Jim Sutton speech to Dunedin NZIIA
Hon Jim Sutton
19 August 2004
Institute of International Affairs meeting, Dunedin
Ladies and Gentlemen, thank you for the opportunity to talk this evening about New Zealand's trade policy.
I'm delighted to be back in Dunedin. Dunedin is a city very much shaped by trade, whether through gold, agriculture, manufacturing, or services such as engineering, education and audio-visual. So I'm pleased to be here to talk about the prospects for progress in the World Trade Organisation and in regional arrangements. I'll call them Plan A and Plan B.
I will talk a little about what happened in Geneva last month and how we were able to turn failure at Cancun into success.
And then how work on bilateral and regional trade agreements can support and complement the multilateral trading system. And why this too is very important for New Zealand.
Every speech I've given on trade policy stresses the importance of the multilateral trading system.
Put simply, nothing else can match the potential returns to the New Zealand economy from global trade liberalisation. It is the equivalent of conducting bilateral negotiations with 146 other partners.
These negotiations are conducted in successive Rounds. We are in the ninth such Round, launched in Doha, Qatar, in 2001 and known as the Doha Development Agenda. Each is more complex and challenging than the previous one, both in terms of the issues being negotiated and the ever-growing number of countries involved.
The Uruguay Round, negotiated from 1986 to 1994, has produced gains for the New Zealand economy over the last decade of more than NZ$9 billion. For an agricultural exporter like New Zealand, the Uruguay Round result was particularly important because it brought agriculture under multilateral trade rules for the first time.
We also have much to gain from ensuring that everyone plays by the same rules ? large and small. One of the most important achievements of the Uruguay Round was to give teeth to the dispute settlement system.
We've made very good use of this system ? when the US slapped penalty tariffs on our lamb exports; when we wanted to challenge Canadian export subsidies for dairy, and to defend our butter access into the EU. Even where we haven't had a direct trade interest, we've swung our support behind other significant actions to help enforce the rules, whether on the use of beef hormones, or on sugar into the EU. So far we have a 100 percent success rate.
The WTO is truly global. With 147 members, most of the world economy is now covered by multilateral rules. A few economies still remain outside, but most are in the process of "acceding" to the WTO.
So to recap on why is the multilateral system important - I'll give you a variation on the "three Rs":
· it is about Returns ? the world economy stand to gain most from genuine progress in multilateral trade liberalisation;
· it is about Rules ? establishing and sustaining a rules based system to govern global trade;
· and it is about Resolution ? the ability for large and small alike to defend their interests through enforcement of those rules.
Keeping all this in mind, why is the WTO system so important for New Zealand?
Basically because there is no other trading nation like us. We are a developed country. But we are small and a long way away from anyone else. And we happen to be best at producing things that are the most protected all over the world. For these reasons a successful conclusion to the Doha Round is New Zealand's top trade priority.
And that is why it was so important to get agreement to the frameworks package in Geneva last month.
The WTO's record since the start of this century has not looked good. We failed at Seattle in November 1999 to launch the new Round. Two years later we secured agreement to the Doha Development Agenda ? helped by the events of September 11 and a determination to inject confidence into the world economy. But then the failure at Cancun last year.
Not a great record. But not surprising. The issues are ever more complex, reaching well beyond the border. There are real economic interests at stake.
The organisation's character has changed markedly, from a small club mostly of developed countries, to a body covering some of the world's poorest countries ? many of whom find themselves marginalised from world trade - to major powers like the United States, the European Union and Japan. Finding consensus amongst such a disparate group would be a huge challenge for any organisation.
What is remarkable is that we did succeed in Geneva.
Cancun provided some valuable lessons. And ironically, we have a result in the July frameworks package that is better than anything ever on the table at Cancun.
The process of rebuilding began shortly after Cancun. Political commitment to restore momentum to the Doha Round could be seen across the organisation.
There were conscious efforts to engage and involve developing countries ? both at home, or at regional meetings ? as well as in Geneva. And over the ten months the EU made a major contribution through some key concessions, notably on elimination of export subsidies, and setting aside three of the four contentious Singapore issues.
Agriculture remains the key. The focus for the agriculture negotiations rested with the "Five Interested Parties" or FIPS ? Australia, Brazil, the EU, India and the US. They made good progress, especially in the past few months. But the challenge was to get buy-in from across the WTO membership to the building blocks established by this crucial core group.
This was not a case of sleepwalking to an agreement, though sleep deprivation was certainly a factor at the end ? with negotiators going for 40-48 hours at a stretch! It was bruising, and drawn out. It was touch and go to the end. But the result was one that met with genuine satisfaction across the WTO Membership. And that itself is quite remarkable.
What did we achieve? The Dominion Post headlines on 2 August read "Trade Talks: Biggest advance in 50 years". Perhaps some editorial licence here, but nevertheless it was a significant result.
In agriculture, we have an historic commitment to eliminate export subsidies ? the most egregious form of trade distorting support. For the first time in 50 years, the debate will now be about when, and not whether we do it at all. On market access, while the language could have been more ambitious, we have the basis for arguing for substantial improvement in market access for all products, including tariff quota expansion for sensitive products. And the framework sets the basis for big cuts in domestic subsidies.
The other important negotiation was on non-agricultural market access. NAMA covers what used to be known as "industrial goods", which includes sectors of major importance to New Zealand, such as forestry and fisheries
The NAMA framework is virtually unchanged from the text at Cancun. But the negotiations on NAMA almost broke down on a couple of occasions, and had this happened it could well have taken the whole deal down, as the Singapore issues did at Cancun.
As for the Singapore issues, we agreed to start negotiations on trade facilitation, the least contentious of the four. The other three are set aside from the Doha work programme.
And what was New Zealand's role in all of this?
We're only one of 147 members. Measured by world trade, we've got few if any claims to be more than a bit player. But we were very much at the centre of these negotiations.
I was one of 20 or so members invited to the Green Room ? the inner circle ? where the key outcomes were hammered out before taking them to the wider membership for decision. In addition to that, we had New Zealand Ambassador Tim Groser chairing the agricultural negotiations. And the rest of our trade team were very active in helping to keep the NAMA negotiations alive, as well as arguing the New Zealand agriculture case forcefully.
I take tremendous satisfaction from the result. The measure of that success should be seen not only in what we gained, but also in what the alternative ? failure ? would have cost us all.
But to emphasise ? these are frameworks. This is not the end of the Round, nor of the negotiations ? far from it. We still have to negotiate on what is known in the WTO as "modalities" ? the numbers.
We could still see the potential for an ambitious outcome wound back to a very modest result. But what is important is we still have an opportunity to press for ambition. The Doha Round is back on track.
The next major focus is the Sixth Ministerial meeting in Hong Kong in December 2005.
In the meantime there will be considerable technical work across all the negotiating issues. But if we can agree on modalities at this next Ministerial meeting, we may be on track to conclude the Round some time in 2006.
Sensibly we did not set a new deadline this time ? it's been left open-ended.
Then a couple of years for implementation to start, and anything between 5-10 years to implement the commitments arising from the Doha Round. If we make it to a tenth Round, it could well be 2020.
But we can move further and faster, if we choose. And this brings me to the second leg ? Plan B - bilateral and regional arrangements.
I'll explain why we are involved in negotiating Closer Economic Partnerships and Free Trade Agreements. And then give you a quick update on New Zealand's progress with our CEP partners.
There are two questions to consider ? why is New Zealand interested in CEPs, and why would others be interested in us?
Quite simply, others are in this game and we need to be there too. Our major southern hemisphere competitors are all in various ways either negotiating or have already concluded preferential free trade agreements with our major developed country markets ? the US and the EU. If we were to be left behind, we would end up at a competitive disadvantage.
Within our Asia/Pacific region, we have an "emerging regional architecture", with integration being driven by genuinely changing competitive positions. China is very much at the heart of these changes. Again we face the risk of marginalisation if we are not a part of this process.
There is a strategic element to our approach. To consolidate relationships, particularly within the region, both in their own right and as "stepping stones" to broader goals. Singapore, for example, our second CEP after Australia, has provided a platform not just for our present negotiations on a "Pacific Three" agreement with Chile and Singapore, but also for an ASEAN-Australia-New Zealand trade agreement.
It makes sense to look to build and strengthen these relationships with our regional neighbours. Open regionalism in trade and economic spheres is a key to regional security and stability. And our contributions to security and development in the region have complemented our wider economic interests.
Another factor is precedent. In CER we have a model trade agreement. Twenty years on it is testament to the vision of it original negotiators that we still have the world's most comprehensive and effective trade agreement.
So New Zealand is certainly interested in CEPs, but that doesn't fully explain the interest other countries have shown in negotiating CEPs with us.
We are after all a tiny market with an uncomfortable trade profile. In fact the very reasons that push us towards others could put us into the "too hard basket". Yet the record speaks for itself ? we have completed two CEPs, we are presently negotiating or about to enter into negotiations on four more, and we have others in prospect.
In New Zealand's case we are a developed country, but we don't come with some of the baggage others may carry. We have a track record of high quality agreements, and our negotiators are recognised as first class. As such we have value as a strategic partner, and as a building block for wider trade liberalisation steps. We can enhance our attractiveness to others by working closely with Australia ? our two economies combined are equivalent to the ten South East Asian members of ASEAN. And finally, we are active out there in the CEP market ? we have made clear we are very willing to explore new arrangements.
As for our CEP timetable, on Thailand our negotiators have just finished a second formal round. We are still aiming for signature at the APEC Leaders meeting in Chile in November this year.
This week New Zealand is hosting the latest round of Pacific Three negotiations with Chile and Singapore, after a break in the process from late last year. We are aiming to conclude negotiations by April next year.
On the prospects for a trade agreement between the ASEAN countries and Australia and New Zealand, we are working towards a launch of negotiations later this year.
On China, we are presently undertaking a joint study, which we hope to complete by mid- November. Both sides are still aiming to start negotiations in the new year.
Even closer to home, we have the prospects of negotiations with our Pacific Island neighbours. The Pacific Agreement on Closer Economic Relations ( PACER) contains a provision under which we and Australia can enter into consultations leading to negotiations for a trade agreement, to match similar moves with other partners.
The United States is obviously top of our list of other possibilities. We have made clear our strong interest in negotiations on a trade agreement, and are continuing work to build our constituency in the US. But we recognise that any decisions on the part of the US Administration will have to await the elections in November.
We have made clear that New Zealand is prepared to negotiate with any other APEC member economy interested in a comprehensive agreement. And there is interest from a number of others outside the region as well.
In conclusion, I hope I have left you with a sense of why the multilateral system is so important for New Zealand. And an understanding that while our number one priority is the WTO and the Doha Round outcomes, we are keen to move further and faster where we can, with who we can, on a reciprocal basis.
I'd be happy to take any questions. Thank you.