Where now for NZ trade?

By FRAN O'SULLIVAN

Nearly two weeks after the Cancun debacle the full extent of this latest crisis in global governance is starting to sink in.

It is too early to say with confidence that the historic new G21 coalition of developing countries that Brazil has stitched together will become a permanent force in World Trade Organisation politics, ending the effective duopoly of the European Union and the United States which has traditionally set the pace and dictated terms for lesser players at the WTO.

But, says New Zealand Trade Negotiations Minister Jim Sutton:"The WTO is indispensable for New Zealand ... We need it more than most.

"We're going to hang in there."

The United States has already warned it will increase pressure on the multilateral trading system by launching more free trade deals with individual nations, or with trading blocs, rather than wait for the WTO to get its act together.

But a New Zealand official said: "This is 'Cool Hands Luke' stuff here. We've got to keep focused on the multilateral system and wait it out until it imposes itself again.

"Anything else would be fatal for New Zealand."

Former WTO Director-General Mike Moore says New Zealand is at its most vulnerable since Britain joined the European Union. " No one is knocking at New Zealand's door ... The WTO is still our best hope."

As the blame game continues in 148 capitals over just why the much-heralded talks collapsed, Mr Sutton is now bringing together a new game-plan for New Zealand to take a leadership role in the revival.

Trade ministers from the Asia-Pacific region will meet in Thailand next month for the annual Apec meeting. Inevitably the WTO collapse will be centre-stage and New Zealand intends to be in the thick of it.

But there is a huge amount of work to be done first if there is to be any unanimity by the trade politicians, or their leaders, on a go-forward in Bangkok.

On Wednesday Mr Sutton held a debriefing with key Ministry of Foreign Affairs and Trade officials led by principal trade policy adviser Crawford Falconer and trade negotiations division director Derek Leask.

The verdict on Cancun: "Too many issues, too complex and not enough had been pre-cooked."

The initial meeting was more of a stocktake. There will be further sessions with the rest of the 30-strong group, including business and agriculture players, who accompanied Mr Sutton to Cancun.

"We are still not sure as to the way forward," Mr Sutton admitted.

"Obviously we are hoping that we will get some useful advice from our people in Geneva.

"But what we could divine from what transpired is that there's a lot of developing countries that think this is a free ride to which they are not morally entitled.

"There will also be some really serious reflection on the way the WTO operates and how realistic it is to operate on explicit consensus as a means of taking decisions, now that the group has grown to 148."

New Zealand diplomats have already been asked to take a reading on where the European Union, the United States and Japan - the "rich nations" who were the focus of the G21 group's vitriol at Cancun - are prepared to go.

"From our point of view we'll be pushing the barrow as hard as we can," said a senior ministry official. "We're not going to pretend Cancun hasn't happened, nor can we possibly pretend it hasn't changed things.

"But on the other hand there wouldn't be any reason anybody would want to stand back and play it as a spectator sport. It won't be controlled by us but there is certainly no reason to slacken off at all."

At ministerial level there are strong indications New Zealand is prepared to increase the temperature.

Already Finance Finance Minister Michael Cullen has come out swinging against Washington's "weak dollar policy" and rich nations' agricultural subsidies.

Dr Cullen used the joint IMF/World Bank meeting in Dubai this week to question why smaller nations should contribute to a call for increased aid of US$16 billion ($26.9 billion).

"This is only 4 to 5 per cent of the total spent on agricultural subsidies by the world's richest countries," he said. "As the Finance Minister of a small developed nation substantially dependent on unsubsidised agricultural exports, I find it hard to argue that my country should greatly increase aid while we, along with the world's developing nations, face unconscionable subsidies, along with tariff and non-tariff barriers to agricultural trade."

The coming year would reveal whether "the fine words we utter at these conferences about trade liberalisation are meant, and will be translated into substantial progress, or whether they are merely the cover for the continuation of distortionary and unfair trade policies, which ironically, reduce total welfare in both the developed and the developing nations".

Yesterday, Foreign Affairs Minister Phil Goff sang a similar tune in Washington, DC, in meetings with US Deputy Secretary of State Richard Armitage, key members of Congress and powerful US corporates which have backed New Zealand's push for a bilateral free trade deal.

Mr Goff had already intended to promote the role New Zealand is playing in Afghanistan, where 100 Kiwi troops were deployed this week to replace US troops in leading a reconstruction team in Bamian province, and in Iraq, where 16 military engineers are being deployed.

The profile of this tangible contribution to the US "war against terrorism" was raised at a time major European nations - such as France and Germany - are still cavilling at providing more than a token amount despite further United Nations moves.

In a later statement, Mr Armitage reiterated US appreciation for New Zealand's contributions in Afghanistan and Iraq and indicated he and Mr Goff had discussed "future prospects for addressing the challenges" posed by the disappointing WTO outcome.

The Government has not formally linked trade and security but reciprocity - at least from a goodwill perspective - is now being talked about.

Prime Minister Helen Clark is expected to discuss a response to the WTO debacle with her Australian counterpart John Howard.

Both leaders will be travelling to Bangkok in three weeks for Apec.

There will be a further opportunity to move the agricultural liberalisation agenda forward when each hosts Chinese President Hu Jintao, who will visit Australia and New Zealand after Apec.

But this is all big player territory.

It was in fact the poor African, Caribbean and Pacific nations bloc that pulled the plug on the talks by refusing to entertain any discussion on the "Singapore issues" that the EU and Japan had promoted, such as competition, investment, trade facilitation and government procurement.

The major negotiations on agriculture had not even begun.

Mr Sutton points out that there is a "whole big group of new African ministers on board" since the WTO meeting in Doha 18 months ago which launched the Development Round.

Mr Moore - who was Director-General at the time - had travelled frequently to the African nations in the run-up to Doha, even though their contribution to world trade was small.

"With urging and effective leadership of Alec Urwin [South African Trade Minister] they formed themselves into a group and delegated to many of the African ministers the carriage of particular issues," said Mr Sutton.

"So when the topic changed in Green Room discussions, the African minister present would change as well."

The Green Room is the name the WTO attaches to in-camera negotiations by key ministers on behalf of the entire group.

"If it was a cock-up this time," said Mr Sutton. "it would be absurd to blame the countries involved. The whole ACP group had not been sufficiently cultivated by the leadership of the organisation, so neither side knew what was going on.

'These were small countries with very limited capacity to negotiate who got themselves into quite a state outside the Green Room."

Ironically the ACP group were among the nations who stood to be major beneficiaries from a successful outcome. Now they are back to square one.

New Zealand's WTO ambassador, Tim Groser, will now sound out the African nations represented in Geneva and get a reading on where they see things. There have been suggestions New Zealand could assist in a capacity-building effort for the African nations - although there are limits to what a small nation can do.

New Zealand's primary interest in the Doha Round is to achieve further major reductions in global agriculture protectionism.

At Cancun, Singapore Trade Minister George Yeo facilitated the agriculture negotiations. Mr Yeo was singled out by the meeting's chairman, Mexican Foreign Minister Luis Ernesto Derbez, to avoid any suggestion of bias as Singapore does not have huge agriculture interests of its own.

On the table was an omnibus proposal by Carlos Perez del Castillo, Uruguay's ambassador and chairman of the WTO General Council, which covered a raft of issues from how to bridge differences over cutting subsidies and import tariffs on agricultural produce, manufactured goods and service industries such as banking and telecommunications.

Then there was the joint EU/US proposal which had been roundly rejected by the G21 group in its own draft.

After three days of individual discussions, Mr Yeo came up with a draft text which was to be used as the basis of a tough negotiation within the Green Room by 30 of the world's most influential trade ministers.

Officials say there was a "lot of ambiguity and difficulty" in it. Mr Derbez stepped in.

The text had proposed "the question of an end date for phasing out export subsidies remained under negotiation".

Mr Derbez amended this to read "an end date for the phasing out of export subsidies remained under negotiation" to remove any illusion there would not ultimately be an end date for the elimination of export subsidies.

Domestic agricultural subsidies were to be amended to try to curb the trade distortionary effects. However this would not have gone so far as to foreshadow a rewrite of US President George W. Bush's Farm Bill or further reform of the EU's Common Agriculture Policy. Market access for developing nations' agriculture commodities and products was also to be increased.

The Derbez text did not meet New Zealand's objectives. But officials believe it could still have been used to produce a way forward.

"Given we were never going to see the colour of all the money at this stage, it seemed a reasonable effort," said one.

Another went so far as to say if UN Secretary-General Kofi Annan had got to Cancun and delivered his own speech in person "he would have been irresistible".

Like Mexican President Vincente Fox, Mr Annan had made a strong case for removing export subsidies so poor nations could fight their way out of poverty.

"If the Singapore issues had been dealt to, we would have moved on to the agriculture discussions," said an official. " Whether we can now because of what has happened is a sixty million dollar question."

Mr Derbez has asked the WTO to hold a senior officials meeting in Geneva before December 15. "In those areas where we have reached a high level of convergence on texts, we undertake to maintain this convergence while working for an acceptable overall outcome," his final statement to the Cancun summit said.

Mr Sutton accepts that the WTO's consensus mode is imperfect. "We historically may have reached the end of the road as far as explicit consensus goes for making decisions."

He suggests an elected council from the WTO members could be one option.

But the official line is: not while this round is under negotiation.

"Let's not lose focus," said one insider. "At the end of the day this has got to be about people accepting a negotiated outcome and actually having propositions on the table that people can say yay or nay too.

"And if you can get more sanity on the round so much the better.

"But not at the expense of an outcome.

* Monday: Fran O'Sullivan column