Last chance for NZ's trade hopes

European farmers are continuing to take a hardline stance on reducing tarrifs. Picture / Reuters

World Trade Organisation talks with the potential to add billions of dollars to New Zealand's economy face their toughest test next week as political leaders meet in Hong Kong.

Trade Negotiations Minister Jim Sutton says the meeting is the WTO's last chance to negotiate a free trade deal in the current round of talks. He remains confident that the meeting can succeed despite the breakdown of the last meeting at Cancun in Mexico.

"We're in a battle here to keep this thing alive, but I think we'll succeed because there is a growing recognition of what we stand to lose if this round fails," he said.

The last successful round of trade talks - the Uruguay round - brought trade gains worth more than $9 billion to New Zealand.

If the current Doha round of talks failed the risk was not just that New Zealand could miss out on new gains, Sutton said. There was a very real risk that failure would see the Uruguay gains eroded.

The definition of success at the Hong Kong talks had already been scaled back drastically.

If the original timetable for the Doha Round had been met, then next week's Hong Kong meeting should have seen the final signing of a major trade agreement.

But now - after failure at Cancun and with the Europeans a taking hardline stance on reducing tariffs - anything that progressed the talks and set a timetable to complete them by the end of 2006 would be a success, he said.

Anything less than that could prove fatal for the Doha round.

Time was running out, Sutton said. All the deadlines so far had been artificial constructs, but a "drop dead" deadline loomed.

On July 1, 2007, the American President's authority to negotiate trade deals would expire. After that the United States' authority would revert back to the Congress.

"That will be a disaster because every member of Congress will hold the negotiations to ransom to try and get a soft deal for their constituents," Sutton said.

Presidential authority almost certainly would not be renewed under the current political regime in the US: "So this the last chance."

Any deal would still have to be ratified by the US and get through Congress by July 1, 2007.

"So you count back. How long does that take? The actual negotiations have to be completed and agreed by end of 2006.

"We're at the point where we're pretty much up the creek but we've still got a paddle."

As far as the current negotiations went the US was not the problem.

"The big problem is Europe," Sutton said.

The Doha round was initiated in 2001 with a specific goal of promoting development in the world's poorer nations.

That put agriculture at the heart of the round - "because that is the sector that involved most of the people in most of the poorest nations".

But that also made hold-ups and conflicts inevitable.

"There was always going to be a crunch between the farmers of Europe - who are kept as pets - and the demands of the emerging economies of the Third World for the right to trade on a reasonably level playing field," Sutton said.

There are "three pillars" to the agriculture negotiations: market access (which involves the removal of export tariffs), export subsidies and domestic support of farmers.

The last two pillars encourage over-production.

"That means Third World farmers hoping to sell a small surplus after they've fed their family have to compete with massive surpluses from rich industrialised nations of Western Europe and North America." Inevitability that drove prices down - which was no good for poor agricultural nations and no good for New Zealand.

The Doha round has already made excellent progress on subsidies. A preliminary agreement has been reached by all parties - including the worst offenders like Europe - to abolish subsidies completely.

What threatens to derail the talks is the issue of market access.

On that issue the Europeans have put forward a proposal which falls well short of matching those of other nations - including the US.

"The progress on all the pillars is at risk because all offers are conditional on a final single undertaking," Sutton said. "Everything is wrapped up in one deal at the end."

But for all the gloom going into Hong Kong, he said, the kind of trade gains achieved in the Uruguay round were still a possibility.

Some of the hardline attitudes being taken represented pre-negotiation bluffing.

"There will have to be a compromise. Europe and the other protectionists like the US and Japan will have to give some ground and probably the rest of us - the Third World and the agricultural exporters like New Zealand will have to consider how much we need."

Beyond the pure trade gains the stakes have got so high that failure could threaten the existence of the WTO, he said. If this round failed the whole credibility and authority of the WTO would be undermined.

"The WTO operates by consent. Countries have signed up and they obey the ruling of the disputes panel because the whole world holds out hope for greater prosperity and progress."

If progress stopped there was a risk that the big, powerful countries could just pull out and go it alone.

"The WTO has been a source of stability and peace in the world. It has found a non-violent way of resolving some major international pressure points and conflicts.

"I think that realisation will get us through."

TRADE TALKS

The Doha Round

* The latest round of trade talks was initiated in November 2001 by the World Trade Organisation in Doha - capital of the Gulf state of Qatar.

* The specific aim of the round is to reduce poverty by making international trade more fair.

* Reducing the use of tariffs and subsidies for agriculture will benefit New Zealand exporters.

* Agreement has been reached on the removal of agricultural subsidies, but Europe refuses to come to the party on the reduction of tariffs.

* A stand-off between Europe and agricultural nations (including New Zealand) has prompted fears the Doha round will fail.

The Uruguay round

The last completed round of trade negotiations was dubbed the Uruguay round. It was completed in 1994.

* The round made some limited steps towards liberalisation of trade in farm products and deeper inroads in market access for manufactured goods.

* By 2003, its reforms to agriculture trade had added more than $9 billion to New Zealand economy and created 17,600 extra jobs.