Asian financial crisis, and its impact on this region - clearly those countries with more open economies bounced back far more quickly.

But in spite of all the evidence of the benefits of more open markets, trade barriers remain.

Sometimes just when you think you've made good progress winding back some of the more recognisable types of barriers, such as tariffs, you're confronted with more complex, but no less effective, barriers lurking behind the border.

Unfortunately there will always be situations where domestic groups exploit political means to try and defend their interests - take the US steel industry as one recent, high profile example! Protectionism takes many forms, and so the work of trade negotiations must go on.

Trade liberalisation means real economic gains. Speaking for New Zealand alone, if global agricultural barriers were to drop by 50%, that would result in a boost to our GDP by 4%. If APEC economies meet the Bogor goals of free trade in goods and services by 2010 for developed countries and 2020 for developing, there will be a boost to our GDP of up to 6%.

But the biggest economic gains will come from a multilateral round, under the WTO. Think of a round as the each one of the 144 WTO members negotiating 143 separate bilateral agreements at the same time, across an increasingly diverse and complex range of issues.

Now, we have just started our ninth multilateral round, known as the Doha Development Agenda, after the successful launch at the WTO ministerial meeting in Doha, Qatar, last November. The WTO's 144 members cover the bulk of the global economy. The few remaining exceptions in our region, including Russia and Vietnam, are actively seeking membership of the WTO, and 28 economies in total are in the queue to join.

What is recognised now, more than ever before, is the need for rules to govern this international trade, across a wide range of sectors.

It's amazing to think that rules for agriculture and services, two major areas of any economy but especially New Zealand's, only really came into place with the conclusion of the Uruguay Round in 1994. We are still negotiating on those rules. And the other WTO rules are still evolving too, whether through formal negotiations or the development of case law through dispute settlement proceedings in Geneva.

This rules-based system is the WTO's key achievement.

For small countries like New Zealand, with little in the way of leverage, that is incredibly important. It means that where we have differences with trading partners we can argue on the basis of fact, rather than force or economic muscle - things of course New Zealand doesn't have much of. And, I'm pleased to say we've shown we can win those arguments. This doesn't mean we won't ever be on the receiving end of the exercise of economic muscle, but if the rules are broken we can take those countries on and defend our interests.

While the WTO is the highest trade negotiation priority for almost all of the world's nations, we have also seen a vast increase in the number of bilateral and regional agreements concluded or under negotiation in recent years.

So much so that two years ago WTO Director General Mike Moore felt it necessary to warn against these being seen as a substitute for multilateral liberalisation, rather than a complement to it.

He has a point. I've expressed concern recently at one agreement in our region which doesn't make the cut, at least as far as New Zealand is concerned. We're interested in WTO-plus agreements, not WTO-minus ones.

However, comprehensive bilateral and regional agreements, which are consistent with WTO rules, can play an important part in supporting the multilateral system and helping it to progress.

That is our experience, in both the Closer Economic Relationship trade agreement with Australia, and more recently a Closer Economic Partnership with Singapore. We're interested in similar agreements. We've been in negotiations with Hong Kong about a CEP for just on a year. We are talking seriously about possible free trade arrangements with a number of other countries including the United States, though we know this particular bride has a long line of suitors.

This pattern of bilateral activity is probably true for most of the AmCham countries represented in this forum today. No-one wants to be left out. Even longstanding, committed multilateralists such as Japan, or Hong Kong, or South Korea, have changed tack in recent years. What we are seeing is the expansion of linkages across the Asia Pacific region, binding us all more closely together.

I would simply underline here the importance attached to this activity in supporting the multilateral system. The outcomes have to be high quality, comprehensive agreements. For New Zealand's part, we are not interested in "trophy" agreements - any CEP trade agreement we enter into must deliver real benefits.

Between the bilateral agreements and the multilateral World Trade Organisation, there is another step - the plurilateral regional agreement.

The first deadline of the APEC Bogor goals is approaching fast. That is to have free trade in goods and services by 2010 for developed economies.

The picture on this is more promising than generally believed. The goals were set in 1995; since then, simple average tariffs for trade within APEC have fallen by one third, from 12% to 8%. And the proportion of trade undertaken at very low tariff levels (between 0 and 5%) has increased from 59% to 69%.

I have to say that most of this progress is not directly attributable to APEC.

It results from the implementation of multilateral commitments, from sub-regional arrangements such as our Closer Economic Partnership with Singapore, and from unilateral liberalisation in some economies. The multilateral negotiations now under way in the WTO will, of course, constitute a huge step towards achievement of the Bogor goals if they are successfully concluded. Similarly the Closer Economic Partnership agreements under negotiation or in prospect also stand to make a major contribution.

Does this mean APEC is not relevant to multilateral trade liberalisation?

No, and what I've just said illustrates an important point about APEC's role. APEC is best seen as complementary to other avenues of liberalisation, rather than a spearhead in its own right. It contributed to the launch of the new WTO round by showing that a large and reasonably representative cross-section of economies was committed to seizing the opportunities arising from a broad-based negotiation.

APEC is now helping developing economies - both members of APEC and non-members- develop the institutional capacity required to participate fully in the WTO negotiations.

APEC provides a political framework for sub-regional negotiations as well as a benchmark through its concept of open regionalism. And day after day the unspectacular work of practitioners in government and the private sector is bringing down transaction costs for traders in areas such as customs procedures, standards, movement of people, and documentation.

New Zealand is committed to the Bogor goals, and we participate actively in APEC. We do this because we see its combination of market opening and economic development as the most sustainable way forward for ourselves and for the developing economies in this region.

Last year APEC entered a new phase, with its declaration on counterterrorism. This showed its ability to address the political questions that form the context of the regional economy. As the current chair of APEC, Mexico is making implementation and effectiveness its central focus. So we can expect APEC to continue adding value to work being done elsewhere.

Ladies and Gentlemen: I've given you a fairly general overview of trade in the Asia-Pacific area as I see it.

I think it's vitally important that groups such as yourselves get together to discuss and debate the issues around trade. One of the big problems of our time is that people do not have enough discussions of this kind - or rather that only one side of such a debate is being heard.

I firmly believe that trade is essential to the future wellbeing of New Zealand, and I am prepared to justify the Labour party's adherence to a belief in the importance of trade liberalization to our citizens.

My challenge is for you to get out there and to express your views as well. The forces of protectionism - like rust - don't sleep. We can't expect to maintain market access for our goods, let alone get further market access, if we don't vigorously explain why that's important - for all of our citizens and consumers.

Thank you.

Office of Hon Jim Sutton


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