NZ caught in a high-stakes game

By KARYN SCHERER

New Zealand knows better than most that free-trade deals generally work in a small country's favour.

Since we cosied up to Australia nearly 20 years ago with the Closer Economic Relations agreement, New Zealand exporters have clearly benefited from improved access to a much bigger market.

But a sudden burst of enthusiasm for similar deals throughout the world is leading some to question whether they are building blocks or stumbling blocks getting in the way of the global free-trade agenda.

With so many deals now being negotiated, there is concern that the global-trade map will soon resemble a bowl of spaghetti, with each string of pasta comprising a different set of rules.

If not spaghetti, then alphabet soup - so many new acronyms are being created that there is a danger some country will join the wrong club, because it got Afta mixed up with Nafta.

At a meeting of the Pacific Economic Cooperation Council in Hong Kong last month, Trade Minister Jim Sutton argued that the real role of regional trade arrangements was to spark "constructive paranoia".

Robert Scollay, director of the Apec study centre at the University of Auckland, has helped write several studies which show that while regional agreements are clearly rewarding for those who are included, they also punish those left out in the cold.

The studies show obvious benefits for New Zealand in striking deals with our near-neighbours.

While the agreement struck with Singapore is expected to lead to a mere 0.02 per cent increase in our GDP, a deal with the United States would provide 10 times that.

The real prize - an Apec-wide deal - would boost GDP by 0.45 per cent. It may not sound much, but it equates to hundreds of millions of dollars.

But the studies also show we could equally lose hundreds of millions if we are excluded from potential deals already being discussed.

Mr Scollay and his colleagues have estimated, for example, that a deal between Japan, Korea and China could shave 0.15 per cent off our GDP.

If the same three countries joined the 10-nation Association of South-East Asian Nations (Asean), it could reduce our GDP by 0.2 per cent.

This would worsen to 0.3 per cent if the trio joined the 34-nation Free Trade Area of the Americas, (FTAA) which aims to be in place by 2005.

Needless to say, a deal with New Zealand and Australia is not yet high on America's trade agenda, and would hardly be worth our while if agriculture were excluded.

A more lucrative move, Mr Scollay believes, would be snuggling up to East Asia.

Although such a deal would inevitably damage our manufacturing exports to the region, it would be far outweighed by a boost in sales of our dairy products, non-grain crops and other food products.

Either way, New Zealand faces "major adjustments", he says.

"If we're excluded from some of these agreements and they go ahead, we stand to be quite damaged.

"If we manage to get ourselves included, particularly in an East Asian agreement, we would have to face up to major structural changes."

All of this, of course, raises the question of where Apec is headed.

Its goal of free trade among its members by 2020 was barely mentioned in Hong Kong.

It also highlights the other major dilemma New Zealand faces - persuading other countries to persuade their farmers to give up their state subsidies.

When an American delegate at the PECC conference suggested Mr Sutton was being "a bit naive and starry-eyed" about the role of regional agreements, given the political sensitivity of the agricultural issue, he got a frosty response.

The US farm lobby had had its own way for far too long, Mr Sutton scolded.

"I think there's a good market in the US for starting to get them used to the idea they will have to be internationally competitive at home."

By avoiding dealing with agriculture in the North America Free Trade Agreement (Nafta), even though there were trade-offs available, the US had made it harder for everybody, Mr Sutton argued.

"They're used to an easy victory and that has to come to an end some time."

Agriculture is also a sticking point for Japan, and is widely expected to be excluded from a bilateral deal it is negotiating with Singapore.

Japanese academic Ippei Yamazawa tried to elicit some sympathy in Hong Kong: "You have to persuade farmers there's no future for them under protection, and that in 10 years the protection will disappear," he explained.

Of course, some New Zealand farmers would argue they face exactly the same scenario with no protection at all.

But another Japanese delegate certainly raised eyebrows (and hopes) by suggesting that other Apec members "may be pleasantly surprised" by the outcome of the talks between Japan and Singapore.

Mr Sutton appears sceptical about the WTO process, only half-joking that the Doha Round finally started last month was unlikely to be concluded "in our lifetimes".

Regional agreements, he argued, contributed to the momentum of the WTO process.

But others are not so sure.

Chilean academic Edgardo Boeninger argued that they were clearly second-best.

"Apec caught the world's attention with its goal of free trade by 2010/2020," he noted.

"Since then, its move from words to deeds has been found wanting."

Former Philippine president Fidel Ramos also castigated the US and the European Union for failing to deliver on market-access promises made under the Uruguay Round seven years ago.

World trade had risen faster than world GDP since then, but poor countries' share had declined, partly because of continuing protectionism in rich economies.

While conceding that at Doha, some progress had been made on the issue, he predicted the phasing out of farm subsidies would still be complicated and difficult.

Poor countries, he argued, could not afford to wait.

"We are living in a world of internet time. We cannot afford to wait another five or 10 years ... We need to get multilateralism going faster."

* Karyn Scherer travelled to Hong Kong with the assistance of the New Zealand Committee of the Pacific Economic Cooperation Council.