Dr Tracey Epps*
Chapman Tripp

 

“Even if New Zealand has already been through any major structural readjustments that could lead to job losses, I think this comment is still applicable to us, and in part at least, it’s what ‘Trade for All’ will hopefully be about. I hope it will challenge the trade policy community to really think more proactively about how to help people take advantage of opportunities afforded by trade liberalisation – even if, at the end of the day, much of this is about policies adjacent to trade policy itself, rather than being at its core.”

 


Firstly I’d like to thank the Honourable Todd McLay for inviting me to speak today.

I’d like to focus on three key areas in my remarks:

  • the importance of a rules-based system
  • the inevitability of change – and the need to be flexible
  • the links between trade and other issues, including peace, climate change and domestic welfare

The importance of a rules-based system

What do we mean by a “rules-based system”, and why does it matter?

It is a reference to the set of internationally agreed rules that govern relations between states. In the economic context, it includes the World Trade Organisation, or WTO, rules. These rules have, in some form, been around for many decades now since the General Agreement on Tariffs and Trade, or GATT, was signed by 23 countries, including New Zealand in Geneva in 1947.

The GATT was meant to be an interim measure following the refusal of the US Congress to agree to a more comprehensive International Trade Organisation that had, in the wake of the second world war, been intended by the allies to sit alongside the World Bank and the International Monetary Fund.

But it ended up being more than that. Successive rounds of negotiations led to significant tariff reductions over time, and in 1994, the Uruguay Round of negotiations culminated in establishment of the WTO and the conclusion of a multitude of new rules to complement those in the GATT – which remained in place. It also brought changes in the dispute settlement system that saw it shift from a diplomatic-oriented system where panel reports could be vetoed, to a legalised system that allows for automatic adoption of reports.

“The dispute settlement system has many times been described as the Crown Jewel of the WTO. It allows countries to bring complaints against other WTO members in a non- politicised, legal setting, to have access to an appeals process, and a means of enforcing compliance… The dispute settlement system has many times been described as the Crown Jewel of the WTO. It allows countries to bring complaints against other WTO members in a non- politicised, legal setting, to have access to an appeals process, and a means of enforcing compliance.”

The dispute settlement system has many times been described as the Crown Jewel of the WTO. It allows countries to bring complaints against other WTO members in a non- politicised, legal setting, to have access to an appeals process, and a means of enforcing compliance.

This system has been overwhelmingly positive for New Zealand. It has become part of the international landscape that our commercial sector can take for granted when they look to do business offshore, giving them greater certainty that our trading partners will play by the rules.

We have taken complaints against the likes of the US, Canada, the EC and Indonesia. We could not have done so this successfully if we had to rely on political power rather than the rule of law.

That system is now under immense pressure:

  • the US is taking unilateral actions that violate the rules and others are being forced to retaliate in equally WTO-inconsistent ways
  • the appeals system is at threat of collapse later this year because the US is refusing to cooperate to appoint or reappoint members of the Appellate Body as their terms come up

But we should remember that the current challenges did not come out of nowhere, they have been festering for some time.

Michael Trebilcock – a distinguished New Zealander who is University Professor at the University of Toronto – and whom I was privileged to be taught by, points out that many of the fault lines in the multilateral trading system began to emerge during the Uruguay Round and shortly thereafter – that is, over 25 years ago. They have manifested in many ways since, and played a key role in the demise of the Doha Round.

These fault lines include tensions between developed and developing countries, criticisms by consumer and citizen groups that WTO rules inappropriately constrain domestic policy autonomy, and a failure to fully liberalise trade in agriculture.

“We should also remember that many of the concerns that the US is citing now with the Appellate Body are not new but were also concerns of previous administrations. What is new is the approach that the current administration is taking – of unilateral action and threats.”

We should also remember that many of the concerns that the US is citing now with the Appellate Body are not new but were also concerns of previous administrations. What is new is the approach that the current administration is taking – of unilateral action and threats.

It is clear that the system needs reform to deal with these fault lines and even some of the US concerns – it needs to be more flexible to accommodate the greater number of voices at the table, and the rules need updating to remain relevant to businesses today.

With all of this in mind, it is heartening to see that defending the rules-based system is something that has bipartisan support and right now, that Ambassador David Walker is at the forefront of working on WTO reform in Geneva. This is a system that really is worth fighting for.

The inevitability of change and the need to be flexible

When we think about the future of New Zealand’s trade agenda, it’s important to recognise the inevitability of change, and the need to be flexible and adapt.

In 1928, New Zealand entered its first trade agreement without British intervention with any country outside the Commonwealth. It was a trade treaty with Japan and much of the impetus had come from the dairy sector – there were reports that a golden age was going to dawn for New Zealand butter producers as Japanese diets changed. But Japan didn’t end up buying more butter, they bought wool instead, and New Zealand kept selling to Britain. From all accounts, it didn’t achieve any particularly significant political gains from the treaty either.

New Zealand trade strategy has come a long way since those days, but we are always going to be kept on our feet as the world changes. Old markets will become less important, new markets will emerge.

“One question is what does New Zealand do once its current negotiating agenda is complete? We will by then have trade agreements with all of our major trading partners (except the US). Do we keep negotiating bilaterals – looking for new markets where we seek an advantage?”

One question is what does New Zealand do once its current negotiating agenda is complete? We will by then have trade agreements with all of our major trading partners (except the US). Do we keep negotiating bilaterals – looking for new markets where we seek an advantage?

Multilateral liberalisation on a most-favoured national basis under the WTO is preferable to a bilateral focus. It would mean exporters can switch markets more easily because they would all be open. And for New Zealand, the multilateral arena is the only one where we can get meaningful commitments from countries to eliminate or reduce subsidies – this can’t be done bilaterally or even regionally.

“Multilateral liberalisation on a most-favoured national basis under the WTO is preferable to a bilateral focus.”

Would liberalisation on a multilateral basis mean we might lose some of the advantages that have worked so well for us in bilaterals and regionals – such as gaining a competitive advantage in China. Perhaps to some extent, but we would benefit from the erosion of others’ preferences too. And at the end of the day, a multilateral liberal trading order is about providing equal competitive opportunity for everyone.

It look a huge amount of work and belief to get to where we did in 1994, and it’s understandable that, at this point in time, achieving further liberalisation seems extremely difficult.

“And of course we need to look after our own interests, so we should pursue new bilateral options too with an eye to new markets and new forms of trade that make distance less of an obstacle. But I hope that New Zealand will maintain the energy and the enthusiasm to keep pursuing the multilateral agenda.”

And of course we need to look after our own interests, so we should pursue new bilateral options too with an eye to new markets and new forms of trade that make distance less of an obstacle. But I hope that New Zealand will maintain the energy and the enthusiasm to keep pursuing the multilateral agenda.

Links between trade and other issues: peace, climate change and domestic welfare

Turning now to the links between trade and other issues.

Trade and Peace

It has often been said that countries who trade with each other don’t go to war with each other.

The 19th century French economist, liberator and writer, Frederic Bastiat is widely quoted as saying that “if goods do not cross borders, armies will”. The philosopher Immanuel Kant said that “the spirit of Trade cannot co-exist with war”. Similar sentiments were expressed by US and British leaders in the wake of World War II.

But is this true and is it relevant in today’s world?

There are certainly examples of trade contributing to peace – securing and maintaining peace was central to the creation of the Bretton Woods system in the 1940s, and this included the GATT. The fact that there has not been another major European war speaks to the success of the European Economic Community and its successors in maintaining peace.

“Of course, given his position, Allan Wolfe has to be positive. I am perhaps not quite as positive, but I do think there is real validity to the potential role of trade in building and maintaining peaceful relations. It’s certainly something we shouldn’t lose sight of.”

But there are those who refute the relevance of the notion – pointing out for example that many modern conflicts are based on religious and ethnic differences that are largely immune to economic considerations.

In a speech in March this year, Allan Wolfe, Deputy Director General of the WTO talked about the importance that numerous post-conflict and fragile economies place on the WTO system – as evidenced by their accession bids. He talked about the President of Timor Leste who made the case for trade and peace in a speech at the WTO last October, and referred to the Ambassador of Sudan sitting next to the Ambassador of South Sudan at a meeting in Djibouti in January this year and saying that “where there is trade, there is peace”.

Of course, given his position, Allan Wolfe has to be positive. I am perhaps not quite as positive, but I do think there is real validity to the potential role of trade in building and maintaining peaceful relations. It’s certainly something we shouldn’t lose sight of.

As I mentioned, it can be hard for officials to keep up hope and I think that thinking about the broader context of trade can be quite inspiring, particularly for younger officials just moving into the area of trade who might have mistakenly thought that it’s all about percentages and tedious legal provisions that are impossible to decipher.

Trade and climate

Sometimes when I think about climate change I wonder if we should be making and trading so many things. An economist friend assures me that my fears are unfounded – trade encourages the more efficient use of resources. And of course, disciplines on subsidies could reduce environmentally destructive behaviours, and more international linkages can promote the exchange of ideas, knowledge and innovation, including emissions-reducing technologies.

“There is a real need for trade rules and the international climate change legal regime to be brought together – we are, I hope, well past the days when academics and policy makers were asking whether measures to mitigate and adapt to climate change could be taken consistently with international trade rules.”

On a more legalistic note, I do think it is vital that the international trading regime not only supports action on climate change, but encourages it.

There is a real need for trade rules and the international climate change legal regime to be brought together – we are, I hope, well past the days when academics and policy makers were asking whether measures to mitigate and adapt to climate change could be taken consistently with international trade rules.

It is clear that they can. And where they can’t, then the rules need to be adapted. And further, trade agreements can be a stick to nudge countries to actually take action.

I personally hope that New Zealand will take a leading role in this area, perhaps pushing countries to move towards a new agreement.

Trade and domestic welfare

There has been a lot of controversy about trade in recent years, leading to the protests over TPP, and now the launch of the ‘Trade for All Agenda’. To a large extent, trade has been used as a scapegoat, when many of the problems facing society have very complex causes.

“To a large extent, trade has been used as a scapegoat, when many of the problems facing society have very complex causes.”

On one hand I have doubts about Trade for All – because at the end of the day I do believe there is only so much you can actually achieve in the words of a free trade agreement.

But on the other hand, I do think it’s an important process. It’s critical that as many people as possible feel as if they have a stake in New Zealand’s trade policy, that they understand how trade benefits them in their lives. This is crucial to ensuring that the government has a public mandate to pursue its trade strategy.

As with any major regulatory change, there are trade-offs and distributional impacts from trade liberalisation. New Zealand went through serious structural adjustments some years ago, meaning we aren’t in the same situation as some countries where the demise of inefficient industries results in obvious losers from trade liberalisation that they are undertaking even today.

“It’s critical that as many people as possible feel as if they have a stake in New Zealand’s trade policy, that they understand how trade benefits them in their lives. This is crucial to ensuring that the government has a public mandate to pursue its trade strategy.”

But this doesn’t mean that everyone is benefitting from the global economy. And of course we are not immune to the effects of technology and other changes.

Michael Trebilcock, in a Canadian context, talks about the need for a “much more productive and sympathetic engagement than hitherto between economic policy perspectives on growth, trade and technology, on the one hand, and social policy perspectives on cushioning the adverse impacts on losers from those trends in the modern economy, on the other.

Even if New Zealand has already been through any major structural readjustments that could lead to job losses, I think this comment is still applicable to us, and in part at least, it’s what ‘Trade for All’ will hopefully be about. I hope it will challenge the trade policy community to really think more proactively about how to help people take advantage of opportunities afforded by trade liberalisation – even if, at the end of the day, much of this is about policies adjacent to trade policy itself, rather than being at its core.

 


Tracey Epps is a Trade Law Consultant at law firm Chapman Tripp – see her profile here. This speech was given at the launch of the National Party’s International Affairs Discussion Document on 20 May 2019.

 

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