Lamy urges New Zealand businesses to continue to back WTO talks

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New Zealand’s business sector should continue to back the Doha Round negotiations for the benefit of the New Zealand economy and as a contribution to global economic recovery, WTO Director-General Pascal Lamy told the Auckland Chamber of Commerce on 6 March 2009. This is his prepared text:

“The Economic and Trade Powerhouse that is Auckland” — New Zealand

Ladies and Gentlemen,

It is a pleasure to be with you in the economic and trade powerhouse that is Auckland. Even a brief visit brings home the significance of this city and its business community not only to New Zealand but also to your wider region. Few cities are more outward-looking or more involved with international trade. For Auckland, as for New Zealand as a whole, the world is your home market. The WTO provides the rules and disciplines that help keep that market open, and as a forum for negotiations it holds out the possibility of further improvements in trading opportunities and conditions.

New Zealand has always recognised the fundamental importance of the WTO system to your national interests and I very much appreciate the strong support that the WTO has received and continues to receive from government and business. I believe that the WTO’s contribution to the health of the global economy has never been more important than it is today, and the need for reaffirming its principles and advancing its agenda has never been stronger. I want to outline the ways in which the WTO is responding to the current economic crisis and ask you all to keep pushing for the most positive action the trade community can take in the short term — finishing the Doha Round.

The economic benefits of the Round are particularly clear for New Zealand. To a small, open, trade-dependent economy with a heavy reliance on agricultural exports, what is on the table is especially significant. This is why New Zealand has consistently been in the forefront of those calling for a high level of ambition in the negotiations as well as for their urgent conclusion.

As an efficient producer of temperate-zone agricultural products, New Zealand competes on export markets not only with other exporters but often with their national treasuries, when production and even export are subsidized. The package on the table in the Doha Round would mean that current ceilings on trade-distorting domestic subsidies would be lowered by 70 to 80 per cent and disciplines considerably reinforced. As for export subsidies, these would finally be eliminated. Your dairy exporters have had a sharp reminder recently of how important this is.

These subsidy cuts will produce a more level playing field and improve competitive conditions for New Zealand’s exports. Over time this should be at least as valuable as the direct improvements in market access that the Round also offers. It is important to remember that while improved market access may also be pursued through regional or bilateral deals, the WTO negotiations offer the only possibility of cutting agricultural subsidies across the board in a permanent and legally binding way. This aspect of the Round, which is so important to New Zealand, is therefore truly irreplaceable. This is probably the most striking illustration, but far from the only one, of what is at stake in these negotiations.

I know that New Zealand isn’t just about agriculture, important as it is. Your trading interests in both goods and services, and your trading partners, are increasingly diversified. This is particularly true for Auckland. So your stake in the Round is also a broad one.

New Zealand is among the leaders in pushing for an ambitious trade opening outcome on industrial tariffs, for example. Your own experience in this regard shows how cutting protection can stimulate growth—a vital reality check at a time when political currents in many countries are running the other way.

Your services sector has also benefited from open policies in areas such as foreign investment. Its dynamism is apparent in this city, and it too stands to gain from the additional opportunities and improved rules that are under negotiation in the Round.

As an island nation with important marine resources, New Zealand is very active in working for stronger disciplines on fisheries subsidies, an area where economic and environmental concerns can be clearly complementary. Here too the WTO negotiations provide the only effective means of securing legally enforceable international agreement. This is another important New Zealand -and global — interest that would be threatened by failure to conclude the Round.

All these points are given extra urgency and weight by the current global economic crisis, the worst global recession since World War II. Whenever we open a newspaper or turn on the TV, we are reminded of not only the depth and severity of the current economic crisis, but also of its ripple effects that respect no borders or sectors. No country is immune from this crisis. What began as a financial crisis is spreading like a contagion with negative effects on world trade, global economic growth and unemployment.

Recent world growth projections were at 0 per cent, with developed countries posting a negative growth of —2 per cent and developing countries a positive one of around 5 per cent. The positive growth comes from emerging countries which are highly dependent on trade. With the forecast that global export volumes will contract by —3 per cent in 2009, many emerging economies have sounded the alarm bell.

A massive 90 per cent of world trade is financed on short-term credit and if we ever needed reaffirmation of the link between available credit and trade flows we are getting it every day now. Trade finance, which helps trade flow smoothly, normally forms one of the most secure areas of the whole financial sector. It is small compared to the big bank business we have been hearing about over the past few months. However, the benefits of a sound and functioning trade finance system are magnified for the economy as a whole because trade acts as a multiplier. The tragedy of the current crisis is that the lack of confidence in the world economic outlook means that perfectly sound trade opportunities are being shelved or postponed due to a lack of finance. Container ships that a year ago traversed the oceans at full capacity are now struggling to fill their holds. This is having a human cost in terms of business failures and job losses. The WTO, together with the World Bank, the IMF, development banks, exim and commercial banks, is trying to ease this artificial constraint.

As for the WTO’s action on the crisis, last year members engaged in a substantive discussion of the WTO’s role in the face of the current economic turmoil. For many members, the experience of the Asian financial crisis certainly remained vivid, but first and foremost the reality is that the multilateral trading system is an insurance policy against protectionism. The predictability of WTO rules as well as a sound and tested dispute settlement system are clearly features of stability in which members place considerable trust.

We all know that protectionism creates only losers. New Zealand’s economic reforms over the past two decades are a strong testimony to this philosophy. Yet governments worldwide are facing growing domestic pressures to raise trade barriers, abusing trade remedies, providing subsidy packages or imposing “buy domestic” conditions. Rejecting these moves is not a question of ideology. Rejecting isolationist pressures is today a matter of self-interest. History provides us with unambiguous evidence that beggar-thy-neighbour policies bear the risk of prompting retaliation by other countries and driving down the overall level of trade — thus destroying output and jobs around the world.

What is needed now is a concerted effort to rebuild confidence in the financial system. This is a matter of utmost urgency and until it happens, and until there is a common belief that the financial system has been cleaned up and is back to work, there is no turning point in sight. Such confidence will fuel the fight against protectionism and those who believe turning inwards is the solution to the current crisis. We are not yet there. If I have read correctly the figures published by the IMF or the FSF, we are not even half-way.

Global leaders have the collective responsibility to provide this confidence to the people, not only their own people, but the people of the world. The G20 Leaders Summit in November last year was an important first step in designing a global front to fight the current economic crisis and reject protectionism. The next G20 Summit in London in early April will be a test of the capacity of major economies to work together, hand in hand, in searching for solutions to pull the world economy out of a deeper recession. It will be a test of political will and their ability to transform it into action. It will also be a test of whether current global mechanisms are adjusting to global challenges.

As a result of the urgent need for further vigilance against protectionism, the WTO is now issuing periodic reports on global trends in international trade and trade policy developments as part of the WTO surveillance mandate. The first of these reports appeared at the end of January and I expect a new edition to provide important insight into more recent trade-related developments as we approach the meeting of the G20 in London in early April. I am confident that these reports, however uncomfortable reading they may be for some, will constitute a crucial barometer of the degree to which protectionist measures are being introduced.

In these times of serious economic crisis, our biggest challenge today is to ensure trade is part of the solution and not part of the problem.
This is the time to invest in the WTO and strengthen the global rules-based system which has so carefully been constructed over the last 60 years. A conclusion of the Doha Development Round of negotiations is therefore all the more relevant and urgent.

Many of the trade ministers whom I have met lately, including in Davos, have emphasized that trade is an integral part of the stimulus packages that are being adopted. In my view it is in fact an essential part of the recovery package.

Let’s be frank — this crisis will take much more than a Doha deal to restore the path of growth. But a successful outcome of the Doha Development Round can be part of the solution to the economic downturn. It will also send the political signal that at harsh and difficult times, governments are capable of working together to provide the kind of global answer which is so desperately needed.

This is why WTO members should pick up from where they left off in 2008 and negotiate with renewed commitment. I am encouraged to find support for this from many political leaders around the world and I count on them to show the way forward.

We have accomplished around 80 per cent of our set targets in the Doha Round. To a large degree, this is due to an efficient and focused Geneva negotiating process which continues to work away on the technical and substantive issues that have to be in place before political masters become involved. With the necessary political guidance, willingness to compromise and realistic expectations, I am convinced that we can conclude these negotiations rapidly.

Of course, it goes without saying that this cannot be done without the support and active involvement of the business community. Through your Chamber’s active involvement in the International Chamber of Commerce, as well as through your representations to your own government, business in Auckland has been a strong supporter of the WTO and the Round. I thank you for this and urge you to keep it up. Now more than ever your voice needs to be heard.

Thank you.