logo logo

Trade: The $1b game of patience

NZ Herald | 14 January 2008

Trade: The $1b game of patience

By Owen Hembry

World trade negotiations launched in Doha, Qatar, in 2001 were supposed to take only three years to complete — but in their seventh year they display all the stubborn staying power of a television soap opera.

The fact that 151 countries are still at the World Trade Organisation talks is a testament to the value of a deal to remove export incentives and reduce agricultural subsidies and tariff levels.

Trade Minister Phil Goff says a deal struck at Doha could be worth up to $900 million a year to New Zealand, while the last round concluded in Uruguay in 1994 had probably been worth about $1 billion a year.

It is a high stakes game with all-or-nothing negotiations.

Goff says the problem is export subsidies, "which are wealthy countries paying their producers to export so that you don’t have a level playing field which disadvantages efficient countries like New Zealand that don’t rely on subsidies and developing countries in the Third World".

The lack of Trade Promotion Authority in the US Administration meant both houses of Congress could delay, amend, alter, "nickel and dime the agreement to death".

The difficulty was finding consensus between large economies and between the developed and developing world but a deal would be valuable to all countries, Goff says.

"Because while you have to give things up it’s not a zero sum game and there is a net gain to everybody from liberalisation of trade."

In September 2001 the World Trade Organisation director-general-designate at the time, Dr Supachai Panitchpakdi, said it was important the talks not be open-ended, and be concluded within three years.

Last October Brazilian President Luiz Inacio Lula da Silva sounded an optimistic note, saying a deal could be struck by the end of last year but those hopes were dashed and in November Brazil and Canada decided to seek a World Trade Organisation investigation into US support for farmers, which totalled US$11 billion ($14 billion) in 2006.

A deal would bring wider public benefit in every country but inevitably some people miss out in trade liberalisation "and those people are the most intense in their organisation around and opposition to that sort of liberalisation", Goff says.

Revised texts are expected by late this month or early next and if outstanding issues are largely resolved an officials meeting would look at all areas of negotiation before a ministerial green room settled any final concerns. New Zealand has significant influence as one of about 25 nations invited to ministerial green rooms and with an ambassador as chairman of the agricultural negotiating committee.

Based on the scenario of progress, it might be possible to get a deal by the later part of this year, Goff says.

But given the less than speedy progress to date, he is perhaps wise to be cautious and gives Doha a slightly less than even chance of being signed.

"The round is not dead, it’s alive and kicking, it’s moving forward," he says. "Can it be brought together in the coming year? I’d say on balance that would be very difficult to do but all trade ministers need to be professional optimists."

However, while multilateral trade talks rumble and stumble along, New Zealand is making progress under its own steam.

Multilateral agreements are the first, best solution to developing free trade, but New Zealand is not putting all its eggs in one basket and work is underway on a number of bilateral and regional agreements, Goff says.

The country has four trade agreements already and five more under negotiation, although bilateral agreements are not without risks.

"Every [free trade agreement] you create is a benefit to those that are within it but a barrier to those outside of it," Goff says. "FTAs are fine for those countries that are strong enough to negotiate them but they don’t cater for weaker countries."

Wellington Regional Chamber of Commerce chief executive Charles Finny says there has been a global explosion of activity.

"Our competitors are all negotiating free trade agreements and so if we don’t do these things we’re going to find it difficult to trade in various markets that have agreements with our competitors."

A Doha deal could deliver more liberalisation but would not be the same as getting free trade for all goods and services.

"The trouble is even if we get an outcome to the Doha round, in each market the outcome’s not going to be as good as we would get if we had a bilateral deal," Finny says. "So we need to do both."

Finny is a board member of the International Business Forum. Other members include big hitters such as Fonterra chairman Henry van der Heyden and Zespri CEO Tony Nowell.

The forum’s focus is to encourage New Zealand’s integration into the global economy, help the Government and build support for free trade in other countries. Finny is hopeful of progress this year.


WorldTrade Organisation talks that started in 2001 aimed at removing export incentives and reducing agricultural subsidies and tariff levels as far as possible. Trade Minister Phil Goff gives the prospects of a deal this year a slightly less than even chance.

Potentially the biggest free trade deal since Closer Economic Relations signed with Australia in 1983. Studies show potential savings to New Zealand of about $100 million in tariffs and export growth of between $260 million and $400 million, Goff says.

The fifteenth round of negotiations has been completed and an agreement is on track for signature by April. New Zealand would be the first developed nation to get a free trade deal with China.

The second round of negotiations with Saudi Arabia, United Arab Emirates, Oman, Bahrain and Qatar was completed in November, with a possibility of concluding negotiations on the Gulf Co-operation Council Free Trade Agreement this year.

Officials are close to resolutions in some areas including goods, but in services, investment and government procurement Malaysia has been reluctant to move far. Unlikely to see much progress until after Malaysian elections due soon.

The combined population for the 12 countries is more than half a billion people with an estimated gross domestic product of nearly $1 trillion. Negotiations are considered important but are moving relatively slowly and will not necessary produce the most ambitious result.

Negotiations are on hold over the question of rules of origin. Hong Kong is keen to resume talks with New Zealand and is open to restarting discussions after it reaches a deal with China, which will resolve many issues about the origin of goods and services.

There is bipartisan support within the US Congress and corporate sector for negotiations but it will be easier for an Administration to get Trade Promotion Authority to start new negotiations after the presidential election. The authority gives an Administration the ability to negotiate trade deals which Congress can either approve or turn down but not amend.

The US is considering the details of the Trans-Pacific Strategic Economic Partnership Agreement (P4) between New Zealand, Singapore, Brunei and Chile as a potential model within Apec.

Reports from the US say negotiations could start this month. New Zealand is open to expanding the P4 so that it might be a foundation stone towards an Asia Pacific free trade area within Apec.

Annual trade talks have started, with discussions on how to enhance relationships after the Doha round, but the focus is on Doha in the first instance. Lateral thinking is needed to enhance and liberalise trade while working around EU protection of its agricultural industry. Reform of the Common Agricultural Policy is gradually changing the landscape with cutbacks in the use of subsidies and a commitment to phase out export incentives by 2013.

Study concluded with Korea into the merits of a free trade agreement with initial discussions held between respective trade ministers. It is hoped that a positive attitude towards working with New Zealand will translate into a new Administration due to come into effect next month.

A study on New Zealand’s largest Latin American trading partner recommended a free trade agreement which has some sympathy with the current Mexican Administration but there is resistance to new free trade deals in that country at the moment.

Discussions are being held with Japan about strengthening the economic relationship but not about free trade at this point. Japan is very protective of its agricultural sector and New Zealand needs to convince the country it can be complementary rather than simply competitive.

The Closer Economic Partnership for East Asia is a longer-term objective being promoted by Japan with support from New Zealand to discuss regional trade liberalisation.

 source: NZ Herald