Nod given to free trade agreements

By BRIAN FALLOW

WELLINGTON - The failure of the Seattle meeting last December to launch a new World Trade Organisation round has given fresh impetus to the second-best option - striking bilateral and regional trade pacts.

A cat's cradle of such talks has sprung up around the Pacific. In New Zealand's case, the Government has given a positive negotiating mandate to officials to press on with picking the lowest-hanging fruit - a free trade agreement with Singapore.

A deal with Korea is in the preliminary study phase. New Zealand has proposed skipping the study and going straight into negotiations with Chile. The Chileans, inevitably, would be more interested if Australia was involved too.

There has even been some "eyelash fluttering" with Japan, Trade Minister Jim Sutton says, but no official approach.

The big prize would be a merger of the Closer Economic Relations pact between Australia and New Zealand, and its 10-member South-east Asian counterpart, the ASEAN Free Trade Area (Afta).

An eminent persons working group has been set up to try to establish a plan and schedule to eliminate trade barriers between the two groupings. It is chaired by former Philippine prime minister Cesar Virata. New Zealand is represented by Sir William Birch and Australia by former Trade Minister Tim Fischer. The group meets next in Queenstown on April 27 and 28.

The process was going well, Sir William said. "The governments are giving it good support and I detect the frame of mind of the taskforce members is very positive towards it."

The taskforce has to report to the Afta economic ministers' meeting in October.

Mr Sutton is in no doubt the process is being taken seriously by the governments concerned, even those like Malaysia which in the past have been openly sceptical.

The bilateral agreement with Singapore is seen by both parties as a stepping stone or signpost towards a wider Afta-CER agreement.

Tim Groser, who before he became Asia 2000's executive director spearheaded the initiative on the New Zealand side, said that for both parties the benefits of a NZ-Singapore free trade agreement would be more strategic than commercial.

"It has very few commercial consequences, in that both markets are already very open. Singapore has some significant restrictions left in certain service sectors like banking and legal services. New Zealand has very few tariffs over 5 per cent and they are in textiles, clothing and footwear. Singapore provides only one-third of 1 per cent of our imports of clothing and footwear."

Both countries had a strategic interest in a CER-Afta merger, Mr Groser said. "Singapore wants as many partners committed to open markets and the rule of law as it can get, given the rather greater uncertainties surrounding their geopolitical position."

New Zealand faces barriers in South-east Asia to a number of agricultural and forest exports, and services.

Mr Sutton said CER provided an outstandingly successful example of a free trade agreement. "Provided care is taken to make such arrangements WTO and Apec-compatible, the Government position is we can build a broad global trading system out of such building blocks," he said.

"If you want to capture the attention of the really big economies you first need to put together a stake worth playing for."

An Afta-CER grouping would have a combined GDP of more than $1 trillion. There is a degree of nervousness in South-east Asia about an emerging rapprochement between China, Japan and Korea, and a concern they might form a North Asian bloc exclusive in the way the Europe was in Common Market days.

"If you can stick a $1 trillion market together, it is too big even for the North Asian economies to ignore," Mr Sutton said.

Mr Groser said that if fusion of Afta and CER eventuated, Australia would face greater adjustments than New Zealand, "simply because they, though relatively open, are not as open as we are. And undoubtedly Australia, not New Zealand, is the prize for the South-east Asians."

There may be ambivalence in some Australian quarters about an Afta-CER deal, "but over all there is no doubt where the Australian position lies. They are involved in this and committed to it."

The reason it was so easy to do the Singapore deal, Mr Groser said, was that the commercial opportunities were relatively modest. "As soon as the commercial opportunities become significant the political difficulties start to increase. They are two sides of the same coin."

Mr Sutton said one issue still being worked through with the Singaporeans was rules of origin - the minimum proportion of the value of a product which has to be added within either Singapore or New Zealand for it to qualify for unfettered access to the other. Singapore has proposed a 20 per cent threshold; New Zealand wants 40 per cent.

While Singapore has long since ceased to be a low-wage economy and is now substantially more affluent than New Zealand, Singaporean firms have subsidiaries all over South-east Asia manufacturing things for them, Mr Sutton said. "We don't want to allow goods in from the sweatshops of Asia without something in return."

As for the prospects of a launch of a WTO round, Mr Sutton said that until the United States and European Union demonstrated a real will to do so nothing would happen.