Fran O'Sullivan: Tearing down tariffs for NZ's good

New Zealand has mustered a crack negotiating team for the pivotal world trade talks that got under way in Hong Kong yesterday. The trouble is what's on the table - so far - is so lacking in specifics that more than a few forum- bound delegates have openly joked they might as well take advantage of the location and "go shopping".

They won't, of course.

Trade Ministers from the 149 member nations of the World Trade Organisation will want to avoid the embarrassment of chalking up the second failed talks in a row after a disastrous meeting in Cancun in 2003 that put the clock back on multilateral trade liberalisation.

Trade liberalisation is almost an article of faith as far as New Zealanders are concerned. We stripped the struts out from under our farmers in the mid-1980s and laid waste to most tariffs on manufactured goods.

But much of the rest of the world has taken a long time to come around to our thinking. The successful Uruguay Round of trade negotiations added an extra $900 million a year to the New Zealand economy through (mainly) increased farming returns, but little has happened since.

Trade Negotiations Minister Jim Sutton has started to "manage expectations down" in line with his WTO colleagues. After years of pushing for an "ambitious" outcome from the WTO's current Doha Development Round, Sutton is now (quietly) conceding that the organisation will be hard-pressed to forge a consensus for the almost full removal of subsidies that New Zealand basically favours.

Sutton is among a list of 22 trade ministers who were issued invitations to the "green room", which held its first meeting late last night. The insiders group of trade ministers basically will negotiate the blueprint on behalf of the 149 member nations. The system has been attacked as "undemocratic", but getting 149 trade ministers to agree on fine print is impossible.

But to negotiate a blueprint there needs to be a draft text in the first place. WTO director-general Pascal Lamy had hoped to have a draft text in place that would contain all the key decisions on guidelines for cutting farm subsidies and reducing tariffs on industrial goods. But he has had to admit he is little more than "halfway down the road".

What happens over the next few days will have a determinant effect on the New Zealand economy.

New Zealand farmers face high tariffs into other markets on many key export products. Japan applies tariffs on meat as high as 50 per cent, the EU meat tariffs run out at 140 per cent and it's up to 700 per cent in Norway and Switzerland for some products.

Our negotiators argue tariff cuts of sufficient depth are needed so that barriers will be reduced sufficiently to let new trade flow across borders. In pursuit of this ambition New Zealand is supporting a proposal tabled by US Trade Representative Rob Portman.

The US wants a 90 per cent cut on high tariffs ranging down to a 55 per cent cut on the lowest tariffs (for developing countries). The European Union - whose major consumer market is distorted by farmer protection - will not go so far. The EU has offered 60 per cent cuts (high tariffs) and 25 per cent (low tariffs). The G20 group of developing countries is proposing a middle ground: 75 per cent cut for the top tier; 45 per cent for the lowest.

The brute reality is that high-cost farming producers from countries such as Japan, Norway, Korea and those of the EU do not want barriers reduced so far that they are swamped by New Zealand's more competitive lower-cost producers.

Many are now questioning the very raison d'etre for the Doha Development Round. Predictions by the World Bank that it could result in income lifts of between US$290 billion and US$500 billion and lift 144 million people out of poverty by 2015 are now looking decidedly fanciful.

A report out last month by World Bank economists Kym Anderson and Will Martin predicts removing all trade barriers would lift the world's output by US$287 billion as resources move from high-cost producers to lower-cost producers from countries such as New Zealand and Australia, which would score a 1 per cent lift in national income.

But New Zealand and Australia's 24 million people would also get more income than the 720 million in sub-Saharan Africa, which is in conflict with the objective of the Doha Round to deliver more to the world's poor.

New Zealand's overriding concern - and probable bottom-line - is that the multilateral trading system survives Hong Kong. It will be a miracle now if a major breakthrough occurs.

But this country needs the safety net of a rules-based trading system to which we can refer dispute - like the lamb controversy with the US - when others ignore the rules.

TOWARDS LOWER TARIFFS

* What's at stake?

New Zealand will be one of the biggest beneficiaries if global agriculture tariffs and subsidies are fully removed - but don't hold your breath.

The last round (Uruguay) put $900 million a year extra into New Zealand's pockets but the Doha Dividend will not be anywhere near as big unless the European Union and other protectionist nations provide greater access to their markets.

* What if the WTO talks fail?

New Zealand could live with the current agricultural subsidy system. But it could not thrive without a proper rules-based trading system and if the talks fail the WTO itself could fall into disrepute.

THE PLAYERS

* Pascal Lamy
Director-General World Trade Organisation

The French-born Lamy has been "managing expectations down" but the WTO's "persuader" must use a combination of bullying and charm if he is to get the 149 nations present in Hong Kong to agree on a template that can be forwarded to Geneva for more nitty-gritty negotiations in the New Year. Lamy famously described the WTO as a "medieval court" after the last ministerial talks failed.

* Peter Mandelson
Trade Commissioner, European Union

Mandelson has put his foot down, saying Europe will not make any fresh concessions on farm trade this week. His member states say they have gone far enough in agreeing to reform the EU's Common Agricultural Policy and cut subsidies. Mandelson has attacked protectionists (read French) in his own camp but must take all EU members with him to offer flexibility around agricultural protection.

* Rob Portman
US Trade Representative

Portman has taken up the cause of agricultural liberalisation in a much more focused way than his predecessors. But the United States - with its extraordinarily cosseted farmers - still faces a credibility gap. The US farm lobby has said it will "live without subsidies" if its members can also get greater access to the markets of Brazil and other richer members of the G20 developing countries bloc.

* Celso Amorin
Brazilian Foreign Minister, putative leader G20 developing countries bloc

A foreign minister who "trades", Amorin leads the G20 group that wants the EU to move much harder on agriculture protectionism. G20 emerged as a force at the WTO's Cancun meeting in 2003. Amorin offered to lower Brazil's duties on industrial goods by 50 per cent to help persuade Europe to move but drew a nil response.

* Mark Vaile
Australian Trade Minister, Cairns Group leader

Vaile leads the clique of major agricultural exporting nations (to which New Zealand belongs), which is under attack from the EU as a bunch of "self-interested" and "rich" countries out to advantage themselves from the Doha Round at the expense of others.

The hard-nosed Aussie is returning to the fray after treatment for a melanoma.

* Jim Sutton
Trade Negotiations Minister, New Zealand

Sutton is on his swansong after a career that has seen him build credibility within the WTOs inner circles as a useful player to have in the "green room" where deals get done. He will blood Phil Goff over the next six days, but Goff will have to earn his own stripes before he makes the inner sanctum. Crawford Falconer, the second Kiwi to chair WTO agriculture negotiations, will also be in Hong Kong.