Hon Jim Sutton Member of Parliament for Aoraki

Minister of Agriculture, Minister of Forestry, Minister for Trade Negotiations, Minister for Rural Affairs, and

Minister for Biosecurity

25 August 2004 Speech Notes

Romeo Bragato meeting,

Blenheim

Ladies and Gentlemen, thank you for the opportunity to speak today. It's a pleasure to be here for this 10th anniversary Romeo Bragato conference.

This industry is an example of the changes our country has gone through during its history. Its history is also one of an on-again, off-again partnership with Government.

In 1895, Romeo Bragato came to New Zealand as a guest of the then Department of Agriculture, to investigate the potential for a wine industry. He wrote a far-sighted report, praising the potential he could see.

Unfortunately, that report seemed to fall on deaf ears, despite Government having funded it.

Some blame the temperance movement, war, the Great Depression, and unsympathetic government for that.

The New Zealand wine industry staggered on in fits and starts with little encouragement, and it was not till the 1970s, that the renaissance really started.

Today, the wine industry of New Zealand is a thriving one, with a significant presence in export markets.

It's that aspect of the industry I want to speak to you about today - international trade.

New Zealand is a small market for wine and there are few opportunities to grow the market here. Much of what we produce here is high quality, top value product, but our domestic market is dominated by cheaper imports. About 56 per cent of wine sales here are of imported wines.

So, it is to discerning markets overseas that New Zealand producers look.

You have carved out an excellent reputation internationally for high-quality, top notch wines. And you're taking good advantage of opportunities: MAF forecasts estimate that wine export volumes will increase by more than 160 per cent over the next three years.

There is still significant planting occurring throughout New Zealand, and new entrants appear to believe there is still potential room in the market.

Considerable investment in processing capacity and market development will be needed over the next four years to handle the projected increases in grape production.

I am confident that the recent structural and regulatory change in your industry will work to ensure that you have the right fundamentals to be able to tackle the challenges facing you in the international markets.

Maintaining and increasing our share of international markets is a key issue for your industry, along with many other exporters in New Zealand.

It is important to the Government as well. I can reaffirm categorically that a successful conclusion to the Doha Development Round of multilateral trade negotiations remains New Zealand's top trade priority.

Put simply, nothing else can match the potential returns to the New Zealand economy from global trade liberalisation. It is the equivalent of conducting bilateral negotiations with 146 other partners.

Why is the multilateral system important? I'll give you a variation on the "three Rs":

- it is about Returns - the world economy stands to gain most from genuine progress in multilateral trade liberalisation;

- it is about Rules - establishing and sustaining a rules based system to govern global trade;

- and it is about Resolution - the ability for large and small alike to defend their interests through enforcement of those rules.

This background provides a good context for explaining why it was so important to get agreement to the frameworks package in Geneva last month.

A number of factors played their part, not only in the intensive phase of negotiations in the latter half of July, but over the ten months since Cancun.

Agriculture - of which you are a part - remains the key. The focus for the agriculture negotiations rested with the "Five Interested Parties" or FIPS - Australia, Brazil, the EU, India and the US. They made good progress, especially in the last few months. But the challenge was to "multilateralise" the process, in other words, to get buy-in from across the WTO membership to the suggestions of this crucial core group.

What did we achieve?

In New Zealand the headlines read "Trade Talks: Biggest advance in 50 years". Perhaps some editorial licence here, but nevertheless it was a significant result.

In agriculture, we have an historic commitment to eliminate export subsidies. For the first time in 50 years, the debate will now be about when and not whether we do it at all.

On market access, while the language could have been more ambitious, we have the basis for arguing for substantial improvement in market access for all products, including tariff quota expansion for sensitive products. And the framework sets the basis for big cuts in domestic subsidies.

The overall result on agriculture is a significant improvement on what was on offer at Cancun.

But to emphasise - these are frameworks. This is not the end of the Round, or of the negotiations - far from it. We still have to negotiate on what is known in the WTO as "modalities" (more detailed frameworks) and the numbers. And this is a big ask.

Depending on the numbers, we could see an ambitious framework wound back to a very modest result. But what is important is we still have an opportunity to press for ambition. That is why these frameworks are so important, and why they are seen as an improvement on Cancun. The Doha Round is back on track.

With the WTO back on track, it seems that multilateralism has won the day again.

With the WTO back on track, it seems that multilateralism has won the day again. Just as well because the alternative to a successful meeting in July could have been the larger economies - such as Europe, the United States, and China - choosing to turn their backs on that system and set up their own trade blocs.

Small countries, such as New Zealand, and those with least developed economies risk missing out in such a scenario.

We need a rules-based, enforceable system. We cannot rely on muscle to push through our aims, and we cannot always rely on "mates" to help us out.

Trade negotiations is a frustrating portfolio at times.

Progress in international trade is slow, sometimes glacial in its pace. Sometimes I feel that the job is all about banging my head on a particular brick wall till that wall crumbles - and then, there is always another brick wall to batter at.

It can take years for benefits to become apparent. In contrast, setbacks are often swift.

One such setback is the Australian government's wine equalisation tax measure.

Announced in the Australian Budget in May, this measure enables Australian wine producers to claim a rebate on the 29 per cent Wine Equalisation Tax on up to $1 million of wholesale sales a year.

It replaces previous, but much more limited schemes where a refund on sales up to $300,000 at the cellar door, through mail order and internet, could be claimed.

The new WET rebate covers all Australian domestic wine producers and wholesale sales without limitation, with 90 per cent of producers being refunded their entire excise tax and the remainder receiving some back.

It is a direct and blatant breach of one of the most fundamental principles of CER, and of the WTO - that of national treatment. It tilts the playing field in favour of Australian producers to the detriment of New Zealand producers.

Clearly we cannot accept this.

It is extremely disappointing to be treated so badly by our partners in the world's oldest and most comprehensive trade agreement, the people with whom we are supposed to be building a single economic market.

We believe the measure is a breach, not only of CER, but of Australia's WTO commitments as well.

In good faith, we are trying to work through the issue with Australia through the CER system. I have taken this up in the strongest terms with the Australian Trade Minister, as have other ministers with their Australian counterparts. I have initiated formal consultations under Article 22 of the CER trade agreement - it seems it is the first time such consultations have been called for in the 20 years this agreement has been in force, which show you how serious this issue is.

It was to be the primary issue at the annual CER trade ministers talks which were to be held this weekend, before Australia pulled out because of their pending election.

So far, we haven't made a lot of progress.

They know and we know that there are WTO alternatives if we do not make progress through the CER system.

Next weekend, I will be meeting Australian trade minister Mark Vaile in Jakarta at the ASEAN economic ministers meeting with CER ministers.

I know some have suggested that we should tax all Australian wine imports. Or do as they have and discriminate against all imported wines. I can understand the frustration that prompts such proposals - however, two wrongs don't make a right.

Such an approach has significant drawbacks. it would put us in breach of the obligations we're asking Australia to honour; and it would open us to attack from other wine-producing countries with which we trade, and New Zealand producers would still be at a significant disadvantage in the Australian market.

Finally, it's worth noting that CER is recognised internationally as probably the world's best bilateral trade and economic treaty. It is still a work in progress, with refinements and enhancements under active consideration. Perhaps it is time to include a binding dispute resolution process, such as is a vital feature of the WTO. The architects of CER are much praised these days, and rightly, for their vision. But perhaps, by eschewing any binding disputes process, they crossed the fine line between faith and naivety.

Ladies and gentlemen: as long as we have a commitment to high quality products, I am sure there will be a market for New Zealand wines. I know you have that commitment, and I have every confidence in your abilities. The Government is working hard to enhance trade liberalisation in our key markets, and there is hope for improvements in our access to important markets for wine. I want to assure you today that we will continue to push hard for those benefits, at the WTO, in regional agreements, and in bilateral situations as well.

ENDS

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