Sutton Speech: Federated Farmers Meat And Fibre
25 March 2002
Federated Farmers Meat and Fibre Council,
Duxton Hotel, Wellington
Chairman Murray Taggart, ladies and gentlemen: thank you for the invitation to speak with you today.
It's been two years since I last spoke to your group, and in that time, some things have changed and some haven't!
Farmers are still doing well economically. Prices are high, and the weather has generally helped production throughout most of the country. The New Zealand dollar has stayed relatively low in comparison with our trading partners, although recently it has begun to climb against the US dollar in particular.
I am confident with the proven innovative energy in your industry that you will continue to prosper.
As I have told many groups, the job that has taken up most of my time this parliamentary term is that of Minister for Trade Negotiations.
I know the realm of international trade can seem rather esoteric ? it certainly was to me when I started.
But it has a material impact on the lives of all New Zealanders.
Last week, I received the provisional findings of MAF research on the quantitative benefits of the last big round of international trade negotiations, the Uruguay Round. These results ? albeit preliminary ? make interesting reading.
These preliminary estimates indicate that in the single year of 2000 (the year that many of the gains of the Uruguay Round kicked in) the beef, sheepmeat, and dairy sectors gained about $590 million from product price and volume increases in the major United States and European Union markets.
MAF warns that this figure probably understates the likely gains accruing to the whole primary production sector because: they only look at beef, sheepmeat, and dairy; they consider only the main effects of the agreement on agriculture on trade patterns in those sectors; and they do not look at gains arising from savings in tariff duties.
MAF also says there are further gains from the Uruguay Round which are far less easy to quantify, including: the firmer trade rules; a strengthened dispute settlement system; and the dynamic effects of a world economy stronger than it would have been without such an agreement.
One benefit of the stronger dispute settlement mechanism is quantifiable.
That is the removal of the increased tariff on New Zealand lamb exported to the United States in October last year, after New Zealand successfully took a case to the World Trade Organisation dispute settlement panel. That single decision is generating gains to New Zealand, in the form of lower tariffs, at an annual rate of about NZ$10 million. Without the DSP, it is more more than just conceivable that the tariffs would have gone up rather than gone away.
The benefits to us of having a binding disputes resolution process for international trade cannot be overstated.
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 existence with the conclusion of the Uruguay Round in 1993. 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.
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 need to import many of these. Obviously, we can't afford to pay for them, without selling our ownproducts 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 our 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.
But in spite of all the evidence of the benefits of more open markets, trade barriers remain.
Sometimes just when we think we've made good progress winding back some of the more recognisable types of barriers, such as tariffs, we'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.
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. We succeeded in getting language in the negotiating text talking about phasing out agricultural subsidies and trade barriers, and New Zealand officials will work hard with the officials of other countries to ensure that we have real gains in that area.
It is my hope that the real, tangible gains of the Doha Round will be much greater than those achieved in the Uruguay Round.
Ladies and Gentlemen: I know that, as farmers who produce 80 per cent plus of all your outputs for export, you well understand how important market access, rules, and international trade is for you and our nation.
It helps when we can point to gains such as those from the Uruguay Round, and tell ourselves that each sheep, beef, and dairy farmer earned more than $11,500 extra in 2000 solely because of gains from the Uruguay Round.
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 ? never 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.
Office of Hon Jim Sutton