Hon Phil Goff Minister of Trade

15 August 2006

The Current State of Trade Negotiations:

Multilateral and Preferential
New Zealand Committee of the Pacific Economic Cooperation Council (NZPECC), Wellington

I have been asked to give you some reflections on the current state of trade negotiations. New Zealand's multi-pronged trade strategy incorporates multilateral, regional and bilateral approaches, and I want to touch on each of these today.

The importance of trade to New Zealand is obvious. The returns from the sale of our goods and services are a key component in ensuring New Zealand’s ongoing economic prosperity.

Our ability to trade profitably hinges on maintaining and improving access in key overseas markets. That means reducing the subsidies and tariff barriers that stand in the way of getting the returns we deserve.

Multilateral

Trade negotiations through the World Trade Organisation have long been the Government’s priority. The WTO process offers the best hope of reducing distortions to trade at the global level. Some issues like subsidies can only be effectively disciplined at the multilateral level.

Suspension of the Doha negotiations is extremely serious for New Zealand’s commercial interests and for wider systemic reasons. The health of the WTO system of global trade rules is vital for a small country like New Zealand.

If we cannot complete the Round, there will be economic costs for both developed and developing countries.

Trade liberalisation is not a zero-sum game. There are net welfare benefits, which would add $290 billion a year to the world economy according to the World Bank, if all tariffs and subsidies were removed.

All countries will miss out on the gains to be made from freer global trade.

The credibility of the whole global trading system could also be undermined. As WTO Director-General Pascal Lamy has pointed out, we are all losers if the Round does not reach a conclusion.

The political will to achieve an outcome was missing three weeks ago in Geneva. It is clear that, first and foremost, the “engine room” of the negotiations – the European Union, United States, and large developing countries India and Brazil – will need to show courage and leadership in getting the show back on the road.

But the commitment ultimately needs to come from all WTO Members.

I’ll be keeping in close contact with other WTO Ministers over the next few weeks to get their assessment and see what needs to be done to help get the process re-started after the Northern Hemisphere summer break.

I have contacted by phone a number of key players, including USTR Susan Schwab, EC Trade Commissioner Peter Mandelson, and Brazilian Foreign Minister Celso Amorim, as well as Pascal Lamy.

I’m meeting with ASEAN Ministers in Malaysia next week.

In mid-September I’m heading to Australia for the Cairns Group ministerial, which Susan Schwab and Pascal Lamy will also attend.

And I will be discussing the WTO situation with APEC Ministers in Vietnam in November.

All countries have a powerful underlying interest in ensuring the multilateral trading system remains in good health.

The WTO offers a robust rules-based framework to manage global trading relationships.

It offers a chance to integrate the weakest and most vulnerable developing countries into the global trading system.

The prospects for lifting millions of people out of poverty have been diminished by the suspension. More than a billion people live on US$1 a day, while OECD countries between them spend close to US$1 billion per day on agriculture support. That fact is unlikely to change, unless we make an effort to resume the Doha talks.

And the WTO offers all Members, including countries like New Zealand who face real impediments from protectionist trade policies, the best opportunity to reduce tariffs at the global level and eliminate damaging government subsidies.

All of that adds up to a powerful incentive to keep Doha alive. And New Zealand will continue to put effort into the Round – no matter how long it takes.

Regional and Bilateral

As always when a multilateral trade round is in trouble, we would expect countries to be giving thought to alternatives. Regionalism and FTAs are likely to come more to the fore.

New Zealand has never put all its eggs in one basket and has always maintained an active regional and bilateral agenda, parallel to the WTO. In current circumstances, that is likely to intensify.

The Asia-Pacific region is one of the most dynamic regions in the world. Intra-regional trade has been shown as a particularly effective mechanism for growth, so the benefits of enhanced regional integration are obvious.

New Zealand has sought deliberately to involve itself actively inside regional processes in the Asia-Pacific.

While we are geographically located in Asia-Pacific, we cannot take our position for granted. We must work hard to be seen as a valued and contributing partner in the region.

Our multi-pronged approach of pursuing integration involves, for instance, APEC, the East Asia Summit process, our ongoing FTA negotiations with the giant in the region – China, as well as Malaysia and ASEAN. And we will continue to seek to deepen our relationship with Australia.

This is supplemented by an intensification of effort around trade and investment promotion, and leveraging the gains from trade so that they contribute to productivity growth in New Zealand in a substantial and sustained way.

APEC

APEC's role in this process is well known to PECC, which continues to make a valuable contribution to its discussions as an observer.

In recent years, APEC has had a strong focus on trade facilitation, with two successive work programmes to reduce transaction costs by a total of 10 percent by 2010 in areas like customs administration, standards harmonisation and e-commerce.

APEC is also getting more involved in "behind-the-border" issues, such as the work programmes on business regulation and structural reform in which New Zealand is playing a leading role.

This widening of APEC's agenda reflects the fact that, as tariffs fall, reduced transaction costs and improved domestic policy settings are assessed to have an increasingly significant impact on trade and investment flows.

APEC's agenda is widening in other ways too, particularly its work stream on human security issues including health, counter-terrorism and energy, which can have highly disruptive effects on the trade and business environment.

What, then, can APEC contribute to our push for greater trade liberalisation? From New Zealand's perspective there are two aspects to this.

First, APEC has given, and will continue to give, support to the WTO system in general and the Doha Round in particular.

In 1993 at the tail end of the Uruguay Round APEC was one of the key catalysts that helped secure progress and closure.

Whether it is through Ministerial statements urging progress in the Doha Round (such as the one Trade Ministers issued in Viet Nam in June), or practical capacity building projects with a WTO focus, APEC's activities in support of the WTO remain valuable.

Second, APEC has a role to play in the FTA equation in the region.

In recent years APEC has responded to the emerging "noodle bowl" of FTAs in the Asia-Pacific with a work stream that promotes high quality, comprehensive FTAs, and greater consistency between agreements.

The main vehicle for this at present is work, in which New Zealand is closely involved, to draft "model measures" for FTA chapters.

There is potentially a much bigger picture role for APEC in FTA work. You will be familiar with proposals by the APEC Business Advisory Council (ABAC) for an FTA covering the whole APEC region. I know that PECC is currently involved in assessing those ideas for ABAC's report to leaders at the end of the year.

While New Zealand and some other APEC members support the idea of an Asia-Pacific FTA, it will take a new level of commitment from the major economies in the region for it to become a viable proposition.

There is a need to clarify the issues involved in an agreement and to continue to make the case for it. This would include pragmatic ways to put in place building blocks to an agreement such as expansion of our own P4 agreement with Brunei, Chile and Singapore. PECC can play a valuable role in this ongoing research and analysis.

Both APEC and PECC were built on the ideals of open regionalism and "free and open trade and investment" as embodied in the Bogor Goals.

The Bogor Goals and their associated timeframes remain as key commitments encouraging economies to continue on the trade liberalisation path.

We need to ensure that FTA policy as far as possible continues to serve those objectives.

East Asia Summit

APEC is of course not the only regional forum covering the East Asian region these days.

Last year, New Zealand became a member of the newly-formed East Asia Summit, and participated in the inaugural meeting in Kuala Lumpur.
Participation in the EAS is very significant for New Zealand, as it’s the first addition to regional architecture – and to the region’s capacity to manage increasingly complex political, economic and security issues – since the establishment of ASEAN + 3 in 1997.
Next week I will be attending a meeting of EAS economic ministers in Malaysia. It’s early days for the EAS but potentially it could provide a valuable vehicle for regional economic integration and trade liberalisation.
Japan recently proposed an ASEAN plus 6 EAS-wide ‘comprehensive economic partnership’. It’s a very interesting idea, which may be discussed more in Kuala Lumpur.
There are big challenges that would face such a proposal, but the objective is one New Zealand fully embraces and we will support moves to progress the concept.
Let me add that l see an EAS economic agreement being very much complementary to what we are seeking to do in APEC. We don’t have to decide between the two. They are at different stages of evolution and involve a different set of economies.
The EAS brings together the major economy of India with the ASEAN countries and China, Korea and Japan, as well as New Zealand and Australia. APEC, of course, spans the Pacific and includes within it the Americas.
The Indians have separately floated the idea of a ‘Pan-Asia Free Trade Area’ and again this is an initiative that we will want to follow closely.
In addition to these key existing fora and existing FTA negotiations which are underway, we continue to talk to major trading partners about the possibility of strengthening our trade and economic relationships. A key focus, in this regard, remains Japan and Korea.

China

Our largest commitment, however, on the bilateral front at present is the FTA negotiation with China, with whom we have just concluded the eighth round of bilateral talks in Beijing.

New Zealand is the first OECD country to have commenced negotiations for an FTA with China, though Australia is following quite closely behind us.

The challenge is to negotiate a fully comprehensive agreement, which covers goods and services as well as issues such as investment, government procurement, competition policy and rules of origin.

This goes beyond what China has agreed to with other countries, but was given a boost during Premier Wen's visit to New Zealand last year accompanied by his Trade and Foreign Ministers, during which he spoke in favour of a "comprehensive agreement which was of high quality, balanced and acceptable to both sides."

The most recent talks in China took place over a full week early this month. We continue to make progress across the range of issues under discussion.

We are now getting into actual negotiation over crunch issues such as market access on goods and services.

As you would expect, at this point the talks become tougher as parties consider what is being asked of them.

While progress is being made, we still have a lot of work to do to get an agreement, which is consistent with the instructions set by our political leaders.

On goods, New Zealand's goal is to see the elimination of tariffs, albeit achieved through phasing out over a number of years.

On services, we would like to see as much progress on liberalisation as possible backed by agreement to Most Favoured Nation status so that improvements in subsequent agreements with third parties also applies to partners in this agreement.

Beyond the Asia-Pacific

We also need to look for and cement opportunities beyond our own backyard – to our big trading partners in the Northern Hemisphere, the Middle East and so on – to ensure that New Zealand has not only a seat at the table but also a full smorgasbord of trade and economic options available to it.

New Zealand has made a proposal, for instance, to the Gulf Cooperation Council (GCC), expressing our interest in negotiating a high quality FTA.
The GCC area – encompassing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - is a major regional trading partner for New Zealand, representing an important market for our exports of dairy, sheep meat and beef in particular.
Exports to GCC member countries were worth a total of $656 million in 2005. So this is a market that matters and has potential in terms of services and investment.
In conclusion, New Zealand remains committed to seeing the WTO Round through to a successful conclusion. This remains our best hope for benefiting New Zealand by getting rid of protectionism, for growing the global economy, and for helping developing countries.
But we also have to pursue other opportunities actively.
I’ve talked about some of the FTAs we have on-the-go and our prospects for enhancing our regional economic architecture. These are also central focuses our trade policy agenda.

In terms of regional integration agreements, such as the APEC and EAS proposals, it is still very early days, and we will have to be innovative and proactive in order to try and ensure that we are a player in these initiatives as they continue to evolve.

The main message I want to leave you with is that we will need to be active, engaged and committed at all levels of the international and regional trade environment.

Government clearly has a central role to play in this, and our trade negotiators and diplomats will continue to work to ensure that New Zealand is able to take advantages of the opportunities that arise.

At the same time, I see a strong "NZ Inc" approach as being important to ensuring that we are able to do so. Organisations such a NZPECC, for example, also has a role to play in ensuring that New Zealand's profile in the Asia-Pacific continues to be raised.

Your membership allows you contacts and dialogue with the business, academic, media and NGO communities from around our region, which will often give you insights and information that our officials may not always be privy to.

Ensuring we are well connected – regionally and globally – means being active on several fronts. Through this we can ensure that New Zealand is able to bring all of the pieces of the complex international trade "puzzle" together to New Zealand's best advantage.

ENDS

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