Posts Tagged ‘International Trade’

EU Agricultural Subsidies And The WTO Round

January 24, 2009

I am getting even more worried about the WTO Doha Development Agenda negotiations.  The rise in protectionist sentiment in major economies is unhelpful to the conclusion of the negotiations.  But structural issues inside the EU are also proving unhelpful.

I haven’t seen any of the MAF or MFAT internal reporting on the agriculture component of the negotiations for over four years so i may be wrong here.  But the impression i had was that New Zealand (and Australia) believed that the world had gone through a fundamental change.  Subsidies were no londer as important to the operation of the EU’s common agirculture policy.  So when I called for the world to accept a minimilast outcome from the current negotiations based around agreement to abolish export subsidies once and for all, coupled with some modest action to trim levels of domestic subsidisation, I was told that I was a fool and that this was not nearly good enough.  EU agreement to end export subsidies was going to happen anyway and EU domestic subsidies were too expensive to sustain.  What I was suggesting was therefore non-meaningful.  What was needed was progress on market access also.

Well has the world changed?  According to my research we don’t just have a resumption of EU export subsidies but we have an increase in domestic subsidies and a return of our old friend the “butter mountain”.  There is also a “skimmed Milk powder mountain” developing.  The EU has just agreed to buy 30,000 tonnes of butter at a guaranteed price of 2,299 Euro a tonne and 109,000 tonnes of SMP at 1,698 Euro a tonne (the current world price is around 1,400 Euro a tonne).

Why am I worried about the Doha Round?  Because we are going to be lucky to hold the exisiting text, let alone improve upon it.  The Round haas floundered so far because countries like New Zealand, the US and Australia have been saying that we need to secure more commitments, particularly on market access.  In current circumstances expectations of further improvement to the text looks to be highly optimistic.

I don’t believe that the Round is necessarily dead, but I suspect that business as usual is not going to be an option.  I think that a fundamental re-think is going to be needed about a strategy for getting the negotiations completed.  This is only going to come at the political level.  In this context, next week’s discussions at Davos are well timed.  These won’t achieve a breakthrough, but they could start some new ways of thinking about this negotiation in the run up to the G20 meeting in April.

My suggestion would be for Ministers to stop looking at the negotiation in terms of the pillars – agriculture, non-agricultural market access, services etc.  and instead look at what can be realistically be achieved in current market circumstances.  What will need to be done in other areas to keep the EU to its current position on the abolition of agricultural subsidies and cuts to domestic subsidies?  The answer will be some modest cuts in industrial tariffs and some modest forward movement on services.  Countries can leave expectations of substantial improvement in market access conditions to bilateral and regional trade negotiations.

This formula has hope of achieving an outcome, maybe before the end of this year.  It will achieve a meaningful outcome and allow the WTO to consolidate its functions.  Continuing along the current negotiating track carries the risk of failure.  That will be a disaster for the global economy.


EU Export Subsidies

January 19, 2009

I am still thinking through, and talking through with people here, the full implications of the resumption of export subsidies by the EU.  This seems to be aa reaction to the fall in international prices.  Unfortunately international prices for key agricultural commodities look as though they are going to be soft for some time.  Will the EU really be willing to agree to the text currently on the table in the WTO if prices stay soft?  The current text would see an end to export subsidies for agriculture.  They are already illegal for non-agricultural products.  No disciplines yet exist on subsidies in the services sector.

Negotiating With Russia

January 8, 2009

As hot weather in New Zealand melts the Desert Road, Europe cointinues to freeze.  And thanks to the Russian Government some parts of Europe are now in their second day without gas (we are OK here in Geneva).  EU negotiators are flying to Moscow for emergency talks.

This reminds me of one of my final acts for the New Zealand Government – tidying up unfinished business over the bilateral elements of Russia WTO accession deal.  This all happened in the margins of the 2004 APEC Leaders’ Meeting in Santiago.  The Russian side tried every trick in the book to intimidate the New Zealand team Ministerial threats, intimidation etc. but we held out and they had to back down in the end (I remain proud of the stories the Russian side told others about how difficult the New Zealanders were to negotiate with).

The point is that the Russians still don’t behave according to the norms the rest of the WTO do.  This blackmail over gas is a classic example.  Until Russia changes its ways there should be no place for them in the WTO.  Unfortunately every few months someone in the US or Europe (or even MFAT) will try and argue that principle should be put aside and Russia should be allowed in for “political reasons”.  Lets hope the gas crisis is not forgotten fast.  And lets hope that Russia mends its ways fast, before people start dying.

New Zealand And Israel

January 3, 2009

I tend to agree with Fran O’Sullivan’s article today in the NZ Herald on the Government’s restraint in comment on what Israel is up to in Gaza.  I am all for a more balanced approach in relations between New Zealand and Israel (which went too far the other way under Labour), but I do feel that we do need to be a bit more forthright in our comment on the current situation.  I put the current restraint in comment more down to the Government being new and the machinery of Government still being away on holiday, but once things start getting back up and running next week I hope some stronger statements are made.

I also hope that Isreal ceases hostilities immediately.  Aside from a humanitarian, and international law concern, I am keen to see some work done on building a better relationship between New Zealand and Israel.  In particular I want New Zealand to learn from Isreal’s venture capital culture and its business incubation programmes.  I also want more trade and investment with Israel.  Unfortunately the current offensive against Gaza will make this more difficult.

Protectionism The Real Enemy

December 25, 2008

I started to read the special Christmas double edition of The Economist last night (I managed to find a copy at Cromwell Paper Plus).  The first Leader is a story entitled Fare well, free trade.  It talks about how we are seeing a frightening combination of forces – a contraction of both capital investment and world trade.  The shifting of both trade and capital flows into reverse has not happened for a generation.

The article also deals with a factor that worries me enormously, the ability of world leaders to say one thing on the international stage, and to act very differently at home

In many countries politicians’ fealty to open markets is already more rhetorical than real. In November the leaders of the G20 group of big rich and emerging economies promised to eschew any new trade barriers for a year and to work hard for agreement on the Doha round of trade talks by the end of December. Within days, two of the G20 countries, Russia and India, raised tariffs on cars and steel respectively. And the year is ending with no Doha breakthrough in sight.

As economies weaken, popular scepticism of open markets will surely grow. Among rich countries, that danger is greatest in America, where grumbles were heard long before recession set in. The new Congress, with bigger Democratic majorities, has a decidedly less trade-friendly hue. Barack Obama’s campaign rhetoric left an impression of a man in two minds about trade, which he has since done nothing to dispel.

And to add into the mix trade distorting policies are beginning to abound

Politicians from Washington to Beijing are being pressed to help troubled industries, regardless of the consequences for trade. A bail-out of Detroit’s carmakers, whatever its final extent, will be a discriminatory subsidy. As China’s exporters go bust by the thousand, industries from textiles to steel have been promised handouts and rebates. Subsidies will beget more subsidies: Nicolas Sarkozy, France’s president, says that Europe will turn into an “industrial wasteland” if it too does not prop up its manufacturers. They will also invite retaliation. With China’s bilateral trade surplus at a record high even as America’s economy slumps, Congress will not take kindly to Beijing’s bolstering of its exporters.

The Economist suggests a policy prescription which I can only endorse

Add all this together and it is hard for a free-trader not to worry. So what is to be done? The first requirement is political leadership, especially from America and China. At a minimum, both must avoid beggar-thy-neighbour policies. Second, a conclusion of the Doha round would help. A deal would reduce the risk of broader backsliding by cutting many countries’ bound tariffs—and it would establish Mr Obama’s multilateral credentials. Third—Doha deal or not—is greater transparency. A good recent idea is that the WTO publicise any new barriers, whether or not they are allowed by its rules.

But The Economist misses one new factor which is probably more worrying than anything else it talks about.  That is the prospect of new instruments being introduced to keep US and European industry internationally competitive after cap and trade or carbon taxes are introduced as a response to climate change.  My fear here is that these policies will spark a trade war which will threaten to future of the WTO rules based system.  Avoiding such an outcome will be one of my key themes for the year ahead.

Free Trade And The Global Financial Crisis

December 3, 2008

I was rather disturbed by a few articles in this morning’s NZ Herald.  I will leave comment on the state of the airforce,disaster preparation plans and ACC to others, but I will focus on an article on page C5 by Barrett Sheridan which the Herald has lifted from Newsweek.

In this article Sheridan quotes a number of luminaries – such as Paul Krugman who suggest that because protectionism is relatively low freer trade isn’t going to make much of a difference to the global economic situation.  This I accept, but with the 1930s in mind I personally believe that freer trade is a goal that will send the right messaging about keeping markets open.  The article sort of accepts this, but the following paragraphs really annoyed me

Probably the most influential voice making this argument is Dani Rodrik, a Turkish economist at Harvard University. “We have a perfectly open trade regime,” he says. “In no sense does it keep any country behind in terms of restraining its growth potential.” The “astounding” changes in developing world tariff rates—down from 100 percent to 12 percent in India, for example—mean that most of the low-hanging fruit of trade negotiations has already been picked, says Rodrik.

New trade deals fail a simple cost-benefit analysis. Dropping tariff barriers and other forms of protection requires a highly complex piece of international choreography—the world’s trade representatives have been at work on the Doha round since 2001, for instance, and still have no agreement. And the potential benefits might not be earth-shattering enough to warrant all the trouble. In a 2005 study, the World Bank reported that if trade were completely liberalized overnight, and agricultural subsidies (a sticking point in the Doha talks) completely eliminated, the world would be better off by about $287 billion by 2015—an increase of just 0.7 percent of global GDP. The benefits from the Doha round, which has humbler goals than complete liberalization, are far lower, ranging from as much as $119 billion to as little as $18 billion. The latter number represents just 0.04 percent of GDP.

The article goes on to talk to Bhagwati who does his best to debunk some of this rubbish – but he is too polite really.

As New Zealanders we know that we don’t have a free market out there.  We also know that our potential is being held back by protectionism in a number of markets – Japan, EU, US and Canada are good examples.  We also know that one of the most damaging policies to have been used in international trade – export subsidies – was not that much of a problem in recent times due to high commodity prices.  But with these settling back- in some cases quite sharply – these could become a significant problem again.  This WTO Round offers the chance to abolish these policies once and for all.  Domestic subsidies are also a major issue.  We saw how they caused such major distortions in global food supply when they were misapplied to the biofuels area.  These too can only be addressed properly in the WTO context.  While the EU, US, Canada and Japan might not be feeling pain because of trade policy protectionism, we are and the countries of sub-Saharan Africa are, and some in Latin America are.  For this mix of countries an outcome from the WTO negotiations is just the tonic needed to help get through the forthcoming financial crisis and allow an improved export environment to allow growth to occur again….

Emperor Of Japan’s Birthday Celebration

December 3, 2008

Last night’s function at the Duxton reinforced the importance of the Japan relationship for New Zealand.  I counted almost half the Cabinet in the room, a very impressive turn out.  And two Ministers outside Cabinet were there also.  Darren Hughes, Steve Chadwick and Stuart Nash were there from the Opposition.  It was good that a Cabinet Minister (Groser) gave the speech and toast from the New Zealand side ending the practice of recent years where the speech has been given by the Director of Protocol (an MFAT officer).  The Japanese Ambassador mentioned the work of the International Business Forum in taking the relationship forward and the agreement between the two Government’s to study the FTA possibility.  This was also encouraging.  Groser gave a good speech and toast, speaking from the heart, as opposed to reading a prepared speech.  This went down well with the audience.  Well done to the Japanese Embassy and Ambassador for hosting another excellent function.

Herald Editorial Makes Same Mistake

November 27, 2008

Because the NZ Herald does not arrive most mornings in Wellington until mid-morning nowadays, we are sometimes (when we don’t have time to read the electronic version) a bit behind the times.  If we had read it first things we would have drawn attention to the fact that the Herald editorial makes exactly the same mistake as Vernon Small.

Look, business groups such as ours are well aware of the fact that we have to act on climate change.  We have been fighting hard for the past four years to achieve a consensus between Labour and National on the issue so that fringe groups such as the Greens at one end and ACT at the other do not have the influence they currently have on policy formulation.  We want a credible response and we want one that is going to be durable.  Policy uncertainty will deter investment.

The new Government knows this.  Inaction is not an option.

The problem with the last Government was that it chose not to listen to good advice on this issue and it chose to reject the offers of a consensus.  We can only guess that they did this because they somehow thought there was going to be electoral advantage in making this a partisan issue.

We have to have a policy in place by the end of next year otherwise we will be playing into the hands of those who, in Europe and elsewhere, are seeking to use climate change as an excuse for protectionist policy.  But we can’t leave the current policy in place.  It is bad policy that will impact very negatively on the economy.  Even some European Governments agree with us.  They are worried that the policy is too ambitious and that if we don’t change it we risk rendering some sectors in our economy non-competitive.  This will complicate the global process.  In our submissions to the select committee on the ETS we made this point and we made it constantly in our lobbying efforts.  The Government of the day chose to ignore us.  We really think that the New Zealand media should be doing more sophisticated analysis in this space.

We are confident that a robust scheme can be in place by the end of this year that will do the right thing for the environment and not leave our economy in tatters.  This will serve as a positive role model to the rest of the world.  Instead on unimformed sniping lets get behind the Government and get such a scheme implemented.