Trying out the keys to free trade

By MARTIN RICHARDSON*

Where should New Zealand concentrate its trade negotiation efforts?

Trade Negotiations Minister Jim Sutton, recently back from a meeting with Asean trade ministers, is likely to stay pretty busy for the next couple of years.

When it comes to bilateral, regional or multilateral trade deals, New Zealand is like Jonah after a test match: willing to sign anything. But we have tended to focus our efforts on the multilateral arena and the question must be asked whether this is effort well spent?

The answer depends in large part on the actions of the big players, most notably the US.

In March this year President George W. Bush opened his statement announcing a massive schedule of tariffs on imported steel into the US with the remark, "Free trade is an important engine of economic growth and a cornerstone of my economic agenda".

In May he signed into being an enormously generous raft of assistance to US farmers, yet in July his trade representative, Robert Zoellick, announced a US proposal to the WTO to drastically cut agricultural subsidies worldwide.

But how can the US really be committed to free trade when it is willing to sacrifice important international interests - particularly post-September 11 relations with Europe - for the domestic support of a few politically significant congressmen? How to reconcile US rhetoric on trade policy with its actual practice?

A pessimistic view is that they are irreconcilable - actions speak louder than words and while this Administration talks the talk, it does not walk the walk.

In this view, July's granting of trade promotion authority (TPA) to Bush (essentially the ability to negotiate trade deals which cannot then be fiddled with by Congress and must be voted up or down in toto) is meaningless. The damage has been done to relations with trading partners (particularly Europe) and the President's shiny new trade authority is a toy he'll not be able to use because no one will want to play with him.

The WTO proposal, in this view, is irritating nonsense designed to capture some moral high ground: the US must know that Europe will not touch it as it calls for far greater reductions in agricultural support from Europe and Japan than from the US (although they both start from far higher levels than the US).

An even more pessimistic view, from a NZ perspective, is that Bush will be able to use the trade authority but that the US has given up on multilateralism (its main instrument for dealing with Europe) and will use the authority to form bilateral deals.

If we are cut out of those we will lose ground to competitors such as Chile and Australia (both high on the US list of potential partners, with Singapore) and we'll suffer as this bilateralism undermines the multilateral process of the WTO.

Apologists for the US, however, have argued consistently that these recent concessions to domestic interests on steel and agriculture (and also on lumber and textiles) are just the price that has had to be paid in order to get the trade authority (which squeaked through the House by the smallest of margins). It's a huge price - and the cynic might argue that it illustrates the insignificance of international relations to the Administration.

But there's a more optimistic view, which is that the huge price tells us just how important the trade authority is to Bush and Zoellick. If they have been willing to make these sacrifices to get it then it must be that they really do intend to use it as a major instrument of trade policy.

What does that mean for New Zealand? There are three avenues by which this might be good news.

First, there is the possibility that we might be able to sign a free trade area with the US by ourselves. Personally, I consider this as likely as a John Mitchell All Blacks team with fewer than seven Crusaders in it. Make no mistake: it would be fabulous for the country if a free trade area formed, but the problem is that the main thing such an area can offer the US is gains to its consumers and they get very small weight in assessing such deals.

Goodwill alone is insufficient to curry favour with the US (as Pakistan discovered when its requested US textiles tariff relief - as consideration for its very risky participation in the war on terrorism - was rebuffed in favour of protectionist US domestic textile interests). We don't offer a big domestic market to US exporters and, unlike Singapore, which offers a springboard into Asia, the only leg-up we can offer is into Australia, where the US can go directly.

The second possibility is a joint free trade area with Australia and the US. This is a more likely scenario - albeit still distant, as US agricultural opposition mobilises because Australia is a more likely potential free trade partner for the US (for reasons of size, geopolitical importance and its resource base) but our problem here will be to persuade Australia to take us along.

Nevertheless, I think it is worthwhile pursuing this option with some vigour. If we miss out in the first instance and Australia and the US can conclude a meaningful free trade area between themselves then, while this would defuse some of the internal US opposition to any subsequent deal with us, such a deal would likely meet substantial Australian roadblocks.

The third avenue is multilateralism and the WTO. The US has been very active in keeping the WTO relevant by enabling the Doha initiative, and the schedule for the current round dovetails very nicely with the trade promotion authority - both are slated for completion in 2005 (although the authority has an automatic two-year extension unless explicitly overturned by Congress).

This may all signal that the US is back at the negotiating table with a vengeance and is willing to resume a leadership role in the multilateral system. One can only hope that this commitment is not undermined by isolationist sentiment in the US (driven by either its increasingly independent attitude to global security or too many more unfavourable WTO decisions) and that US trade practice will match its rhetoric.

New Zealand's willingness to talk trade with anyone is a sound and sensible policy.

But in answer to my opening question, I do think New Zealand's strong commitment to the WTO is particularly wise: this is surely the country's best hope for gains from the trade authority.

We should continue to throw our weight behind multilateral initiatives to liberalise world agricultural trade and, at the same time, take some of the wind out of the sails of increasing bilateralism.

* Martin Richardson is professor of economics at the University of Otago

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