Why G.A.T.T.’s 40th birthday party is so important to N.Z.

Press, 30 November 1987, Page 16

Why G.A.T.T.’s 40th birthday party is so important to N.Z.

Mr Mike Moore,

the Minister of

Overseas Trade and Marketing, backgrounds the world trade talks

THE GENERAL Agreement on Tariffs and Trade (G.A.T.T.) turned 40 at the end of October. On November 30, in Geneva, we celebrate the birthday of an organisation older than I am. It. may seem funny to be having a party for an organisation, particularly one which is as obscure as the G.A.T.T. After all, it’s hardly a high profile outfit If

someone thumped his shoe on the table at a G.A.T.T. meeting — the way Khrushchev did in the United Nations some years ago — you would never read about it in New Zealand papers. There is a birthday party, but the celebration is a cover for a number of serious meetings between Trade Ministers. Mr Clayton Yeutter, the United States trade representative is to be there. And Mr Willy de Clerq, of the E.E.C., Mr Tadashl Kuranari from Japan, and Ministers from Canada, Australia, Hungary, leading developing countries such as Brazil, India, Mexico, South Korea, and the other 90-plus G.A.T.T. member nations. Why are we bothering? Certainly, there are other meetings on at the same time which would be worth a trip in themselves. There’s a meeting at ministerial level of the Cairns Group, for example. This is the group of 14 "free traders in agriculture’’ which has had success in promoting freer trade in agricultural products since its establishment 15 months ago. But the GATT.'s birthday — and the meetings which have been arranged to coincide with that celebration — is the main drawcard. Why? To answer that, I have to go into a little background about the G.A.T.T. The Issues in front of the G.A.T.T. are often complex, bureaucratic, boring but important to every New Zealander. First, the G.A.T.T. is three things: • A set of rules governing trade in goods among G.A.T.T. members; • An organisation which oversees the application of these rules; • A forum for updating these rules, and also negotiating further trade liberalisation among G.A.T.T. members. Seven so called “rounds” of such negotiations have occurred in the G.A.T.T.’s first 40 years. An eighth, the Uruguay Round,, was launched at Punta del Este last September. The Uruguay Round will probably continue into the 19905. If it succeeds, New Zealand stands to be a big winner. This is because agricultural trade is on the agenda for the first time. And even a small movement to free up agricultural trade would help New Zealand boost foreign exchange earnings. For example, our studies show that in world dairy trade about 3 per cent of dairy — worth $BOOO million — is traded freely in the world.

New Zealand has one-quarter of that

Each 1 per cent move in market share is worth $2600 million. If that much worth of the world’s dairy trade is freed up it gives New Zealand the chance to double its dairy export sales. Some 3000-plus extra jobs would be created.

But the negotiations move at the pace of a glacier. We are Infor a long, hard haul. We are not a major player. New Zealand accounts for less than 0.3 per cent of international trade. But New Zealand this time has good arguments and good friends who agree with it New Zealand has been a member of the G.A.T.T. from the outset Originally, the agreement governed the trade of only 23 countries. Today, the membership has grown to 94, and several countries have applied to join. By the end of the Uruguay Round, membership may exceed 100. New Zealand has long been dissatisfied with the treatment of the agriculture and fisheries sectors in the G.A.T.T. Nevertheless, we have been an active member of the organisation and have received considerable benefits from membership.

The first of these has been the application of the “most-fav-oured-nation” principle to our trade. This means that each member of the G.A.T.T. must grant all other members treatment which is just as favourable as that granted to any other country.

That is, no country can give special trading advantages to another, except in certain clearly defined circumstances. All moves to trade liberalisation must be shared equally by all G.A.T.T. members.

A second benefit has been a stable and predictable basis for our trade through agreements not to increase tariffs on certain items without the payment of compensation. This process is called “binding” the tariff. Without it, we would probably not be able to export lamb or cheese to the European Community. Nor would our exports of casein to the United States enjoy the duty-free and unrestricted access which they do today. A third major benefit is that we have had access to the G.A.T.T.’s dispute settlement process. Fortunately, we have not had to make much use of it, but one recent example was over France’s imposition of restrictions on the importation of New-

Zealand lamb brains and canned kiwifruit, in the aftermath of the Rainbow Warrior bombing. Our lamb brains exports to the European Community are covered by a GA-T.T. binding, and we therefore had a very strong case, and the matter was resolved to our satisfaction within a short period.

These benefits of membership are very real. However, it is well known that New Zealand has been dissatisfied with some aspects of the G.A.T.T., especially its failure to deal adequately with agriculture and fisheries. The fact that the agreement does not apply to trade in services — banking and finance, tourism, and so on — is another serious shortcoming. Agriculture Lax discipline on subsidies and import barriers have been disastrous for global production of and trade in agricultural products. As is now widely acknowledged: • there is massive over-pro-duction of agricultural products in the major industrialised economies; • demand is stagnant; • international commodity prices are depressed and unstable; • trade barriers are limiting export opportunities; • there is starvation in some countries at a time of global overproduction; •an excessive burden is being placed on the budgets of those countries or customs unions which protect and subsidise their agricultural sectors; • and an excessive burden is being placed on the consumer ofagricultural products in some industrialised countries.

We have now reached the position where those countries with the highest levels of protection are also those with the lowest levels of comparative advantage in agricultural production. At the same time, those agricultural producers with the greatest comparative advantage are in many cases the worst hurt by protectionism.

This is a situation which should not be permitted to continue, and New Zealand wants action in this G.A.T.T. round.

Our farmers are now fully exposed to global market forces. They are receiving poor returns while at the same time their exports continue to face major barriers. This situation exists in spite of New Zealand’s acknow-

ledged comparative advantage in the production of temperate zone agricultural commodities. According to conservative estimates, the present crisis in global agricultural trade is costing New Zealand at least $l3OO million a year. To choose one commodity — butter, for which we are the most efficient producer - as an example, our exports to the E.E.C. have fallen from 165,000 tonnes in 1973 to 76,000 tonnes in 1987. A further reduction could occur next year. New Zealand therefore has much to gain from freer trade in world agriculture, but so does every other member of the G.A.T.T. Protectionism is colossaliy wasteful. One estimate has the gross cost of food price distortion in the E.E.C. in 1985 as over $BO blUion.

New Zealand has been attempting to address this situation since the G.A.T.T. was launched 40 years ago. We have achieved some successes — such as the negotiation of duty reductions on wool with the United States and a binding which has protected our exports of sheepmeat to the European Community. Over-all, however, progress on the reform of agricultural trade has been unsatisfactory, and it has long been apparent that a comprehensive approach to agricultural trade is essential. Trade in services Although agriculture is the foundation of our export interests, and therefore the focus of much of our involvement in the G.A.T.T., the services sector is of growing importance to New Zealand.

More than half the New Zealand work force is employed in service industries and the proportion is increasing. Services exports are growing rapidly, too. One study suggests that they grossed four billion in 1985/86.

Many of our trade-exposed services have great potential: ocean shipping, International aviation, tourism, education (offering places tor students or taking expertise abroad), ceosuitaney and engineering services, technology, export earnings from cinema and TV films, Insurance and financial services — all of these will be, where they are not already, major dollar-earners for ‘New Zealand. It Is in New Zeeland’s longterm interests to push hard for reduced global protectionism for trade in services. Our owh economy is relatively open, and deregulation is still underway. We therefore have nothing to lose and much to gain from a frontal assault on barriers to trade in -this area. Other issues Agriculture and services are not the only topics being negotiated in thp current GAT.T. round. Thirteen other major areas of trade-related activity are under discussion. New Zealand has much at stake in the negotiations on general tariff rates and on safeguards. Proposals have also been tabled for improving rules on dumping and subsidies. Separate negotiations are being held on the liberalisation of trade in textiles and natural resources (which include fisheries, forestry and non-ferrous metals such 'as aluminium.) International rules for the protection of intellectual property •—< through copyright and patents, for example — are being discussed. You can see, therefore, how important the GAT.T. Is to New Zealand. The health of this, highly-specialised organisation will continue to be of great significance to Us — which is why, of course; Trade Ministers from around the world are gathering in Geneva to celebrate the GAT.T.’s first 40 years. ; ’ There is a Chinese curse: “May you live in interesting times.” The last 400 years have been "interesting” for the GAT.T., not to say turbulent We’ve had trade wars and near trade wars ... disputes involving the United States, Japan, the E.E.C. and others that have dragged on for years ... protectionism during the recession of the Seventies ... increasing use of so-called “grey area measures,” designed to evade the GAT.T.’s rules. This is the sort of excitement we can all do without My fervent hope is that historians will , consider, the GAT.T.’s second 40 years as unutterably dull. "Hardly anything worth recording happened,” they will record, “World trade expanded and was made universally ’free* and ‘open* In a predictable and equitable environment. Trade disputes were few and Tar between, and . swiftly resolved. It was aU ter-* ribly boring." ■ :

‘New Zealand has long been dissatisfied with the treatment of agriculture and fishing under the pact’