Labour Party - Speeches

The Doha Round and the emerging Asian regional architecture

29.08.2007

World trade has expanded rapidly in recent years. The World Trade Organisation (WTO) estimates that the world goods trade by volume grew by an average of six percent annually between 1990 and 2005.

Thank you for your welcome, and for your invitation for me to speak here today. I am pleased to have the opportunity to speak at one of the region’s top think-tanks.

My topic today is “The Doha Round and the Emerging Asian Regional Architecture”.

World trade has expanded rapidly in recent years. The World Trade Organisation (WTO) estimates that the world goods trade by volume grew by an average of six percent annually between 1990 and 2005.

Over that same period, the value of the world goods trade has more than doubled.

Much of this growth has taken place in our part of the world. East Asia is now responsible for two-thirds of world trade by volume. The value of trade in ASEAN has tripled since 1990.

This growth in trade has coincided with rapid increases in global incomes, particularly in large developing countries such as China and India. This has fuelled rising demand for commodities.

New Zealand has felt the impacts of this growth in two main ways. First, we have seen the growth of new markets for our goods. The value of our exports to both China and India, for example, has roughly doubled since 2000.

Second, an increased demand for commodities has seen a rise in prices for many of our exports.

Worldwide, services exports have also grown at about 10 percent annually since 2000. New Zealand has benefited from this, particularly in our tourism and education sectors.

Indonesia, too, has benefited from increased global trade and higher commodity prices, experiencing significant export growth, particularly to China and India. I understand that the value of Indonesia’s exports to these two countries has roughly tripled since 2000.

For both of our countries exports account for a similar share of our respective GDPs - about 30 percent.

While both of our countries have seen an extensive export growth, our export profiles differ somewhat.

We both export a range of manufactured goods but overall New Zealand exports are dominated by agricultural, forestry and horticultural products.

Indonesia exports a wide range of commodities including minerals and resources, forest products and metals.

Both of our countries depend on trade. And we have some common interests in the World Trade Organisation (WTO).

Both of us want new opportunities for our exports. These opportunities are large. The World Bank estimates that total freeing up of trade would boost world global real income by US$287 billion a year in 2015.

And both of us want global trade rules that provide certainty for our exporters.

So the successful conclusion of the current WTO Doha Round remains critical for all of us, and for global development.

Getting a consensus deal among 151 members is a challenge. But we have made some real progress.

Last month saw the release of draft negotiating texts on agriculture and industrial goods.

On agriculture, WTO Members are ready and willing to get into the detail of the specific elements when the negotiations resume in September.

The issues are complex. There are vital food security and rural development interests of special concern to the G-33 group. There is also pressure from groups such as the Cairns Group to open up markets.

Indonesia, as both a member of the Cairns Group and Chair of the G-33 has a key leadership role. New Zealand has appreciated the opportunity to work alongside colleagues from Indonesia in trying to find compromise solutions.

On industrial goods, the picture is more troubled. Developed countries are unhappy with the draft text. And there was even stronger criticism of it from several developing countries, with some even rejecting it outright.

Those reactions mean that there are now large problems in the negotiation on industrial goods, which threaten to spill over into agriculture.

In Manila yesterday ASEAN Economic Ministers and their counterparts from New Zealand, Australia, China, Japan and Korea discussed the Doha Round.

Within this group there are diverse policy positions. I think it is therefore significant that we were able to come out with a united view on the need to move into an intensive negotiating process from September, under the leadership of the negotiating group Chairs.

It is easy to see the problems that stand in the way of the negotiating committees making progress in finalising the key texts next month. I have touched on some of these already.

In agriculture formulas need to be found that allow some assurances for countries on products where they fear trade liberalisation may negatively affect key areas for developed countries – the so-called “sensitive products” – and for developing countries, “special products”.

The formula, however, needs to allow new trade to flow within whatever constraints are set, to achieve the broad purpose of the Round.

In non-agricultural market access (NAMA), the gaps between countries on the level of the Swiss formula, which effectively defines the cap on tariff levels, remains far apart.

Proposals for developed countries’ tariff caps range from 8 – 10 percent, and for developing countries, from 15 – 30 percent. Thus far in the negotiations, parties have failed to achieve convergence.

These problems are solvable if there is the flexibility and will to achieve an outcome, and a positive and constructive approach to doing so, from all parties.

Achieving trade liberalisation is not a zero sum game. The overall benefits far outweigh the costs to specific sectors that are not competitive, and will need significant reform to cope with the changes.

The nature of politics, of course, is that vested interests with protectionist needs will fight harder and apply more pressure on their domestic political decision-makers, than will the much wider group of future beneficiaries of change.

As past experience demonstrates, it won’t be easy to complete the Round, but there are powerful reasons why we must do so.

The current Round was deliberately named the Doha Development Agenda. Multilateralism is the only way in which reforms critical to developing countries can be achieved.

Huge subsidies on agriculture in the developed world, and prohibitive tariffs into those markets stop developing countries using their advantages in agricultural production to break into those markets or even to compete fairly in selling to third markets.

Bilateral or even regional free trade agreements cannot resolve these problems, which need to be addressed multilaterally.

Small, vulnerable and developing countries also need a trading system based on enforceable rules, and not the law of the jungle.

The WTO system provides a rules-based system and allows small states to challenge the powerful through a dispute resolution procedure when those rules are broken.

Bilateral free trade agreements are a useful way for countries to remove trade barriers between them, at a faster rate that might be achievable multilaterally.

But they also can cause problems of their own. The so-called “noodle bowl” of FTAs do not create consistent rules of access, or standards of liberalisation.

They are useful for countries which have a strong negotiating base from which to advance trade, but again disadvantage those who have smaller or weaker economies, and cannot achieve outcomes in this way.

For all countries, a decision to complete the Round ought to be based on the net benefits that an outcome, even if that outcome does not fully meet our expectations.

For Cairns Group members like Indonesia, Malaysia and the Philippines, Australia and New Zealand, and our Latin American colleagues like Brazil, Argentina, Uruguay and others, the deal that is on the table now, while short of our justified ambition, means we should not lightly allow the Round to fail.

The European Union and United States can and should make further concessions on subsidies and tariffs. However, it is also realistic to recognise that for them to do so, the needs of their stakeholders in NAMA and services will also need to be addressed.

Some have raised the absence of Trade Promotion Authority (TPA) in the US, a Farm Bill that makes few reforms and the Democratic majority in Congress as obstacles to achieving an outcome in the Round.

These are real problems, but they are not insurmountable. If negotiations in Geneva make progress, I doubt that Congress would deny a TPA, and be seen to block a Doha outcome.

If, however, the Geneva negotiations next month reach a stalemate, the most likely outcome will be a suspension of the Round until mid-2009. That could, in turn, lead to a loss of momentum, which could fatally undermine the Round.

Trade Negotiation Ministers need to be professional optimists, and I am reluctant to accept that with so much at stake this would be allowed to happen.

Countries like ours, however, will have to work together with others to find mutually acceptable compromises in order to achieve the net benefits that successful conclusion of the Round offers.

Alongside our multilateral efforts, New Zealand is working hard on the regional and bilateral fronts.

As part of the Asia Pacific region we are committed to playing our part fully in the region’s future.

New Zealand participates in most of the regional economic groupings evolving in Asia.

New Zealand became an ASEAN Dialogue partner in 1975, only the third country to be granted this status.

Last year we agreed on a framework for New Zealand-ASEAN co-operation through to 2010.

As you might expect, this is a challenging undertaking since it involves 12 countries at different levels of development, and with diverse interests.

I have just come from the ASEAN Economic Ministers meeting with dialogue partners in Manila.

This combination of ASEAN countries plus Australia, China, India, Japan, Korea and New Zealand is emerging as a key vehicle for the development of a wider community.

New Zealand welcomed ASEAN’s decision in 2004 to convene the East Asia Summit.

Leaders agreed that the EAS should be an open, inclusive and outward-looking forum, setting three criteria for membership: existing dialogue partner status with ASEAN, accession to the Treaty of Amity and Co-operation, and substantial relations with ASEAN.

New Zealand, Australia and India accordingly were invited to join, and did so. We appreciated Indonesia’s strong advocacy of New Zealand’s EAS membership.

We are supporting the development of the EAS in a number of ways. We have hosted meetings on energy and economic partnership, and we stand ready to contribute to an EAS Unit to be based in the ASEAN Secretariat here in Jakarta.

Within the EAS, Japan has proposed a Comprehensive Economic Partnership for East Asia (CEPEA) amongst the 16 members, something which New Zealand is keen to see come to fruition.

New Zealand recently hosted a meeting of experts tasked with reporting on the implications of a CEPEA.

New Zealand believes that the EAS has the potential to develop into a broader Asia community that reflects growing regional economic integration.

CEPEA would be an important element of this – though we accept that it will not come into fruition over the short-term.

New Zealand and Indonesia are both founding members of the Asia Pacific Economic Cooperation (APEC) process.

APEC remains an important vehicle for our engagement in the Asia Pacific given its significant global clout. Combined, the APEC membership is responsible for close to half of world trade.

It is an important forum for progressing regional cooperation on trade and investment facilitation and economic and technical cooperation.

APEC also provides opportunities for regular dialogue on a range of priority issues at officials, ministerial and leaders’ level.

Next week I will be in Sydney to participate in the annual ministerial meeting between APEC foreign and trade ministers, immediately before the annual APEC Leaders’ Meeting.

We will be discussing ways to further promote regional trade and economic integration, including through the possibility of a Free Trade Agreement for the Asia Pacific (FTAAP), as a long term prospect.

For New Zealand, an FTAAP would include most of our key trading partners, and offers enormous potential in terms of delivering new commercial opportunities for our businesses.

Like CEPEA, the FTAAP is a long-term proposition, but as an idea it has come a long way in a short period of time.

The discussions on the FTAAP in Sydney next week will provide an opportunity to further develop our thinking about how it can best be progressed.

We will also discuss APEC’s role in regional efforts on energy security and climate change.

Alongside the emergence of regional groupings is an ever-increasing web of bilateral free trade agreements (FTAs) in Asia. As I earlier mentioned this is often referred to as the “noodle bowl”.

The Asian Development Bank estimates that within a few years, there will be nearly 40 such agreements.

For smaller countries like New Zealand FTAs provide an important mechanism to improve market access with trading partners.

They also provide a means to counter the negative impacts, such as trade diversion, that can result from FTAs that trading partners have entered with third countries.

Nearly all of New Zealand’s FTAs have an Asia Pacific focus. On the bilateral front, we have FTAs with Australia, Singapore and Thailand. We are currently in negotiation with China and Malaysia.

A joint study with Korea into the merits of an FTA is nearly complete, and there is agreement in-principle with India to proceed with a study.

New Zealand and Japan have a joint working group looking at ways we can advance our economic relations.

At the sub-regional level, we have concluded the P-4 regional trade agreement with Singapore, Brunei and Chile.

As I mentioned earlier FTA negotiations are underway between New Zealand and Australian, and ASEAN.

And we continuer to work to build a constituency within the US Congress, Administration and business community – in pursuit of United States - New Zealand FTA negotiations once the President’s Trade Promotion Authority is renewed.

We are also looking further afield, and recently launched FTA negotiations with the Gulf Cooperation Council.

I want to touch, finally, on the importance we attach to further strengthening our bilateral linkages with our Asian–Pacific partners.

Indonesia, as one of the world’s largest countries and a leader in the Islamic world, is very important to us in that regard.

It is an anchor for regional stability through its constructive role in regional and international affairs. Without Indonesia, there would be no ASEAN, nor any of the regional integration processes driven by ASEAN.

Our relations with Indonesia go back a long way. Our two countries have had diplomatic relations and a development assistance programme since the 1950s.

But today we enjoy a warmth and closeness that was not there in earlier years. We have welcomed the strengthening of democracy in Indonesia.

A democratic Indonesia has added a new dimension to our interaction, and has provided an environment conducive to the maturing of our bilateral relationship.

Last year we renewed our defence relationship, which had been suspended since 1999. Co-operation between our police forces is growing strongly. There are active institutional linkages in the education sector.

My Prime Minister, Helen Clark, visited in July and we hope to see more high level bilateral visits between our two countries.

Indonesia is New Zealand’s 9th largest market, and our largest in Southeast Asia. Bilateral trade is growing. Last year we exported NZ$613 million worth of goods to Indonesia, predominantly dairy products.

In turn, we imported NZ$737 million worth of products from Indonesia, chiefly fuel products and wood and paper products.

Tomorrow I will be meeting with my counterpart, Trade Minister Dr Mari Pangestu and the Coordinating Minister for the economy, Dr Boediono to discuss how we can further strengthen our trade and economic cooperation.

I am looking forward, also, to signing a Trade and Investment Arrangement between New Zealand and Indonesia. This arrangement will provide a framework for enhancing trade and investment flows between our two countries.

I have focused today on the trade and economic architecture that governments are working on in the Asia Pacific region.

Of course, what we are all trying to do is to catch up with what is already happening in the marketplace. In the world of business, economic integration is now the reality.

But I am now equally keen to hear from you. Indonesia is uniquely placed – for reasons of its size, history, culture, geography and diversity – to offer lessons to the rest of us on how we can face up to the challenges of the 21st Century.

The intellectual leadership that forums such as the Centre for Strategic and International Studies can provide will be important for those of us facing important policy choices in the years ahead.

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The Doha Round and the emerging Asian regional architecture

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