The Trade Environment: Future of WTO, beyond Doha TPP-regional FTA's
Speech by President of Federated Farmers Bruce Wills to the NZIIA Major Issues Conference, Wellington 20 October 2011
I would like to thank Bryan and the members of the Institute of International Affairs for inviting Federated Farmers to speak today.
To Sir Graeme Harrison, thank you for moderating this session and can I acknowledge you as a very worthy recipient of Federated Farmers 2010 Agribusiness Person of the Year.
I hope being new to this position that I can offer some insight into the trade environment as I see it.
After talking to Federated Farmers staff about the long running saga that is the Doha trade round, one staff member relayed to me a political joke, if such a thing is possible, which may just hit the Doha nail on the head.
In Moscow, not long after the communist takeover, a factory worker trudging past the city gates noticed a revolutionary guard intensely scanning the horizon.
In mud, snow, sleet and rain, this worker trudged past the same guard above the same gate, year in, year out.
One snowy day, our worker stopped, looked up and summoned up the courage to yell out, ‘comrade, what exactly are you doing up there?’
The guard stood to attention and with snow falling from his tattered greatcoat proclaimed proudly, ‘I am the lookout for the global communist revolution’.
‘Oh’, our factory worker innocently shoots back, ‘it’s a job for life then!’
That possibly sums up where the Doha trade round is right now. Despite much heroic effort by NZ trade officials, ten years on from when it all started; it seems to be where it started.
Agriculture represents some 17 percent of this country’s GDP and we export over 90 percent of what we produce and as such trade and trade reform is hugely important to NZ.
We face many millions in costs every year in tariffs and other distortions, Doha and multi lateral trade reform remains NZ’s No.1 trade priority.
In recent weeks, I have had the opportunity to spend time in Canada with the Cairns Group farming leaders from some of the world’s major agricultural exporters.
It was fair to say there was disappointment and frustration at lack of progress with the long running Doha multi lateral trade negotiations, and concern in the WTO proposal to take a two tiered "early harvest" approach to concluding the Doha Round.
As a farmer, two harvests of near nothing is still nothing.
The WTO’s challenge is immense – getting 153 participants to agreement by consensus is difficult enough, but now 10 years down the track, the world is very different place to 2001 when the round was first initiated – particularly for emerging economies like China, India & Brazil.
This snail like approach to a Doha conclusion flies in the face of the biggest threat our human civilization faces.
That threat is food security. Having enough food, in the right place, at an affordable price, to feed a rapidly growing world.
Population changes everything
Our most pressing issue is how to feed another 2.2 billion mouths by 2050. Letting markets freely do their work would help, food would be produced in the most efficient places at the cheapest prices.
A successful Doha would help achieve this.
In the time that I will be standing here, the human race will have grown by around 1,500 people.
Every week we have over a million more mouths to feed, every night (according to the UN) a billion of our people go to bed hungry and in just 11 days the 7 billionth person will be born on our planet.
It is a sobering number and poses an enormous challenge to international order and to our modern civilisation.
Future wars could easily flare over access to land, water, food or energy. Or even the freedom to gain from their use.
There are of those in the environmental movement who believe resource limitation is a means to halt population growth. I call it a recipe for starvation.
Economically, politically and trade-wise, population changes everything and we need to move beyond climate change to that reality.
The danger of believing our own propaganda
In my view we need to be careful with the current pre-occupation in NZ about climate change, ETS, the talk of capping cow numbers and slowing intensive agriculture.
Less food from our farms means less money in our economy. Less money also impacts on our ability to invest in science and innovation, the very things we need to be doing in order to produce more food, from less land, with a smaller footprint.
If less efficient producers ramp up production to cover this, it generates more emissions globally.
By contrast and without an ETS, we’ve managed to grow our agricultural productivity by 1.3 percent every year since the 1990’s.
I believe that the focus must remain on efficient food production. Hunger is not defined by political boundaries. Most national food security initiatives fail to recognise this.
Only further trade reform will enable farmers to farm where the economic and socio- environmental costs are least and the productivity gains are highest.
Multilateral, bilateral or bust?
According to HSBC Bank, our trade with the rest of the world could grow 83 per cent over the next 15 years. This outperforms a global growth of 73 per cent and underscores that we are finally in the right part of the world at the right time.
China is now our second biggest trading partner nearly four years on from the Free Trade Agreement’s (FTA) signing.
Total bilateral trade was just under $13 billion in the year to August and this progression means that by 2015, trade should have doubled to almost $20 billion, from just $10 billion in 2010.
This agreement, along with the ones we have with Australia, Singapore, Hong Kong and Malaysia, bring tremendous benefit to all New Zealanders.
For us, an FTA with India would be transformational in a similar way China has been.
HSBC’s bullishness about our trade prospects is explained by a strategic focus on the countries we know as the BRIICS; Brazil, Russia, India, Indonesia, China and South Africa.
These are the coming countries of this century and the strategic approach is something both National and Labour should be proud of.
We have an FTA with Indonesia via ASEAN and of course, the FTA with China. We are also actively negotiating with Russia and India.
While Australia and China are standouts, we should not give up on multilateral trade agreements.
The prospects of a successful Doha for NZ are just too important to ignore.
Beyond the wharf
From Federated Farmers perspective the removal of trade barriers for agriculture is a non-negotiable with the TPP. I said earlier that the WTO’s early harvest idea was highly disappointing. A TPP without agriculture would be the same mistake.
Thankfully, Minister Groser and the Ministry are fully aware of this. The TPP must remove tariffs on agricultural products.
Yet there’s another vital dimension and that’s beyond the wharf once our goods and services land.
With the current international financial crisis still on going there is recognition, I hope, that free trade will help prevent a global depression.
The reality is this, trade protectionism, subsidies and barriers, slow global economic growth and create instability.
What I think is needed to balance the free trade agreement is a genuine commitment to services, investment and intellectual property as well.
New Zealand is ideally placed to reap a services dividend by consulting on agricultural systems. While Fonterra is physically building production capacity in China and Brazil, it is also looking at India too.
The undiscovered country is agricultural services. Look at it like this, the primary sector makes up some 71 percent of known merchandise exports but a mere fraction of services; $16 million in fact.
That is an amazing opportunity for New Zealand off the back of these FTA’s.
Is Doha a Dodo?
WTO does some good work like its trade dispute function and associated science based SPS rule making but it risks being marginalised.
As Doha has not got very far, very fast, countries are going around it singly or in groups.
As blocs form with NAFTA blending into a Free Trade Area of the Americas, the EU, a potential Grand Free Trade Area in Africa as well as the TPP and ASEAN, what point, you may ask, does the WTO serve.
On the trade front, it is underperforming and instead of a global solution, the risk is that these blocs will uncomfortably rub up against one-another.
New Zealand has a global opportunity to lead trade diplomacy. We are potentially in several camps; ASEAN, TPP and with agreements into the BRIICS. Could we be the global trade go-between?
The concern I have if Doha collapses, revolves around those humans being born right as I speak.
The number of hectares available for food production, per person, has steadily declined from 0.44 hectares in 1960 to 0.26 hectares in 1999. By the time world population is expected to peak at some 9.2 billion people in 2050, the number of hectares available per person for food production is predicted to be only 0.15 of a hectare.
Without adequate access to the basics of life, the effect on global security will be dire. Starvation, mass migration and perhaps the disintegration of society as we know it.
Inversely, food security is why the European Union and the United States, the worst transgressors with regard to subsidy and trade protection, need to let go.
They need to focus their resources on what they do best and leave the production of food to those countries best suited.
Resurrecting Doha is about global security
Doha has suffered from being seen as a niche enterprise when in fact, it is central to food security. Concerns over climate change pale in the face of rampant population increases and less access to food and water.
Bi laterals should not lower the ambition of Doha nor the effort to achieve multi lateral trade liberalisation. In fact we need governments to meet the commitments they have already made.
This includes removing export subsidies and real progress on market access, export competition and removing domestic support; the three pillars that make up Doha.
In Canada we agreed with the Cairns Group Ministerial that, “a stable, predictable, distortion free and transparent system for trade allows the unrestricted flow of food and agricultural commodities, contributing to food security”.
The economic troubles that now plague parts of the global economy highlight the affect that misguided domestic policies have on distorting trade and depressing global farm incomes.
We need a new Doha work plan in place before December’s WTO Ministerial Meeting and this is an opportunity for New Zealand to take charge at all levels.
Thank you.