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Speech: Mapp - APEC

Embargoed until 6.30pm Tuesday 17 August


Speech to Milford Rotary Club


Milford Rotary Club, Pupuke Golf Club, East Coast Road, Forrest Hill
Tuesday 17th August 1999
In a month's time Auckland will host the greatest gathering of world leaders to be seen anywhere on the planet before the close of this century. It is a unique opportunity for New Zealand to lead the case for prosperity through free trade. APEC is becoming New Zealand's vital link to Asian-Pacific economies. The APEC economies constitute 57% of the world's economy and 70% of New Zealand's two way trade. And this is before the ideal of free trade has been fulfilled. Success for free trade in APEC results in success for New Zealand.

I am emphatic about the importance of free trade for New Zealand. The government is committed to free trade, not because of ideological purity, but because New Zealand benefits. Even if our trading partners do not liberalise as fast as we do, our country is still the winner. This why the government has taken the early path to tariff reduction. It is part of our APEC commitments.

APEC sits within a framework of the international trade organisations advocating trade liberalisation. The leading body is the WTO. Mike Moore is the Director General because of his absolute commitment to free trade, amply demonstrated by his term as trade minister. During the 1980s he took a leading role in the Uruguay negotiations leading to the establishment of the WTO in 1994.

The WTO has been the culmination of decades of work on trade liberalisation. It is the fulfillment of the promise of GATT. The GATT was established in the aftermath of WWII. The experience of the depression, the "beggar thy neighbour" trade policies of 1930's, and the immensely destructive global war, lead to a profound recognition of the importance of open and free economies.

The GATT succeeded. From 1947 to 1994 average tariffs of industrial goods fell from an average of 40 percent to 2 percent. The world economy has grown on a more sustained basis over the last 50 years than at any other time in history. Sadly for New Zealand, agriculture has only recently been part of the liberalisation agenda.

The GATT and the WTO envisage regional free trade agreements. In essence, free trade is promoted by regions taking early steps to liberalise within the WTO regime. A network of regional free trade agreements can effectively join together and lead to global free trade.

APEC, along with the EU, is now one of two leading regional trade blocs. It is broad and ambitious in scale. It is intended to expand growth in our region by opening up over 20 economies. Notwithstanding the Asian economic crisis, it has succeeded. The last decade has seen unparalleled growth, especially in North America, but also in China and many other Asian economies. New Zealand has shared in this growth.

The New Zealand economy has grown 35% in the last decade, the longest period of growth since 1960. The benefits of growth are all around us in North Shore. Look at Wairau Valley and the Albany Basin. North Shore manufacturing businesses are able to effectively compete in global markets. They are able to trade more successfully when tariffs go down. And APEC is not only for large businesses. All export businesses benefit. Every business using imports benefits from cheaper costs. The work of APEC enriches the small and medium sized enterprises that are so important to New Zealand's economy.

What then is APEC?

It is not a classical free trade agreement. It is not a customs union. It is a group of countries bordering the Pacific, with a commitment to growth, trade, and the prosperity of their people. The name itself is revealing: Asia-Pacific Economic Co-operation. It is not even a grouping of nations, but instead is a grouping of economies. This solves the China problem, so that Taiwan, Hong Kong and China have separate membership.

The origins of APEC stem back to 1989. Australia took the lead in encouraging 16 economies to build an economic dialogue. The real impetus came in 1993. President Clinton brought together the leaders of the member economies for an annual leaders summit. This was commitment at the highest level to make real progress. Since then, the deliberations of the leaders' summits have been eagerly followed. It is now simply the largest single gathering of world leaders that occurs on an annual basis. Leaders don't meet together unless real commitments are to be made.

The most significant leaders meeting has been the 1994 meeting in Bogor, Indonesia. This established the vision of full free trade vision between the member economies. In essence, the leaders proposed full free trade and investment across all products. It is not limited to industrial products, but is intended to cover agricultural products. Industrialised countries have to meet the goal by 2010. Developing countries have to meet the goal by 2020.

The vision of full free trade is the bedrock of APEC. Ultimately the success of APEC is dependent on the realisation of this vision. Since 1994 the leaders have focused on long term implementation of the goal. As with all great visions, the devil is in the detail. Implementation is proving difficult. That is not surprising. It took GATT forty years to eliminate tariffs and quotas on industrial products.

It is asking a great deal to achieve full free trade in 15 years for industrial countries, and 25 years for developing countries. Asian countries in particular have decades of barriers, and mistrust of the West to eliminate. They will have to open their economies in ways quite unparalleled in the past. Ironically the Asian economic crisis has probably helped. The breakdown of "crony capitalism" has opened up Asian capital and investment markets. The reduction of trade barriers will inevitably follow.

The problem for the United States is also large. It means the end of agricultural protectionism. Quite clearly this is a major step. The lamb tariff dispute shows how readily the United States government will respond to what is really quite a small pressure group. If that is the difficulty with American sheep farmers, imagine the difficulties the United States will have with its dairy and beef farmers.

To ensure progress is actually made, as opposed to promised, countries have been required to provide action plans. These were the commitments from the summits of Osaka in 1995 and Manila in 1996. Manila was particularly important in making a commitment to identify 15 sectors in which early liberalisation would be made. These included timber, fish, textiles, electronics and telecommunications. They are a combination of traditional areas of the economy and what is called the 'new economy'.

However a significant shift occurred in Vancouver in 1997 and Malaysia in 1998. There was a greater recognition of the importance of the WTO in galvanising trade liberalisation. This was particularly marked in Kuala Lumpur last year. The trade liberalisation initiatives have been shifted primarily to the WTO.

Some have seen this as a failure of the APEC process. What is forgotten by those commentators is that the transfer has strengthened the WTO negotiation round. It means the millenium round of the WTO will be a full trade round. That is why it was so important for Mike Moore to take the first period as Director General. This will mean someone resolutely committed to the agenda of free trade will be leading the WTO during the critical millennium round. This is the first big test for the WTO to continue on the path of trade liberalisation. So a sideways shift from APEC to the WTO is in fact of utmost importance. It shows how APEC can stimulate what is still the central trade negotiation body; the WTO.

What does this bode for Auckland 1999? I believe we have three main challenges:
a) Continuing the commitment to the Vision of Bogor: Full free trade in APEC by 2010 for developed economies, and 2020 for developing economies.
b) Strong leadership in the WTO millenium trade round.
c) Facilitating China's full membership of WTO.

Taking these in reverse order, getting China into full membership of the WTO is of historic importance. Without this, the WTO will never fulfill its full potential. Full membership requires membership of GATT 1947, as well as the 1994 WTO agreements. To join GATT 1947, requires the agreement of each of the existing GATT members. That is why the bilateral discussions between the United States and China are so important in enabling China to join the WTO. If the United States relent then China can join the WTO.

There is going to be a bilateral meeting between the heads of state of China and the United States in Auckland. If Chinese full membership of the WTO is not the key agenda item of this meeting, I don't know what is. Success on this one issue would make the Auckland leaders' meeting as important to APEC as the Bogor leaders' meeting in 1994. The benefits to New Zealand will be enormous. We will gain effective access to the fastest growing economy in Asia. Within twenty years, China would be our most significant market.

The other two goals, leadership of the WTO millennium round, and continuing implementation of Bogor Vision are intimately connected. Major progress in the WTO millennium round will make the Bogor Vision easier to fulfill.

However, trade realists know that the WTO negotiations will not lead to global free trade by 2020. The APEC economies are going to have to do much more to achieve the Bogor vision. That will clearly test the resolve of APEC economies.

Yet experience tells us it is a goal worth achieving. There is not a single reputable economist who argues that free trade harms economic growth. On the contrary, they all accept that free trade equals growth. Perhaps not every business benefits, but the economy as a whole does. People in protected industry make adjustments when that protection closes.

It was not good for the New Zealand economy to assemble cars. Every car sold, whether assembled locally or imported, cost thousands of dollars more than they needed to. Every year consumers paid $300 million extra in car prices. All to protect 5000 jobs. In reality, when the car assembly plants closed, the people found new jobs. In Thames, 270 out of the 300 assembly workers have now found new jobs. Protecting the car assembly industry was an enormous waste of money. The whole economy suffered. The price for New Zealand was slower growth, less investment in the productive economy and, ultimately, higher unemployment. Of course there are costs of transition, but for the sake of everybody they have to be made. If necessary, the costs of transition have to be shared, at least to some extent, since they are borne unequally.

Ultimately APEC is about improving living standards and building prosperity, through the expansion of trade and the internationalisation of investment and business. It is about building our region as the most powerful region on the planet.

The proof already exists. The enormous growth of Asia was possible because the United States market was open to Asian industrial products. Both parties benefited. United States consumers got cheaper goods. United States industry was spurred to new heights of efficiency and specialisation. Asia's economy dramatically expanded. Literally billions of people are much better off. They have moved from third world conditions to at least second world prosperity, within the space of a generation. Hundreds of millions of Asian people now have first world living standards, often to the envy of many New Zealanders.

This is the promise and vision of APEC. That is why the APEC leaders' meeting in Auckland is so important for the prosperity of the next century. It is not about traffic jams and downtown restaurants and taxis getting a boost for a few days. It is about expanding the living standards of billions of people in the Asia Pacific region. And all New Zealanders will benefit from the increasing prosperity of our region.

Words: 1995

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