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Jim Sutton speech on US CEP

Speech Notes

4 December 2001

US-NZ CEP conference, Auckland

Prime Minister, Ambassador Swindells, chairwoman Fran O'Sullivan, ladies and gentlemen.

It is evident the events of 11 September have their most direct importance in realms other than trade policy.

But those events clearly have an impact also in that trade domain.

They have clearly played their part in reinforcing the importance of concerted efforts at the international level to build on policies of openness, co-operation and strengthening the rule of law.

It can all too easily be forgotten that the international trade and payments system that we have put in place today is, indeed, something that we have "put" in place. It is not itself the product of the unfettered force of some self-regulating market. Nor is it the result of the imposition of global order through unilateral blind force.

It is the painstaking result of the conscious efforts of the community of sovereign states. It is, in that sense, an essentially political project serving the chosen and agreed ends of order, stability and prosperity.

Nor is it an accident that it is, in historical terms, a very recent development and that it was precisely the child of global depression and global conflict of an unprecedented ferocity. The post war trade and payments system was consciously devised and implemented by sovereign states as bulwark against reversion to barbarism and penury.

I do think those terrible events of September 11 reminded us that we cannot afford to relax our efforts. Taken also against the background of a significant slowdown in the global economy, they have underlined the importance of reinforcing the strength of that trade and payments system.

Together they have also underlined the essentially political nature of that task. By which I mean that policies that are primarily directed at international trade and investment arrangements are also inextricably about reinforcing the forces of integration, co-operation, stability and order based on mutual respect and personal freedom.

Get those arrangements right and we advance those interests. Get them wrong and we can put them further at risk.

I think that we saw the fruits of that at the recent Doha Ministerial meeting where it was agreed to launch a new Round of multilateral Trade negotiations.

That meeting was notable not only for the substance of a future agenda for negotiations - but also for how it was put together. It was a far more inclusive process than in the past. That is hopefully a sign of things to come.

Of course the real challenge remains: actually translating that agreement to negotiate into tangible gains for all players in the international system. But I for one am confident that there is a renewed political commitment to the centrality of the task at stake.

It is not just about tariffs on widgets or quotas on milk. Sure it is about those and they are certainly important in and of themselves - it is not lost on me that Fonterra is a platinum contributor to this conference!

But the reason they are important is as much as anything else because openness and equality of treatment for "foreign" goods and services are also political choices. They are all about giving tangible economic form to fundamental political principles of justice and fairness among the international community of states. That is a matter of sovereign choice. To make that sovereign choice is to choose and promote that kind of global order.

It should be clear how fundamentally committed we are to bringing those new negotiations to a successful conclusion.

Its importance is not due to some kind of starry-eyed commitment to global cosmopolitanism.

It reflects a thoroughly hard-nosed assessment of our national interest. We are global traders. We have negligible leverage and indeed in terms comparative to our trading partners and competitors, operate at below the margin for statistical error. We have therefore every reason to back one hundred percent the rules-based multilateral trading system.

It was only thanks to the last WTO trade negotiation that we started to get tremendously damaging export subsidies under control and to get improved access to our major markets. We didn't have the leverage to do that on our own. It needed the weight of all the major traders leaning on each other to get the deal done. But we also benefit in the outcome.

It's not an accident, for example, but in significant part a result of the Uruguay Round negotiations, that the New Zealand dairy industry has clawed back one-third of international trade in dairy products, and has created a platform from which to do even better.

Look also to the recent entry of China to the WTO. There are literally millions of dollars in gains and huge opportunities to follow. More fundamentally, accession will impose the full range of WTO disciplines on China.

I know that you are particularly interested here today to focus on the United States/ New Zealand angle in the context of a proposed closer economic partnership.

Trade agreements are growing everywhere.

What is very much up for grabs is the kind of arrangements that are being pursued and their capacity to be constructive in terms of encouraging genuine coherence with the multilateral system.

Arrangements that carve out whole sectors are hardly tailored to encourage greater integration and cooperation. Rather, they exemplify a signal inability to deal with non-national suppliers on an equal footing. They run the risk of further entrenching protectionist forces who will conclude that with enough noise their squeaking wheel will continue to be well oiled.

That makes it even harder for us than it might otherwise be. On the one hand we simply have to get into the play to avoid being squeezed out by others. And that is not a straightforward matter: bilateral or even plurilateral arrangements are particularly difficult for us because we lack economic critical mass and therefore leverage

But we cannot acquiesce to shonky deals just for the sake of joining the party. It is neither in our interest (particularly given our strong agriculture and resource-based profile) nor sound for the international system to foster arrangements that are less than comprehensive.

In my view that means one course of action as an imperative: we simply have to work together with coalitions of the like-minded to maximise our collective strength.

That means playing a focused and strategic game: look for partners who see the world the same way we do and try to negotiate similar genuinely comprehensive arrangements with them. That way we build momentum and get overselves onto the radar screen of the bigger players.

That was why we ended up negotiating a Closer Economic Partnership trade agreement with Singapore. That had precisely the effect that we envisaged. It led to the commencement of negotiations with Hong Kong.

It seems to me that an arrangement with the US has the potential to be a galvanising force of the kind I see as more than ever desirable.

It seems to me conceivable that a link between CER and the US would have the capacity to set the bar for future arrangements at a suitably high level.

It would send a clear message, particularly within the Asia -pacific region, that the model of genuine openness is viable and capable of realisation. If so, it would undoubtedly also have the capacity to shift potential participants in such arrangements to adopt a more genuinely positive approach.

I am biased of course, but I think it is difficult to disagree with the proposition that the US could hardly find better partners for a genuinely comprehensive and model arrangement.

We have acknowledged trade credentials. NZ and the US have long been allies and leaders in promoting market liberalisation in the WTO, APEC and the OECD. We already have a strong bilateral relationship. The US is our second largest trading partner, and our second largest source of FDI. It is perhaps also worth noting that, according to our trade figures, we are one of the few countries with which the US consistently runs a trade surplus.

There is also strategic value for the US in a closer trade relationship with New Zealand: New Zealand is already actively engaged in Asia-Pacific - we have CER. We have just bedded down our new agreement with Singapore. Negotiations with Hong Kong are under way. We are also in a form of dialogue between AFTA and CER and we are keen to see whether an arrangement with Chile can be worked out.

The US for its part has negotiations on the blocks with both Chile and Singapore. So even if you look at the present picture, it almost demands that we get on with the business of joining up the remaining dots!

It's worth bearing in mind that APEC leaders are committed to free trade and investment within the region by 2010 for developed countries and 2020 for developing.

That would be a huge prize.

Covering roughly 2/3 of the world economy, there is no surprise that it holds out huge potential gains for New Zealand. Estimates (e.g. by NZ economist Rob Scollay) are that its implementation in full would boost our GDP by around 5-6%

Of course, the real challenge is keeping those APEC governments to their word. But the fact that they have made the commitments is in itself a powerful lever.

What is needed is a practical approach that helps get you there from here. And, frankly, I can't think of a better one than getting on with the job and building momentum.

And getting on with the job in this context means determinedly building up the bilateral and plurilateral links so that you systematically galvanise countries in the region to join the expanding club.

That is precisely what we are aiming at with our own links. And our own experience testifies to the fact that success breeds success. Beyond that I would simply venture two observations.

I have no doubt that the US itself has the same ambition about ensuring that those APEC commitments are translated into practical reality. I would not be at all surprised if they could well be persuaded that the best way to get to that point is precisely to join up with the like-minded when and where they find them. It is the best way to encourage the less confident to take the next step.

Second, there is a good way to get to those Bogor goals and there is, as my officials keep saying in their quaint diplomat-speak, a "sub-optimal" way to get there.

I prefer to say there are clean trade arrangements and there are dirty ones.

As I have emphasised, the plain fact is that there are pressures to build trading arrangements within the region which will be contrary to both New Zealand and US objectives.

The key issue is that such arrangements should have comprehensive coverage. That is our position. But there are plenty of countries in the region that want to proceed with arrangements that help their own exporters but don't put any pressure on their own producers - so they want to exclude products and sectors.

That's bad enough in itself. But the strategic danger is that if such arrangements gain ground, the APEC race will be lost before it is run. It will generally further entrench protectionist sentiment within the region. And that presents a longer-term danger to orderly integration in the Asia-Pacific.

There would be relatively few areas of difficulty in an agreement with New Zealand; even agriculture (for which read dairy) could be appropriately managed through phasing arrangements. We all know that there are areas of difficulty to negotiate with the United States, but that's what trade deals are all about.

We have similar business cultures, and business in both countries is firmly behind the concept.

We already have robust labour and environmental standards.

I am certainly conscious of the asymmetry in size between two such participants but I am not inclined to worry too much about that. A large part of my comfort about that reflects the fact that we are not talking about this possible linkage totally in a vacuum.

Fortunately, the Australians are in a position to make the same kinds of arguments. Indeed, our preference is to move with Australia as CER partners; through parallel or joint negotiations.

That CER dimension really intensifies all the strategic considerations I have been talking about as well as adding the element of critical mass. The combined CER market is substantial. A free trade area with both of us would give the US sound commitments across key sectors for US exporters.

Negotiating with the combined CER economies may also be attractive to the US in terms of simplicity and the efficient use of negotiating resources.

I have spoken to some senior members of the American administration who refer to New Zealand and Australia as "a single economic entity".

The bottom line is that CER is indeed a single market of 22 million people will, I think and believe, prevail as the entity with which it makes sense to negotiate.

A CEP would also be of significant benefit to New Zealand.

I won't spend time detailing here all the classic trade gains that could be expected. Obviously, we would stand to benefit from the reduction in US tariff and non-tariff barriers to our competitive exports.

However, when you are dealing with an economy as powerful as the United States you should not underestimate the galvanising effect that can be created simply by commanding the attention of the decision makers in that economy.

You simply get onto the radar screen.

It is all about generating the kind of business and personal contacts that generate greater innovation and entrepreneurial initiatives - it creates a genuine two-way process that I call "dynamic".

But I don't want to get you all over-excited just yet!

After all, we are not in negotiations, not yet at least. I think it is clear that we see this approach fits well into our overall strategy. We certainly believe it is as a good idea. And we intend to continue our efforts to encourage our US friends to pursue it.

The interest on the part of the private sector that this conference represents, is proof positive that it is grounded in real world interests. I do not underestimate the challenges that potentially lie ahead, but I would want to assure you that that we intend to work as hard as we can to turn a good idea into a good thing if we can.

I would want to encourage you in your work today and look forward to ongoing dialogue with you in the period ahead.

Thank you.

Office of Hon Jim Sutton

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