Phil Goff Speech: Trade Policy Outlook
Hon Phil Goff
Minister of Trade
14 June 2008
Trade Policy Outlook
Australia New Zealand Leadership Forum
Te Papa, Wellington
It is a particular pleasure to be here alongside Simon Crean, with whom I have had a strong and constructive relationship over the six months since he has assumed Ministerial responsibility for Trade.
We have met and talked over the phone on numerous occasions.
Given the importance of Trans-Tasman trade and our shared interests in wider international trade, including through the Cairns Group, it makes sense for us to work in close partnership.
Today, I want to begin with CER, look at progress in the multilateral Doha Round, consider our regional trading relationships, in particular APEC, our plurilateral negotiations with ASEAN and the Pacific Forum countries, and touch on bilateral free-trade agreements, all in the space of 15 minutes!
Beginning with CER, we are now in our 25th year. It has been described by the WTO as “the worlds most comprehensive, effective and mutually compatible free-trade agreement”, which it is.
It has delivered major gains to exporters in both countries, effectively expanding our domestic markets. Trans-Tasman trade has grown at an average of 9% per year, faster than the combined growth rates of our economies.
It has been of mutual benefit despite the fears of some New Zealanders at the time of signing that we would be overwhelmed by a country five times our size, if protections were to be removed.
Our two-way trade in merchandise goods is now around $17 billion and in services around $6 billion. Our goods exports to Australia increased last year by 13.4%.
A key strength of CER is that it is dynamic. The treaties that make it up are regularly reviewed and amended to meet the changing needs of Trans-Tasman business.
An investment chapter is under consideration.
The second scheduled review of the Trans-Tasman Mutual Recognition Arrangement is underway and due by January 2009.
I would like to look now at the WTO. For both of our countries the foremost trade priority is completion of the Doha Round.
We strongly believe in a rules-based multilateral trading system.
It is the only way to tackle trade distorting measures such as agriculture subsidies on an international basis.
If a quality outcome can be achieved it will be more effective in promoting overall trade flows than a ‘spaghetti bowl’ of Free Trade Agreements, which are often not mutually consistent.
The potential gains from the Doha round are great. The lowest World Bank estimate puts the global benefits at $287 billion per year from 2015.
But the drawback of the multilateral consensus-based system is that it progresses at the speed of the most reluctant participants.
We have now been negotiating the Doha Round for seven years, and having broken too many of them, no longer set deadlines for an outcome.
Despite the affirmation of commitment to conclude the Round by the key players at the political level this, so far, has not been translated to flexibility at the negotiating table, which would allow that to happen.
The Round at this point hinges on progress in agriculture and NAMA (Industrials), with current negotiations being conducted by officials in Geneva.
Agriculture, expected to be the main barrier to overcome, has actually made good progress.
The square-bracketed texts, indicating areas where there is a lack of agreement, have been reduced from 175 to 30.
Real negotiations have taken place on ‘sensitive’ products going into developed countries, and compromises reached.
There are still outstanding issues including the breadth of ‘special’ products, going into big developing countries.
It is, however, possible to see the final outstanding political issues being resolved by a Green Room ministerial meeting.
Industrial products have made less progress.
The biggest divide remains the level of market opening by big developing countries compared with the level of tariff cuts required of developed countries.
The current text is ambitious for the latter with tariffs cut to a maximum of 7-9%, while tariffs for developing countries are set at a maximum19-26%, depending on what flexibilities are taken up to exclude sensitive products.
The US and EU say that in return for cutting tariffs and eliminating export subsidies from agriculture they must be able to deliver to their domestic constituencies some real additional market-access in all areas including industrial goods, agriculture and services.
They argue that too little is on offer from the big developing countries, like China, Brazil, and India, which are on a path to becoming economic Super-Powers.
The big developing countries respond that cuts in domestic support by the US in particular are merely cutting ‘water’ in its subsidies, by offering to reduce these to $13 billion when actual domestic support for agriculture at this time is lower at $9 billion annually.
An underlying constraint in resolving NAMA is that some of the big developing countries fear the impact on their industrial sectors of China’s competitiveness.
At a time of slow growth rates and the threat of recession, it also may be harder for compromises to be made in the face of emerging domestic protectionism.
In fact at a time when recession is a threat and we are confronting the current food crisis, an outcome to the Round is all the more important.
As we saw most dramatically at the time of the Great Depression, tightening protection deepens recession rather than mitigating it.
On the table already in the WTO Round are headline cuts in overall trade distorting agriculture support of 70-80%, and headline cuts in agriculture tariffs of 50-70%, as well as cuts and caps in industrial tariffs.
These by themselves would make an early conclusion of the Round worthwhile even if not at the level of ambition we would ideally desire.
Both of our countries will continue to push for progress in negotiations, which would allow for a Ministerial Green Room to occur.
A second priority for trade liberalisation is APEC.
The 21 economies that make up APEC constitute over 55% of the world’s GDP and 50% of its trade.
The region is the most economically dynamic in the world and the 21st century will be Asia’s century.
The vision of APEC, set out in the 1994 Bogor goals, was ‘free and open trade and investment in Asia-Pacific’, for developed countries by 2010 and for developing countries by 2020.
While real progress has been made in reducing barriers to trade, it looks unlikely that these goals will be achieved. The concept of a Free Trade Area of Asia-Pacific has been on APEC’s agenda for the first time over the last two years.
It is, however, an aspirational goal rather than one likely to be achieved in the near future.
That is also the case for the Closer Economic Partnership for East-Asia, a concept which has developed out of the East-Asia Summit, which is made up of ASEAN countries, China, Korea, Japan, Australia, New Zealand and India.
New Zealand is exploring a complementary and pragmatic approach of developing a free trade agreement in the region made up of like-minded countries wishing to liberalise trade through a high quality, comprehensive free-trade agreement.
This is designed as a bottom-up approach, where countries will join up voluntarily, agreeing to a high level of ambition because they recognise they would be disadvantaged by not being involved.
The core of this is the existing P4 agreement between New Zealand, Chile, Singapore, and Brunei. This Agreement is on track to eliminate tariffs on goods and follows a negative list approach on services. We are now negotiating chapters on financial services and investment.
The United States is part of the latter negotiation, premised on it becoming a comprehensive partner to the P4 grouping.
With critical mass provided by the US, I believe this Agreement could expand quickly and we are supportive of Australia’s involvement within this.
If we can achieve this, it could be a major factor in moving trade liberalisation forward in the region.
Australia and New Zealand are currently in negotiation jointly with ASEAN for a free trade agreement.
Progress has been made with the hope that, despite current differing levels of ambition between us and the ASEANs, an agreement may be reached this year.
We are also in the early stages of beginning a negotiation with Pacific Forum countries for a free trade agreement under PACER, Pacific Area Closer Economic Relations.
Given capacity constraints on the part of the smaller Pacific countries, and concerns that the agreement needs to work to promote their development, rather than to overwhelm them, the speed and manner of this negotiation will need to be managed sensitively.
Meanwhile, both of our countries are proceeding with bilateral free trade negotiations or pre-negotiations, with these at various stages with countries including the Gulf Cooperation Council six, China, India, Korea, Japan, and for New Zealand, Hong Kong, Malaysia and potentially the United States.
Bilateral agreements that are WTO-consistent can more rapidly and ambitiously remove trade barriers between countries than multilateral or regional agreements.
They, however, present other complications to business through the resulting ‘noodle bowl’ of agreements I mentioned earlier.
I want to finish on one bilateral agreement, our recently signed FTA with China, which will come into force on 1 October.
It is the first such agreement reached by China with an OECD country, and goes well beyond any of its previous FTAs.
It practically eliminates tariffs on goods within a commercially meaningful timeframe.
The FTA makes progress in some services sectors, which receive market access and national treatment, and with Most Favoured Nation status applying on a targeted basis.
Most Favoured Nation status also applies to Investment.
It creates provisions for dealing with areas such as technical barriers to trade, sanitary and phytosanitary conditions, customs and intellectual property.
It involves for the first time for China, parallel agreements on trade and labour, and trade and environment.
We hope that the FTA provides a template and impetus for future agreements with China by other countries, including Australia, and assists in the process of trade integration within the region.
In conclusion, CER underpins the strong economic relationship between our two countries and is a key component of the special partnership between us which is, as Kevin Rudd describes it, ‘as close as it gets’.
It is also the basis for combining our strengths to promote broader regional and multilateral progress in trade liberalisation.
I thank those here, in particular those in the business and political sectors, for your contribution to achieving these shared goals.