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Phil Goff: Fair Trade and Free Trade

Hon Phil Goff
Minister of Trade

Embargoed to 12 noon, 5 July 2008

Speech Notes

Fair Trade and Free Trade – Two Sides of the Same Coin
Speech to Focal Conference, Carey Baptist College, 473 Great South Rd, Penrose

I am pleased to be able to address the Focal Conference today.

I’ve been asked to speak to you about New Zealand’s role as a responsible global citizen in relation to free vs fair trade.

‘Free trade’ and ‘fair trade’ can mean different things to different people.

To some, the two are seen as incompatible.

Some associate the term free trade with big business, the opening of new markets and securing better returns on more exports.

Fair trade, on the other hand, is often seen as being about looking after the individual – for example making sure producers in the developing world are properly paid for their goods or labour.

Both these views have some merit. Freer trade does lead to increased trade flows and greater prosperity, for individuals as well as business.

And ‘fair trade’ initiatives are also useful in helping developing country producers escape the cycle of poverty.

However, I would disagree with the assertion that free trade and fair trade are incompatible. They are in fact two sides of the same coin, and both are important aspects of New Zealand’s role as a responsible global citizen.

The New Zealand Government is of the view that trade is fair when it is allowed to take place in an open, non-discriminatory global trading system, based on predictable and equitable rules.

It is a fact that trade can lift people out of poverty, and that more trade lifts more people out of poverty. We need look no further for an example of this than China, where free market policies instituted by the Chinese Government have lifted over 500 million people out of poverty.

Oxfam International estimates that if developing countries could increase their share of world exports by just 5% this would generate some US$350 billion in additional income – much larger than any aid package.

More trade in an open, rules-based trading system gives poorer countries more money to tackle poverty. It also leads to increased interaction within the global system and greater access to technologies and skills.

Poor countries rightly blame subsidies and other trade barriers in the developed world as denying them the opportunity to earn a living in the global marketplace.

Kofi Annan, the previous Secretary General of the United Nations, said that no single change could make a greater contribution to eliminating poverty than by fully opening the markets of prosperous countries to the goods produced by poor ones.

The current round of WTO negotiations was christened the Doha Development Agenda. This reflects the fact that development is its central goal.

The WTO recognises the significant degree of inequality that exists among its members. Therefore, while looking to open up markets and improve access, the Doha Round also provides for what is known as “special and differential treatment” for developing countries.

This means, for example, that developing countries may be allowed to make lesser tariff cuts, or be subject to longer implementation periods for their WTO trade commitments, than their developing country counterparts.

In addition, mechanisms to safeguard at-risk producers in developing countries in times of crisis may be agreed.

For the poorest, the so-called “least developed” countries, even greater flexibility is provided.

One of the most important trade and development outcomes from the Doha Round would be reform of agriculture trade. 70 percent of the world’s poor are involved in agriculture.

The reduction of farm subsidies, tariffs and other barriers to agricultural trade will enable developing countries to secure enhanced access to large new markets, and to enjoy the benefits of fair prices for their products in these markets.

If we can achieve this, then we are achieving “fair” trade on a global scale.

New Zealand is committed to an ambitious result in the Doha Round – including in agriculture. Such an outcome will not only be beneficial to New Zealand.

Developing country agricultural producers stand to gain significantly through greater market access for their products, particularly into developed countries, many of which continue to protect their producers through subsidies, and other trade barriers.

We don’t just talk the talk. As a country, we consistently rank as having amongst the lowest levels of market barriers in the world.

We have allowed Least Developed Countries to export their goods to New Zealand completely free of any tariffs or quotas since 2001.

And we support initiatives for special and differential treatment for developing countries in the WTO – in particular appropriately tailored provisions that give developing countries additional flexibilities for food and livelihood security, and rural development.

The Doha negotiations are more than just about getting a good deal. They are also about creating certainty and rules in trade. We need robust international governance in trade as much as we do the in environment, human rights and security.

Global trade rules limit the scope for discrimination and provide certainty for traders. The WTO also provides the means for redress through dispute settlement procedures when global trade rules are broken. For smaller, or less wealthy or powerful members of the international trading systems these rules are crucial.

Growing concerns about food security, the so-called “global credit crunch” and higher commodity and fuel prices make it even more important that the international community work together to remove global trade distortions.

According to the United Nation’s Food and Agriculture Organisation, world food prices rose 40 per cent last year and already this year by a further 50 per cent. This is a problem for all of us. For increasing numbers it is a crisis.

For poor households in developing countries, the consequences of food inflation are not just pressure on family budgets but malnutrition and hunger. Increasing food prices mean that another 100 million people will be pushed into poverty.

In response to these challenges it is crucial that we assert even more strongly the need for a robust rules-based multilateral trading system. To do this, we need to redouble efforts towards a successful conclusion to the Doha Development Round.

Ensuring the freedom of trade does not, by itself, ensure the fairness of trade. It is merely one side of the coin.

Many developing countries face real challenges in taking advantage of the opportunities that emerge as trade barriers fall.

They may have limited resources, poor institutional capacity, small productive sectors, and lack critical social and economic infrastructure.

Support to help developing countries maximise their gains from trade is therefore an important complement to reforming the rules of trade. Last year New Zealand provided $28.8 million of assistance in Aid for Trade and an additional $9 million for infrastructure projects, such as building roads.

We are also an active voice in international discussions to ensure the effectiveness of Aid for Trade.

The government has also provided support through its international development agency, NZAID, to build consumer awareness in New Zealand of the availability of fair trade-accredited products.

New Zealand and Australia are currently among the fastest growing markets in fair trade goods of any countries in the world.

We are a country that depends on trade for its well-being, and I think that while most New Zealanders accept that enhanced access for our goods into new markets is critical to our continued economic growth and prosperity, we also believe that – fundamentally – such arrangements should also be fair.

This is reflected in the approach the government takes to our bilateral trade deals. In these agreements we do not neglect our commitment to principled trade.

We seek to integrate labour and environmental standards into our trade agreements because we believe that while developing countries should not be denied the legitimate comparative advantage of lower costs, this advantage should not be secured in return for neglecting fundamental labour or environmental principles.

Earlier this year, New Zealand celebrated the historic achievement of becoming the first developed country to sign a free trade agreement with China.

The agreement is comprehensive, including goods and services but also chapters on investment, labour and the environment, as well as provisions relating to the Treaty of Waitangi.

The inclusion of labour and environment provisions is an important condition of all New Zealand’s free trade agreements. Often, this can make it hard to get a deal as some countries are reluctant to include such provisions in what they view as essentially trade agreements.

In the case of China, however, we became the first country to negotiate binding labour and environment outcomes as part of our FTA package.

In the end, it is our consistent and principled approach to trade which ensures we are respected by our trading partners.

We believe, advocate for and practice trade that is both free and fair. We recognise that they are two sides of the same coin. And we put our money where our mouth is.

Thank you for the opportunity to provide this perspective.


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