Global Trade and The New Zealand Meat Industry
Hon Phil Goff
Minister of Trade
10 September 2006
Global Trade and The New Zealand Meat Industry
To the Meat Industry Association Conference, Nelson
Thank you for inviting me to speak today. I also bring the apologies of the Prime Minister, Helen Clark, for not being able to be here.
I want to touch on a range of trade issues, including the Doha Round, regional trade agreements, the role of industry in trade negotiations, and how we deal with non-trade barriers to our exports.
New Zealand meat industry and trade
Physically, New Zealand is a country that is naturally suited to producing agriculture goods – we have both a comparative and competitive advantage in the agriculture area.
However, we haven’t taken that for granted. The meat sector is sophisticated, innovative, dynamic and market-oriented with world-class technology and skills. It is constantly striving for increased productivity, quality and market development.
Last year over $4.5 billion worth of meat and meat products were exported. In the year ended March 2005, New Zealand exported around $6 billion worth of products, both meat and wool from the sheep, beef and goat industries.
New Zealand is the world’s largest exporter of sheepmeat, second largest exporter of wool and about fourth or fifth largest with respect to beef.
At the same time, however, New Zealand farming continues to be damaged by overseas government policies that provide large subsidies to their own farmers while charging high tariffs on New Zealand’s exports.
In 2003 OECD countries delivered US$340 billion in support and protection for agricultural products.
As we know from experience in New Zealand, government subsidies to agriculture are a double-edged sword for farmers, consumers and taxpayers.
Government subsidies encourage over-production, divorcing producers from price signals and consumer demand. They also indirectly lower global prices as the surpluses they create are exported. This reduces export opportunities for others who are unsubsidised.
The EU notified close to €6 billion in trade-distorting “amber box” and ”blue box” domestic support – that is trade-distorting domestic measures - to beef and sheepmeat in 2001/02.
I want to acknowledge that the EU has taken big steps in reforming its Common Agricultural Policy. Much of that support to beef has now been “decoupled” from production, and will be significantly less, or non, trade-distorting. Although that's encouraging, they could do more.
Other countries, too, have to cut their subsidies, if we are to reduce the gross distortions in the global trading system. This will be a particularly acute question for the United States right now, as it looks to put in place next year a new “Farm Bill” that will govern the support structures for US farmers for the next five to seven years.
But the story doesn’t end there. Agricultural products also face formidable barriers in accessing overseas markets. Agricultural goods are subject to some of the highest tariffs on the world market. Meat tariffs can run as high as 50% in Japan, 150% in the EU, or 200, 300 even up to 700 percent in Switzerland and Norway for various meat products.
Certainly, in some markets for beef and sheepmeat, especially Europe and the US, there are tariff quotas that allow a limited amount of product to enter the market at a preferential tariff rate. And we benefit from the high prices in those markets.
We don’t, however, have any potential to expand exports to those markets because of impossibly high over-quota tariffs.
World beef markets are also distorted by export subsidies. The EU spent around 285 million euros in 2002/03 on export subsidies on beef – about 800 euros for every tonne of EU beef receiving subsidies. And the EU has a much larger allowance and could have spent over four times that amount. Fortunately, as a result of the Andriessen Accord, most EU-subsidised beef does not compete directly with New Zealand exports. But those export subsidies do have an effect in some markets and they do distort the global picture. The European Union at Hong Kong agreed to eliminate export incentives by 2013, which will be welcome if we conclude the round.
For all the reasons outlined, the global agricultural marketplace is in urgent need of reform.
Doha – status and where to from here
The best way to achieve this is through the multilateral route offered by the World Trade Organisation.
Before I go into the current state of play in the WTO Doha Round, I want to reflect briefly on why the WTO is so important to us.
The WTO system is a series of rules that applies to all Members. The rules are designed to ensure that all nations are able to enjoy the benefits of economic growth through trade.
And one of the founding principles of the WTO – progressive liberalisation of trade – means that all Members will benefit more, the more reform that is undertaken.
All countries have a powerful economic interest in ensuring the multilateral trading system remains in good health.
Beyond offering a robust rules-based framework to manage global trading relationships, it offers a chance to integrate the weakest and most vulnerable developing countries into the global trading system. That’s important for a world in which prosperity can be shared and stability and security ensured.
And the WTO offers all Members, including countries like New Zealand which face some real risks from protectionist trade policies, the best chance to get rid of others’ damaging government subsidies and open up markets.
The New Zealand meat industry has already reaped the benefits of some reform through the WTO process. The last, Uruguay, Round was the first step towards giving us certainty, transparency and a more level playing field.
Former trade bans and other barriers were converted to tariffs and reduced. Export subsidies and domestic support were capped and reduced. The estimated value to New Zealand between 1995 – 2004 from these reductions is around NZ$9 billion, mostly agriculture-related and a significant part of it – around NZ$2 billion – directly related to sheepmeat and beef trade over that period.
New Zealand, as other Members, benefits from rules that stop arbitrary actions being taken on goods that are being traded. For the meat sector the Sanitary and Phytosanitary Agreement is particularly important.
The SPS agreement has dual functions. It recognises the right of any country to take action of imports necessary to safeguard plant, animal and human life and health. This is obviously essential for New Zealand to protect us form diseases such as foot and mouth disease and BSE.
But the flipside of the SPS agreement is that countries cannot prevent imports unless there is a scientifically justified reason for doing so. This is essential for keeping markets open. It’s all too easy for countries to block trade on spurious grounds in order to protect their farmers. The SPS agreement was a significant part of the Uruguay Round of negotiations that led to the establishment of the WTO.
Another important WTO mechanism is the dispute settlement mechanism. This is a key component of the WTO system, allowing small players to challenge others’ when they break agreed rules.
This has provided dividends over the years, New Zealand has initiated legal proceedings against a number of countries, and been successful in all of them.
In 1999, for example, New Zealand took a case against the US for illegal trade safeguards against New Zealand and Australian lamb imports. The WTO Panel and the WTO Appellate Body both found conclusively in favour of New Zealand and Australia.
The tariffs and quotas imposed by the US on lamb meat were deemed inconsistent with WTO rules. In accordance with the recommendations and rulings of the Dispute Settlement Body, the US removed the safeguard measure on New Zealand and Australian lamb meat.
It is clear, then, that for countries like New Zealand, the multilateral trading system has already been critically important.
Given the further benefits we stand to gain from the successful conclusion of the WTO's Doha Round, the suspension of the WTO talks back in July is extremely serious.
If we cannot move past the suspension and conclude the Round, there will be large costs for both developed and developing countries. These costs will be economic, as countries – and particularly developing countries - miss out on the gains to be made from freer trade. The World Bank has estimated a net welfare gain to the world of $290 billion (US) if all obstacles to trade are removed.
The costs will also be political – the credibility of the multilateral trading system would be undermined. As WTO Director-General, Pascal Lamy has pointed out, we are all losers if the Round does not reach a conclusion.
The political will to get to an outcome was missing back in July in Geneva. It is clear that, first and foremost, the “engine room” of the negotiations – the European Union, United States, and large developing countries, India and Brazil – will need to show leadership in getting the show back on the road. But the commitment ultimately needs to come from all WTO Members.
I have kept in close contact with other WTO Ministers and had discussions about the Round in Kuala Lumpur, two weeks ago, during the ASEAN Economic Ministers' meeting.
The Cairns Group Ministerial that I’m due to attend in Australia in ten days’ time will provide a further opportunity.
We have a powerful incentive to keep Doha alive and we will be doing all that we can as a small but reasonably influential community to help get the process restarted.
Bilateral and regional trade strategy
As always when a multilateral trade round is in trouble, countries also give thought to alternatives. Regionalism and FTAs are likely to come more to the fore.
New Zealand has never put all its eggs in one basket and has always maintained an active regional and bilateral agenda, parallel to the WTO. In current circumstances, our bilateral and regional efforts are likely to intensify.
The Asia-Pacific region is one of the most dynamic regions in the world. Intra-regional trade has been shown as a particularly effective mechanism for growth, so the benefits of enhanced regional integration are obvious.
We are reasonably well-placed to be inside regional processes that evolve in the Asia-Pacific.
But we cannot take our position for granted, and we must work hard to be seen as a valued and contributing partner in the region.
Our multi-pronged approach of pursuing integration involves, for instance, APEC, the East Asia Summit process, our ongoing FTA negotiations with the giant in the region – China, as well as Malaysia and ASEAN. And we will continue to seek to deepen our relationship with Australia towards the goal of being a single economic market.
At the Asean Economic Ministers meeting in Kuala Lumpur recently the Japanese Trade Minister, Nikai floated a proposal for an Asean 6 grouping that would represent 3 billion people and a $9 trillion (US) market. We ned to be at the table and not looking from outside the room.
These regional processes can also act as important drivers for a return to multilateral negotiations.
Serious talk in 1993 about an APEC-based FTA for instance was one catalyst for the conclusion of the Uruguay Round.
APEC representing over 45% of the world GDP was originally designed to liberalise trade setting the Bogor goals for the removal of tariffs. We need to intensify efforts to do this with some chance that the US might consider this option if the Doha round fails.
We also need to look for opportunities beyond our own backyard – to our big trading partners in the Northern Hemisphere, the Middle East and so on – to ensure that New Zealand has not only a seat at the table but also a full smorgasbord of trade and economic options available to it.
I was pleased, in this regard, to announce on Thursday that the six Gulf Cooperation Council member states: Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE and Oman have agreed to commence negotiations on an FTA with New Zealand.
This is an important development. New Zealand merchandise goods exports to GCC states grew to more than $720 million in the year to June 2006 – not far short of major export markets such as Germany.
The negotiation of an FTA with the GCC is considerable potential implications for the New Zealand meat industry.
Dairy and meat accounted for 81% of exports to the GCC region in 2005. In the 2004-2005 seasonal year, the GCC was New Zealand's fourth largest market for sheep meat – excluding offal – by volume, and 5th by value. For beef – again excluding offal – the GCC was New Zealand's 11th largest market by volume and 12th by value in the 2004-05 seasonal year.
The importance of an FTA with the GCC is that it will strengthen and protect the competitive position of New Zealand's exports to the region by removing tariffs and other barriers to trade in the increasingly competitive Gulf market.
Scoping discussions for the GCC FTA negotiations will begin in the next few months.
It’s not hard to identify targets for new FTAs. There are good potential economic gains from better access to any of the major Asia-Pacific economies – the US, Japan, Korea, Canada or Mexico – as well as the EU. The same economies are important as potential sources of investment, something we would expect an FTA relationship to stimulate.
However, wanting to conclude an agreement with a major trade partner is one thing. Getting to the negotiating table is another.
It is relatively easy to get together with smaller partners with relatively open economic and trade policies. Our agreements with Chile and Singapore testify to that.
We have also been able to attract interest from larger countries, which are relatively new to the FTA game and want early experience of negotiating a high-quality agreement.
Beyond that the challenges are tougher.
Big economies will tend to give priority to their larger trade partners.
They will generally depart from that rule only if they have special strategic or political reasons for doing so. Agricultural products are key difficulties for most of these markets especially Korea, Japan, the EU and the United States.
And they will look warily at candidates whose export profile presents them with particularly difficult negotiating challenges.
We are not going to be able to rely simply on our appeal as a trade partner. We need to accept that we are engaged in a longer-term task of developing more broadly-based relationships within which we can make a persuasive case for a preferential trade and economic agreement.
Our efforts to continue to promote ourselves as a good option for an FTA partner will of course continue. In this context the role of industry is very important. Increasing our trade interests requires a “New Zealand Incorporated” approach, including not only the government but also the meat industry.
Role of industry in trade negotiations
Our approach to free trade in agriculture is not shared by farmers worldwide.
We spend a lot of time and resources lobbying foreign government officials with our free trade message. But governments face huge pressures from their local industries not to reform. So it is important that our industry also be involved in international efforts to promote trade liberalisation.
The New Zealand meat industry regularly lobbies important trading partners such as the EU Member States and Japan.
You also work closely with other large beef- and sheepmeat-exporting countries such as Australia, Canada, Mexico and the US (e.g. in the Five Nations Beef Conference and the Tri-Nations Lamb Group). These are very important initiatives.
The meat industry has created important links with industry overseas. Broader cooperation between industries and governments helps chip away at that ‘us’ and ‘them’ mentality that can create mental barriers to trade agreements.
I want to thank the meat sector representatives that we deal with for their effectiveness, professionalism and constructive approach in working with the government to identify key interests, highlight risks and advance the sector’s interests.
Recent initiatives or outcomes – specific gains.
We have a strong history of working together, and I want to see that continue.
For example, we worked closely with meat industry representatives during the negotiations over compensation after the EU enlargement in May 2004.
The European Union (EU) is our largest export market for sheepmeat and is also significant for fresh and frozen beef. Under WTO rules New Zealand and others negotiated with the EU for compensation for products where access conditions had worsened as a result of the new member states adopting the EU's Common External tariff.
The key results for the New Zealand meat industry at the conclusion of the negotiations in July 2005 were the addition of 1,000 tonnes to the existing 300-tonne tariff quota for high quality New Zealand beef, and expansion of New Zealand's country specific tariff quota into the EU for sheepmeat by 1,154 tonnes.
This was an excellent outcome for the meat industry, and could not have been achieved without your help.
Animal Welfare and Environment
Looking to the future as tariffs and other obvious forms of protection are lowered through bilateral and multilateral trade agreements, countries, competitors and companies are increasingly using other barriers to protect their domestic industries.
These barriers are much less transparent than tariffs and more difficult to monitor and respond to. They can include spurious food safety or labelling requirements imposed by governments. Food Miles are an example, with competitors in the UK directly attacking New Zealand produce by talking of the negative environmental consequences of food miles over which they have to be transported. Studies including one due for release this week from Lincoln University show that energy used in sheep meat production in New Zealand is in fact a quarter of that per animal in the UK.
Other barriers include production standards imposed not by governments but by commercial actors in the wholesale/retail chain, such as large European supermarkets.
At the level of governments, therefore, agreements like the Agreement on Technical Barriers to Trade and the Sanitary and Phytosanitary Agreement are very important for us. These agreements help ensure that any measures – such as labelling and food safety – are used in a targeted and appropriate manner and not as a guise to protect domestic markets.
The meat industry is also having to become more and more responsive to commercial and consumer expectations.
Domestic and international customers are increasingly demanding food that is not only safe, but also produced in an environmentally friendly way, and with respect for the welfare of animals. Products that meet those demands earn a premium in the international marketplace. And fortunately, when it comes to the quality of our environmental and animal welfare practices, New Zealand agriculture has a story to tell that’s as good as anyone in the world.
The way we care for our environment is a crucial business issue for our primary sectors, as well as a sustainable development issue. Our agriculture depends on our climate. But it is also a matter of responding to growing consumer anxiety over the issues. And the government is working closely with the sector to ensure that our environmental performance remains world-class.
Animal welfare concerns are also a particularly relevant issue for New Zealand given our large exports in livestock products.
New Zealand has had legislation on animal cruelty since 1878. Our current animal welfare codes put us in the top rank of nations with a concern for the welfare of animals.
In closing I would like to register my appreciation for the close cooperation we have had with the meat industry over the years.
This cooperation will be especially important in coming months, as we strive to get the WTO negotiations back on track and – at the same time - to advance New Zealand's bilateral and regional trade interests.
The challenges ahead are not small ones. There is still no clear sign that a breakthrough is imminent in the Doha Round negotiations. Most players in the WTO remain pessimistic that any movement will be possible until at least after the US congressional mid-term elections in early November.
We cannot, however, afford to assume that the Round will fail, such an assumption will be self-fulfilling.
For New Zealand, the WTO remains vital and we will remain fully committed to the multilateral trading system, and the conclusion of the Doha Round, for as long as it takes to conclude a Round that advances New Zealand's trading interests.
At the same time, however, we must be realistic. As I said earlier, New Zealand has never put all of its eggs into one basket. We will continue to be actively engaged in progressing our bilateral and regional trade interests through bilateral FTA negotiations, such as the ones we are engaged in with China, and will shortly launch with the GCC.
We will also continue to be actively involved in ongoing discussions about new Asia Pacific regional integration initiatives, such as Japan's recently floated ASEAN plus six FTA proposal, and ongoing discussions about how APEC might further enhance regional economic integration.
Another aspect of "realism" in considering all of these areas, is remembering that New Zealand is a small country.
Government and industry need to keep closely in touch as we move forward. I firmly believe that a "NZ Inc" approach is an important "force multiplier" in progressing our economic and trade interests overseas.
In this regard, I was very encouraged to hear Jeff Grant say earlier this week, that he felt that the cooperation between trade officials in the Ministry of Foreign Affairs and Trade and Meat and Wool New Zealand was currently the best it had been.
I will be doing my best to ensure that this trend continues. And I look forward to hearing your thoughts today.