HON JOHN LUXTON: SPEECH NOTES
Minister of Food and Fibre
Associate Minister of International Trade
"Free-trade liberalisation"

Address to NZ/Fiji Joint Business Council Meeting
Parkroyal Hotel, Wellington
25 June 1999

The Prime Minister of Fiji, the Hon Mahendra Chaudhry
The Rt Hon Sir William Birch
Mr Francis Mortimer, President of the Fiji Business Council
Your excellency Mr Isimeli Bainimara, Fiji High Commissioner to New Zealand
Distinguished guests
Conference delegates

Ni sa bula vinaka
Namaste
Tena koutou, tena koutou, tena tatou katoa.

Introduction

Thank you to the NZ/Fiji Business Council for their hospitality in hosting this conference. I appreciate the invitation to address this conference once again.

I'd like to reiterate what my colleague Sir William Birch said earlier, it is my pleasure to welcome the Fiji delegation, led by the Prime Minister, the Hon Mahendra Chaudhry and the Fiji based conference delegates here in Wellington.

I was in Fiji at the beginning of the month for the South Pacific Forum of Trade Ministers where I enjoyed the opportunity to meet your Deputy Prime Minister, the Hon Dr Tupeni Baba.

Fiji is New Zealand's largest South Pacific trading partner and our 20th largest market for exports overall. In the year to December 1998, New Zealand exported $195 million worth of goods to Fiji. Exports have increased steadily from $121m in 1985.

New Zealand imports $55.5 million worth of goods from Fiji with apparel and footwear the main items. While the balance remains in our favour, import growth has been substantial since 1985 when we imported only $19 million worth of goods. I am sure Fiji's increasing export focus will narrow the gap and allow New Zealand consumers to enjoy more of what Fijian business has to offer

So this meeting is a timely and important opportunity for the NZ/Fiji Business Council to again consider trade liberalisation issues, particularly in the context of globalisation.

What is globalisation?

It seems to me that I should at least attempt to answer what must be one of the most frequently asked questions, and that is what is globalisation and how can we benefit from the process?

Globalisation is a process which has been around for a long time. It is just that the pace has quickened with the speed of communications. The moment humans discovered that wealth can be generated through trade, the process of increasing opportunities to exchange goods and services began. It has advanced to the point where we now live in a global marketplace.

The globalisation process cannot be halted. And as well as providing immense opportunities for participants, there are risks too for the ill prepared.

With exports of New Zealand goods and services comprising 30% of our GDP, participation for us is a matter of necessity, rather than choice.

Key features of globalisation and emerging opportunities

Services are emerging as the new lifeblood of international trade - trade is now measured according to the transfer of financial, legal, managerial, design and information skills. Intellectual capital is a prized commodity of the world market - the knowledge economy.

This trend is changing the pattern of trade and a range of new policy responses is required. Accordingly the Uruguay Round saw moves to liberalise rules covering services in areas such as telecommunications and the financial sector. More recently the WTO has been looking at trade and investment and competition policy.Increasing pressure will remain for an Information Technology Agreement that will eliminate tariffs on a wide range of technology products by the year 2000.

Foreign Direct Investment remains a powerful force behind global economic growth and integration. Trade often follows investment so regulation of FDI can have a major impact on trade flows. There is a need for improved international rules on investment including the liberalisation of investment regimes; investment protection; and effective dispute settlement procedures.And we should also not forget indirect benefits of increased international commerce such as - knowledge transfer, improved resources allocation and strengthening of domestic financial markets.

What can governments do to assist successful participation?

So what can governments do to assist successful participation in their own economies? The fundamentals, I think, are reasonably clear.

These include a strong macro-economic policy framework, in particular a strong fiscal position. Mechanisms to minimise domestic price distortions, sound banking systems, a well functioning market infrastructure and a consistent regulatory framework for the capital market.

Government has a central role to play in developing the appropriate policy settings in each of these areas. It also has a role in working to remove barriers to trade and in co-operating over the establishment of effective international institutions and rules.

Government policy if not correct can reduce the a country's growth and employment opportunities.

How will developing countries fare in the globalisation process?

Pacific Island countries are part of a global environment in which we are becoming less isolated and less protected. Our small economies, limited resources (natural, human and capital), heavy reliance on exports of primary commodity products and remoteness from the marketplace makes us particularly vulnerable. Many have a high level of import dependence.

Countries with weak links to the global economy will fall behind in the next decade, particularly as a reduction of MFN rates erode their margins of preference.

While presently we have no way of knowing just how long trade preferences will last, one thing we can be fairly certain about is that change will occur. Increasing competition will mean that the viability of vulnerable export sectors will be called into question. Those countries confined to the production and export of a narrow range of traditional commodities will be particularly at risk.

The Asian economic crisis has shown us just how vulnerable certain economies are.

The ease with which money is able to flow across international borders has also increased the scope for financial crime. Particularly in jurisdictions which do not have the adequate regulatory and legislative framework. I know there is growing concern among the international community about the increasing vulnerability of the Pacific region to crimes of this nature.

What can be done?

In describing the factors likely to impede the real progress and participation of developing countries, I have drawn from real concerns articulated by small countries, including our Pacific Island partners at a number of regional and international fora and also on a bilateral level.

Having gone from one of the most protected and closed economies to one of the most open ones in a relatively short space of time, we do appreciate that there are added difficulties for developing countries embarking along the same path.

The transition may require some accommodation on the part of developed countries. Certainly creative solutions in overcoming the impediments which limit the ability of developing countries to participate in the global economy need to be found.

Governments will continue to be required to take some hard decisions in making some short term sacrifices for the future. There are no easy answers but constructive and close co-operation with regional and international partners over issues will be very important.Likewise effective partnerships between government and the private sector will also remain a critical success factor for the future. In this regard, forums such as these joint business council meetings, make an important contribution.

Regional and multilateral issues

I would now like to turn to a number of related regional and multilateral trade issues which will be of interest to this conference.

As I said I recently attended the Pacific Trade Ministers meeting to discuss the development of a regional free trade agreement. A recommendation will be put to Forum Leaders in October, to endorse in principle, the negotiation of a Pacific Regional Free Trade Area (FTA) among Forum Island Countries.

The New Zealand Government is supportive of the process. The initial FTA will be restricted to Forum Island Countries, but New Zealand and Australia are provided for in the draft protocol and will be involved in the negotiation process.

We are aware of Fiji's reservations about the FTA and hope that the process will enable more concerted attention to be given by the region to improving and strengthening critical trade facilitation measures (customs, quarantine, labelling, packaging, phytosanitary and other sanitary requirements, export/import controls, exchange controls and technical standards).

The relationship between regionalism and multilateralism is indeed a complex one and a key challenge for policy makers is to ensure that the two grow together and not apart. And experience has shown that there is good scope for regional agreements to provide models for broader agreement. The key factor in this development is of course political commitment towards keeping the process moving forward.

New Zealand's small and open economy means that our business cycle is to a significant extent, influenced and shaped by those of our major trading partners, in particular the US and Australia, but also the Asian economies.

Like Fiji and many developing nations, we in New Zealand don't have a lot of economic muscle with which to try and open up difficult markets.

Our influence tends to come through collective effort, building coalitions of interest with other countries to liberalise trade. The 15 member Cairns Group of agricultural exporting nations is an example of a successful coalition of interest. We work with other groupings as well, depending on the issue. APEC is invaluable in this regard.

I should also like to mention that during our year as APEC chair, NZ has sought to ensure that its Pacific Islands partners will have opportunities to participate in and benefit from, that process. Mr Wevers, Chairman of the Senior Officials of the APEC group may well wish to expand on that a little further in his presentation to you.

The WTO provides a forum for negotiation of freer trade with almost all of our key trading partners. Under the WTO's most favoured nation principle, trade benefits to one country have to be given to all. So small countries like Fiji and New Zealand can benefit from the greater negotiating influence of the major economies.

Having a secure framework of rules governing the conduct of international trade enables small countries to defend their rights against much bigger countries. It also provides a means for advancing trade expansion and economic recovery.

In a time of global uncertainty, the WTO provides a bulwark against protectionism. It provides stability in the multilateral trading system, so that companies and investors can be confident that trade barriers are not raised arbitrarily when times get tough. During these times, the fundamental principles of consensus, non-discrimination and the rule of law that underpins the WTO becomes even more critical.

The Uruguay Round was the first step on the road to establishing a fair and market oriented system for agricultural trade. But there is much unfinished business. The rules for agricultural trade need to be put on the same basis as for trade in other goods.

We are already working closely with other members of the Cairns Group, including with Fiji, to prepare for these negotiations. Services will also be a key area for New Zealand. The service sector forms the major part of our economy, accounting for over two thirds of our GDP and nearly 3/4 of our employment.

Exports of services have been growing faster than any other sector, and now make up 20% of total exports. Good progress in liberalising services trade, with agreements reached on telecommunications and financial services have been made. But air and maritime transport still need attention.

Liberalisation of these sectors would benefit tourism, which is our largest single foreign exchange earner. Other priorities for New Zealand in the service sector include education, software, construction, and professional services such as engineering, architecture, accountancy, legal and audiovisual services.

As we prepare for a new WTO round, we need to know about the problems that New Zealand and Fiji exporters are facing overseas. We want to be sure that we meet the needs of small exporters as well as the big ones, and that we promote the interests of all sectors. This is where input from the business community will be invaluable.

We need answers to questions which will allow us to understand the nature and scope of the practical barriers you face. Tariffs that are too high. Quarantine requirements that you believe are unreasonable. Regulations that affect your ability to do business in particular markets. Technical standards that are unnecessarily restrictive, unusual labelling requirements. Intellectual property issues that you are concerned about. Restrictions on government procurement in areas where you would like to be competing to supply.

We can't promise you a quick fix. Trade negotiations are complex and tortuous. We are probably looking at a new WTO round of at least three years. But I do assure you that we will remain resolute in our commitment to work towards ensuring that the trading environment we operate in is a freer, fairer and more predictable one.

Increasing trade and reducing barriers to trade is a key to increasing the wealth and prosperity of both our countries. It does seem however that protectionist forces across the world are growing.

Among the forces at play at present are:

- residual effects from a global recession
- growing pre millennial tension, accompanied by significant changes in the global security situation
- a global debate on genetically modified food
- phenomenal growth in information technology and communications
- the battles between the US and the EU on bananas and HGPs
- an expanding European Union and a war in Europe - thankfully now over.

When it comes to freeing up world trade New Zealand's biggest allies are not the US. They are the developing nations, South Africa, Brazil, Morocco. Nations who - like us - want access to the protected markets of the European Union, the US and Japan.

In other words we aim to see these economies reduce their high existing barriers to our exports as we have done for their exports in manufactured goods.

Just as they agreed on the benefits of trade liberalisation to their domestic economies, the leaders of these nations also spoke with one voice on the need for change.

In New Zealand currently, there is some debate as the US suggests that they might impose a quota and some tariff on New Zealand and Australian lamb imports.

This will raise lamb prices in the US market and in the short term assist inefficient United States lamb farmers, but in raising the price of lamb, less will be purchased and the market will slump. Not helpful for either I would have thought.

But even if an anti competition tariff or levy of $10m is imposed to appease US political pressures it should also be seen in the context of the $100m growth in that market for New Zealand lamb producers over the last five years. So 90% of the gains are still retained and it will grow again in the future.

Politics occasionally provides some slippage in the general progress towards greater trade and lower barriers.

Trade continues to grow at three times the rate of production increases around the world and tariffs overall continue to reduce around the world.

Here in New Zealand some have questioned the issue of free trade.

Why should we unilaterally remove protection in New Zealand they say? Particularly if others don't!

There are two very good reasons.

1. To improve the real income of our citizens whose pay packet can buy more products cheaper and with greater choice from a world market.

2. To grow our export sector who can be world competitive if they can purchase their plant and materials at world best prices, instead of at higher prices aimed at propping up uncompetitive parts of the economy.

Often we undervalue the cost of protections such as tariffs or who actually benefits from them.

A classic example was our car assembly plants in New Zealand up until last year.

Less than 2,000 jobs were directly involved in the industry which was protected with a 22 1/2% tariff on all imported cars.

This meant that every car cost around 20% more than it would have done a year later and as a result New Zealanders were levied in their purchase price about $200,000 per job remaining in the New Zealand car assembly industry.

But these workers actually received less than a quarter of that and the majority went to the firms involved and some to other local businesses.

A year later I'm told over 90% of those workers seeking work are back into jobs in other parts of the economy, some of which have been stimulated by the spending of ordinary New Zealand families no longer having to pay 20% move for their cars.

President Mandela in speaking on the WTO this year stated:

"In seeking to build a better future we ignore the lessons of the past at our peril. Though international trade and investment have always been an integral part of the world economy, the extent to which all parties have benefited has depended on the circumstances in which they have taken place. The current process of globalization is no exception."

In this context he emphasised the importance of a rules based system. Just as South Africa needed a rules based constitution to navigate around its past so did the trading system of the world.

Mandela again:

"If our constitution was blind to the reality of inequality and historical imbalances that prevent equal access to opportunity; then it would become a source of both actual and perceived injustice. Rules must be applied without fear or favour, but if they contain prescriptions that cannot be complied with by all, or if the results benefit too few, then injustice will emerge."

"Rules are respected when they are above expediency, in perception and in practice."

When it comes to free trade, New Zealand's objectives and those of other Pacific Islands are identical to those of South Africa. Which is why I will conclude this speech with some more words from Nelson Mandela.

"Fifty years ago, when the founders of the GATT evoked the link between trade, growth and a better life, few could have foreseen such poverty, homelessness and unemployment as the world now knows.

"Few would have imagined that the exploitation of the world's abundant resources and a prodigious growth in world trade would have seen the gap between rich and poor widening. And few could have anticipated the burden of debt on many poor nations.

"As we celebrate what has been achieved in shaping the world trading system, let us resolve to leave no stone unturned in working together to ensure that our shared principles are everywhere translated into reality.

"As we enter the new millennium, let us forge a partnership for development through trade and investment."

Again it is hard to disagree.

ENDS

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