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Hon Jim Sutton: Global Business Forum meeting, DC

Hon Jim Sutton
Speech Notes
24 July 2003

Global Business Forum meeting, Washington DC, United States of America

Thank you for that generous introduction and to the Global Business Dialogue for hosting this forum. I am delighted to have this opportunity to talk to you about New Zealand perspectives on the Doha Round.

It is a pleasure to be on a panel in the company of a fellow Cairns Group member. And it is an honour to share the podium with Cal Dooley, one of the recognised champions of trade in the Congress and a leading supporter of New Zealand's quest for a free trade agreement with the United States.

Let me start by saying that the WTO needs friends in many different places, starting right here in Washington. Its main enemies, in order of importance are:

· Indifference: corporates are increasingly integrating their operations into the global economy, and yet seem largely unaware they are living off the accumulated capital of 50 years of successful negotiations in multilateral negotiations. The multilateral trading system needs care and maintenance. Not enough is forthcoming from the corporate sector in all our economies.

· Protectionism: still rampant in agriculture everywhere; on industrials or NAMA (non-agriculture market access) as we call it today continuing high suspicion by many developing countries and, in highly developed economies, isolated but deep pockets of resistance to trade liberalisation wherever there are tariff peaks;

· Exaggerated political concerns - over a whole host of so-called 'equity' issues, which all finally come down to the common proposition that it is the other person's responsibility to liberalise, not mine.

· Even more exaggerated concerns from many NGOs - the 'WTO as Monster' paradigm that fuels anti-G8 riots and a vast internet-based literature that seeks to undermine whatever support the WTO has in our various democratic Governments.

So let me look at some of these issues against the background of the state of the Doha Negotiations. I will focus solely on what I think are one or two of the major issues of importance to the United States.

Agriculture is the centre of New Zealand's preoccupations and also vital to the United States, commercially and politically.

Right now we are at a crossroads. The original 'road map' - agreement on 'modalities' by March 2003 - has not been reached. But I remain convinced that the destination we agreed on at Doha - 'substantial reform' - is very much intact.

Clearly, the recent reform agreed by the EU - by far the biggest subsidiser - is an important step towards meaningful negotiations. I was amongst the first agriculture Ministers to congratulate EU Agriculture Commissioner Fischler on that achievement.

Of course I know that the EU should have gone even further to delink their massive subsidies from production, and they have done nothing yet to develop their market access offer or to deal with export subsidies. But to give political credit, it is certainly a more significant package than any of us would have predicted after the Chirac/Schroeder deal earlier this year.

When we get this agriculture deal done and precisely how, I don't know. All I do know is that intense efforts are underway at all levels to find a way through this issue and that there will be no result in the entire Doha Round negotiation without a further substantial reform in agriculture.

I cannot define what might constitute a 'substantial' step: the answer to that will finally be found only through intense negotiation. But we will insist on a significant package in all three areas: export subsidies, domestic support and market access. That is consistent with the mandate we all agreed.

The other big issue of interest to both the United States and New Zealand is market access for non-agriculture goods. This is 90 percent of world trade in goods. In every sector the United States has hugely competitive companies that are capable of growth, creating new jobs and opportunities for Americans.

We need to deal with tariff peaks in the developed countries. But the real prize here is the extent to which we can encourage further participation in the international trading system by developing countries.

I do not want to be seen unsympathetic to developing countries here. But I would like them to make a more careful calculation of their own interests.

The central reality is this. At the launch of the Uruguay Round in 1986 some 76 percent of developing country exports went to the developed world - or, to put it round the other way, only 24% of their exports went to each other.

But at the outset of the Doha Round such has been the expansion of what is called 'South-South' trade that 42 percent of their exports went to other developing countries. It is projected this will exceed 50 percent by 2005. And, even more tellingly, developing countries are paying significantly more than twice as much tariff revenue on their exports to each other than they are paying to the Treasuries of the developed world.

Practically all developing countries are following, with greater or lesser focus, an export-led development strategy. Good on them. So they should. But if they think that it is only the barriers maintained by the developed countries that are impeding their development - look at the data.

As the world's largest economy, the United States is the focus of considerable pressure within the WTO and other forums. I am aware there is concern that it is always left to the US to do the 'heavy lifting' - to keep pushing out the envelope on trade liberalisation. There is a lot of truth to that. But if you accept the proposition that with power comes responsibility, I'm afraid this goes with the territory.

There is in fact a great deal of respect for the leadership role of the US out there. Certainly in the Cairns Group, we put the highest value on American leadership.

As a small nation, New Zealand believes strongly in the transparent, enforceable, rules-based system of the WTO. For us, it is important to have a legal system that enables us to get serious trade disputes heard, decided, and enforced.

Given the success rate the United States has in this forum, I would expect it would be supported here as well.

The dispute settlement record is quite clear: since the WTO came into operation in 1995, there have been 75 complaints against the US and, of these, 50 have run their course. Of these 50, the US 'lost' 20 cases. So as a defendant you have a 40 percent 'failure' rate.

To put that in context, an earlier study of all dispute settlement cases suggested around 80 percent of cases were lost by the defendant.

That is not surprising. It is a big decision to use the WTO and generally only very strong cases are taken to the final court. By this measure, your advocates are clearly doing a very respectable job.

Now look at the other side of coin: cases where the US has been a complainant. Since 1995, there have been 60 cases where the US has been the complainant. As at December 2002, 40 of these cases had run their course. In only 3 out of those 40 did the US not prevail in its complaint. So you have a 92 percent success rate when you are on the offensive compared with an 80 percent average.

There are other mechanisms nations use to achieve trade liberalization goals, specifically bilateral or regional trade agreements.

Some say that the proliferation of FTAs, including the current active US pursuit of the FTA approach, threatens the primacy of the multilateral trading system.

I am more in Bob Zoellick's "competitive liberalisation" camp on this one - that well designed FTAs can be 'building blocks' rather than 'stumbling blocks' for liberalisation efforts more broadly. And I think it does help to remind those who want to block the Geneva negotiations that the US does have other options.

New Zealand has long experience of the 'building blocks' approach, beginning with our CER agreement with Australia. CER is 20 years old this year and remains one of the most far-reaching trade agreeements in existence. We also negotiated the first trade agreement with Singapore and are now in a three-way negotiation with Singapore and Chile. We are also keen to closely follow our CER partner Australia in negotiating an agreement with the US.

Of course my support for this sort of agreement is not unqualified. So-called FTAs which leave the hard issues aside can act as 'stumbling blocks' to complicate broader liberalisation efforts.

Preferences granted under FTAs can also disadvantage non-parties. Competitive liberalisation should reward those who are prepared to liberalise further and faster than is possible under the WTO. But countries that are prepared to engage in such liberalisation should not suffer trade and investment diversion by being denied the opportunity to negotiate.

Finally, we must not forget that behind all these commercial issues at stake in the Doha Round are some very large political questions.

Historically, the United States has strongly supported the GATT and now the WTO because it saw a long-term linkage behind open economic systems and open political systems.

I believe that linkage is still very much alive. As economies develop, as incomes rise, as education levels arise, as expectations of a nascent middle class rise, so too does the demand for popular participation in the political process - what we could generally call 'democracy'.

We will need patience, courage and huge commitment to pull the Doha Development Agenda together. We are looking, once again, to the US to provide the same leadership it has always provided in the previous eight Rounds of multilateral negotiations. We do not expect you to shoulder that responsibility alone and you are not - smaller countries like mine are, I would argue, doing as much as we possibly can to promote the broader interest of the system. It is in our self-interest that we do so.

Ladies and Gentlemen: We need to remember that the WTO negotiations are not just about providing trading advantages. They are also essentially about reinforcing international stability and order. The founders of the international system understood this well enough when the WTO forerunner - the GATT- was instituted after the Second World War. In the mind of those founders it was certainly seen as a central part of a strategy aimed at avoiding the disastrous political and security consequences of beggar thy neighbour commercial policies in the pre war years. That is the vision we all should retain.


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