Developments on free trade negotiations
Hon Phil Goff
Minister of Trade
Developments on free trade negotiations
Speech to Export New Zealand – Grand Hall, Parliament.
Can I welcome you to Parliament and thank Export New Zealand for organising this lunch. I have been asked today to provide you with an update on the status of free trade negotiations.
Removing barriers to trade has never been more important than in the current world economic climate where soaring oil and food prices, combined with falling property values, a financial crisis and credit squeeze continues to threaten the world with recession.
Concluding the current World Trade Organisation (WTO) Round would give a boost to world trade, growth and confidence but, paradoxically, the threat of recessions often turn countries toward protectionism, which has the opposite effect.
Within New Zealand, the first eight years of the 21st Century has seen the country’s longest and strongest period of growth since the 1960s. GDP grew faster than the average of the OECD, and real household incomes rose by 25%.
However, the world economic situation is now less benign and, along with other OECD economies, we face some real challenges.
With the combined effects of international slow-down, the world credit squeeze, falling property prices and drought, consumer confidence and spending is down.
Consumers, who in recent years have been spending $116 for every $100 of after-tax income, are making adjustments to their spending in response to the deterioration in the economic cycle.
Fortunately, New Zealand is better placed than many countries to come through a period of economic difficulty.
Public debt has come down sharply from around 33% of GDP to about 20% at the current time.
Money has been put aside for areas like superannuation with a $14 billion super fund. Kiwi Saver is having a dramatic impact in addressing New Zealanders dismal savings record.
Tax cuts, corporate and individual, will provide some boost to spending at the right point in the economic cycle.
And while a victim of high oil prices, New Zealand does have the prospect in the world food shortage crisis of continuing to benefit from high prices for key exports such as dairy.
For exporters, for whom a high kiwi dollar and tight labour market have been key constraints, the outlook which is for both to ease, will provide some relief.
WTO Doha Round
A successful conclusion to the World Trade Organisation’s (WTO’s) Doha Development Round remains New Zealand’s Number One trade priority.
The rules-based multilateral trade system is the only way to reduce or eliminate international trade barriers, such as subsidies, on a global basis.
On Thursday, I leave for Geneva, where the WTO Director General, Pascal Lamy, will convene a “Green Room” Ministerial Meeting next week.
At this meeting, about 30 invited ministers will try and conclude a modalities package. This is the agreed set of formulas, by which members will reduce tariffs and other trade barriers.
Officials have been working in Geneva to try and narrow the gaps that exist on the core areas of agriculture and non-agricultural market access (NAMA).
In agriculture, chaired by New Zealand Ambassador, Crawford Falconer, good progress has been made, and the number of outstanding issues has now been narrowed to a point where Ministers have a realistic chance of agreeing a modalities package.
In NAMA, significant differences remain, though the revised NAMA negotiating text that came out last week at least saw a reduction in the number of “bracketed” or unresolved issues.
Beyond NAMA and agriculture, many countries are also pushing for progress in other important areas such as services, intellectual property and rules – all of which have their own difficulties.
Reaching consensus among 152 WTO members in a highly charged political setting will be difficult. There is a risk that the negotiations – including at ministerial level - could break down, and there is a track record in recent years of them doing so.
It is widely accepted, however, that political decisions are now necessary, if we are to conclude the Round this year. The ministerial meeting is seen as providing the last realistic chance of agreeing a modalities package, which would allow that to happen.
Last week, the leaders of the G8 declared that the “successful conclusion of an ambitious, balanced and comprehensive Doha agreement is critical to economic growth and development.”
The challenge, as before, remains translating high-level political statements into the leadership and flexibility at the negotiating table.
New Zealand has important issues at stake across the negotiations, which we will be working hard to advance. But given current global economic uncertainties it is in all our interests to conclude this Round.
A failure to do so could see the Round going “on ice” for several years, and growing protectionist pressures could see key WTO members less willing to reengage in the negotiations.
Uncertainties around Doha and increasingly globalised commercial linkages mean that New Zealand has not put all of its eggs in the WTO basket. We have also actively pursued regional and bilateral Free Trade Agreements (FTAs).
A key focus has been in the Asia Pacific. The region is a key driver of global economic growth: the APEC economies, for example, represent 55% of global GDP and roughly 50% of international trade.
New Zealand exported over $25 billion dollars worth of merchandise to the APEC economies in 2007.
FTAs provide us the opportunity to negotiate enhanced market access with key trading partners, often beyond and in advance of what is possible through WTO negotiations.
Conversely, being excluded from the patchwork of FTAs represents a significant trade diversion risk for us, especially vis-à-vis Australia.
In April, we became the first developed country to sign an FTA with China.
The “first-mover” status we achieved with China means that for a period of time, we will enjoy a significant competitive advantage over our key competitors in that market.
Modelling as part of a Joint Study Report into the FTA estimated that our exports are expected to be between $225 million and $350 million higher per year for the next 20 years, or about 20% to 30% above current baselines.
In due course, the FTA will also result in a reduction in tariff payments of approximately $115 million per year.
In some areas, including services and investment, we have also negotiated most favoured nation provisions. This means that if China negotiates more advantageous conditions with future FTA partners, those conditions will automatically be extended to New Zealand.
Our FTA with China has also added impetus to other FTA negotiations we are pursuing in the region.
It has, for example, opened up new possibilities to address a possible resumption of negotiations that were suspended in 2002, towards an FTA between New Zealand and Hong Kong.
Progress has also been made toward the launch of FTA negotiations with Korea. A joint study into the feasibility of a NZ – Korea FTA, completed at the end of 2007, concluded that an FTA would generate benefits for both countries.
In May, after discussions between Trade Minister Kim and me, Prime Minister Clark and President Lee agreed that inter-governmental preparatory talks should be held to discuss a possible Korea-NZ FTA.
These talks will likely take place later this year, and we are hopeful that negotiations can proceed reasonably quickly once Korea has ratified the Korea - US Free Trade Agreement.
Japan is our fourth largest trading partner and our third biggest export market buying over $3.3 billion worth of New Zealand goods a year.
With Japan and Australia now in EPA negotiations, it is important that we seek similar arrangements.
During the first Partnership Dialogue with Japan in April, the Prime Minister and Prime Minister Fukuda agreed to launch a joint study into the implications of a Japan-New Zealand EPA.
This will allow both sides to undertake a detailed analysis of benefits and any possible difficulties that freeing up trade between the countries would create.
I am confident that the study will show that an EPA would provide real, meaningful benefits to both countries.
Traditionally, Japan has perceived New Zealand agriculture to be a threat to its own agriculture sector. Our response has been that this concern is over-stated given the largely complementary natures of our agricultural production.
With the phenomenon of a world food shortage in areas like dairy, the argument for security of supply of high quality, safe food, over the threat of impact on domestic farmers has fundamentally changed the equation.
In discussions with Japanese Trade Minister Amari and members of the Diet Agriculture Committee we agreed that trade and cooperation in agriculture could provide mutual benefits to both countries.
The study represents an important positive step towards EPA negotiations. But agriculture remains domestically sensitive in Japan, and protectionist sentiments in some quarters may yet intensify given current global economic uncertainties.
Better than expected progress has also been made towards possible FTA negotiations with India, which like China is growing rapidly and represents a huge potential market.
An officials’ Joint Study Group launched last year, has been looking at the feasibility of a New Zealand - India FTA. This group has met twice and expects to complete its work and report back to governments before the end of the year.
My Indian counterpart, Kamal Nath, and I met in May to discuss progress. Nath was positive about an FTA with New Zealand.
However, we must await the outcome of the Joint Study Group process to determine how fully we can address the issues of very high protectionism in India’s agricultural market – which has, to date, limited growth in our trade.
Regionally, our most advanced negotiation is that on the ASEAN – Australia – New Zealand Free Trade Agreement (AANZFTA).
Collectively, the ten ASEAN members represent our fourth largest export market for merchandise goods, worth about $3.7 billion in last year.
Our trade with ASEAN has grown by 17% per year over the past three years, and as a market of some 475 million people ASEAN is an important part of our regional trade focus.
The negotiations offer significant commercial opportunities. New Zealand exporters currently pay up to $50 million in tariffs annually into ASEAN. It is an increasingly important target, also, for New Zealand service suppliers as well as a growing destination for outward investment.
We also have important commercial interests to protect as ASEAN has already concluded FTA negotiations many of our regional competitors, including Korea, Japan and China; is looking to conclude an agreement with India; and has commenced negotiations with the EU.
AANZFTA is also important in the context of our regional integration strategy, including as a platform for broader regional FTAs, such as the Closer Economic Partnership for East Asia initiative currently under exploration in the EAS.
AANZFTA will also create a platform for even more ambitious bilateral FTAs with individual ASEAN countries.
We have, for example, recently agreed with Malaysia to recommence negotiations on a bilateral FTA following the conclusion of AANZFTA.
A negotiating round is scheduled for later this year, and we hope that by the time negotiations resume, AANZFTA will have provided a good basis for an ambitious bilateral outcome.
AANZFTA is important to us on several levels but we should not expect the same deal with ASEAN as that we secured with China.
With AANZFTA, we are negotiating with a group of 10 very different ASEAN countries, as well as working in parallel with the Australia.
This is also the first time that ASEAN has agreed to negotiate goods, services and investment as a single undertaking.
There continue to be significant obstacles to overcome to reach a deal but, negotiators believe that it may be possible to substantially conclude the agreement before the end of the year. With the next negotiating Round scheduled for later this month, more than 90% of the FTA text has been agreed.
However, as with all FTA negotiations, the last few issues are the hardest. Much work is still required to lift ASEAN ambitions in goods and services market access.
The Trans-Pacific Strategic Economic Partnership between New Zealand, Chile, Singapore and Brunei (P-4) also has the potential to become an important driver for broader Asia-Pacific integration, and building block for an Asia Pacific Free Trade Agreement.
The P4, which entered into force in 2006, is a high quality agreement and was designed with a view to attracting wider regional membership.
The US has joined the P4 negotiation on the outstanding chapters on Investment and Financial Services. Two substantive rounds of these negotiations have now taken place.
The US Administration is also in the process of a thorough domestic consultation process for participation in full P4 FTA negotiations.
The US is seeking to expand its trade and economic links in the Asia-Pacific region, and has indicated that it views P4 in that wider context.
P4 members are also reflecting on the possible further expansion of its membership.
A bilateral FTA with the United States remains a high trade policy priority.
While we continue to encourage the US to launch bilateral negotiations with us, US involvement in P4 presents a promising potential route to trade liberalisation between New Zealand and our second largest trading partner.
Gulf Cooperation Council
We are also in the process of FTA negotiations with the six Gulf Cooperation Council states, which collectively represent our seventh largest export market, worth around $900 million a year.
Three negotiating rounds have been held, the most recent in June in Riyadh.
We are positive about a successful conclusion, which secures the removal of tariffs and other barriers affecting our main export interests in agricultural goods, as well as improved access for our increasing services interests.
We have a very full trade policy agenda. Doha remains our top priority because the multilateral, rules based trading system provides the best chance we have of levelling the playing field on a global basis.
But we have complemented this with an active programme of pursuing FTAs, which has borne important results.
As a small country, with only 4 million people, opening up markets for New Zealand exporters has to be a crucial part of our strategy for a strong and growing New Zealand economy.