Trade club sets tough rules

The Clark Government needs to get down to some serious strategy work after the collapse of the Cancun talks.

New Zealand is at a critical point.

There are strong suggestions that the key World Trade Organisation players will now change tack and build cosy clubs of their own. Their membership conditions – if New Zealand is invited to join – will be tough.

The powerful European Union is already sending signals to other nations not to take it for granted.

The EU made considerable concessions in Cancun, pledging to reduce its gold-plated agriculture protections. But it may now withdraw those concessions from the table, putting the WTO back to square one should it get its negotiating act together again.

Overlay this scenario with the supercharged political environment caused by next year’s US presidential election, a fledgling trade war between the US and China, and the failure by developing nations represented at the WTO to acknowledge that they, not just the “rich” nations, must also reduce protectionist barriers, and the omens are not good.

New Zealand’s trade strategy is focused on the WTO.

The rules-based organisation enables small nations such as New Zealand to look after their legitimate interests, which would otherwise be swamped by larger economic players and their own political interests.

New Zealand achieved considerable gains from the previous Doha Round and stands to get a big dividend if world agriculture protectionism is again reduced.

But it is also member of Apec – the powerful Asia-Pacific group of nations – whose trade ministers affirmed at a May meeting that they would strive to extract a successful result from Cancun.

As Alan Oxley, chair of the Australian Apec Study Centre, has observed: “At Cancun they stood by as about 100 countries whose share of world trade might reach 5 per cent on a sunny day in the world economy trashed the WTO”.

But as Oxley notes, only the WTO can unlock the world’s protected food markets to Apec economies – including New Zealand.

In three weeks, Helen Clark will be in Bangkok for this year’s Apec leaders’ meeting.

Apec – which stands for Asia Pacific Economic Co-operation – has an ambitious agenda of its own to liberalise trade within its Asia Pacific members by 2010 for developed countries and 2020 for developing nations.

Progress has been patchy since bold liberalisation goals were affirmed in Bogor, Indonesia, in the mid-1990s.

The agenda of the past two Apec meetings has been dominated by global terrorism.

Apec 2001 took place in Shanghai just weeks after the September 11 attack on the World Trade Centre.

That meeting was a showcase for the Chinese Government’s historic opening of their economy and its accession to the World Trade Organisation. But inevitably the regional response to terrorism took centre stage.

Last year, regional security was again a hot topic when leaders convened in a Mexican tourist playground, Los Cabos, as the effects of the Bali bombing sank in.

After the spectacular failure of WTO talks in Cancun, there must be a renewed focus on trade liberalisation in Bangkok.

New Zealand should resist any cosmetic attempt to portray Apec as an alternative vehicle to the WTO.

Unlike the WTO’s agreements, Apec’s statements have no binding force on members. There has been enormous movement in areas such as capacity building and trade facilitation.

But protectionism inevitably rears its head. The most ambitious Apec proposal for voluntary early sectoral liberalisation of the fishing and forestry industries – which would have had huge benefits to the New Zealand economy – failed when Japan reneged.

However, Apec could be used to get the WTO back on track. If the Apec leaders can reach an accommodation in Bangkok and agree a road ahead for the WTO, it should not then be too difficult to patch in other players to reach a tipping point. It is in New Zealand’s interests for this to happen as there are few alternatives.

Trade Negotiations Minister Jim Sutton maintains the Government is not concerned at being left out of bilaterals.

The Government has concluded a Singapore bilateral deal, and last week held the first round of negotiations towards a deal with Singapore and Chile, but progress elsewhere has been limited.

Hong Kong discussions have stalled on rules of origin, Thailand and Mexico deals are being considered and New Zealand still faces a big hurdle with the United States.

Says Sutton: “We are very open and have very low applied tariffs, so we don’t have the political negotiating coin that some have who have high levels of protection.

“Now some people say we were foolish to liberalise unilaterally, but we have been the principal beneficiary of that and it has transformed our economy in a beneficial way.”

On the surface Sutton’s comments are correct. But if the main players stitch up huge trading blocs – from which New Zealand is excluded – they could grant preferential deals to New Zealand’s competitors.

Inevitably agriculture liberalisation will dominate New Zealand’s concerns.

Agriculture contributes more than half of New Zealand’s merchandise exports and more than 15 per cent of GDP, and it accounts for one job in 10 nationwide.

If huge trading blocs then turn their backs on the WTO the results would be catastrophic for this nation.

The US – and now China – have since Cancun indicated they will accelerate the negotiation of bilateral or regional free trade agreements.

The Bush Administration has embarked on a wide range of such agreements since 2001 under its “competitive liberalisation” policy and, says United States Trade Representative Bob Zoellick, will lift the momentum further.

China has opened discussions with the Asean group and is expected to hold discussions with New Zealand and Australia on separate bilateral deals during the visit by President Hu Jintao next month.

And now the European Commission is assessing its position with the European Parliament and member states.

“We are checking whether multilateral should continue to be our priority or whether we should openly start negotiations for free trade agreements which we have kept on hold since 1999,” said European Trade Commissioner Pascal Lamy’s spokesman.

“We are also reflecting on the future of preferential trade agreements, on the right mix between market opening and basic trade rules.”

Of even greater concern is an indication that the agriculture concessions that the EU had made in discussions in Cancun might be withdrawn. At Lamy’s closing press conference he indicated they would stay. But that was then. This is now.

A subsequent internal EU paper says although the bloc will continue to reform its own reform processes in agriculture, the results of that reform will not be bound in the WTO. Said Lamy’s spokesman: “It’s difficult to see what was on the table since the table is now gone.”