TCS Daily

Time To Raise The Bar

By Charles Finny - August 3, 2005 12:00 AM

A few months ago I had the audacity to point out publicly some pretty fundamental flaws in the free trade agreement (FTA) that had been negotiated between Thailand and New Zealand. I went so fare as to suggest that New Zealand should change its FTA negotiating paradigm from an agriculture-first mentality to one that saw agriculture, manufactured goods and services treated equally. Unsurprisingly, the criticism wasn't well received, and this tells us a fair bit about the threats to trade liberalization in this region.

I said I thought it sub-optimal to negotiate an agreement between two Asia Pacific Economic Cooperation (APEC) economies that saw liberalization delayed until after the APEC goals would have us achieving free and open trade and investment; I was concerned that the outcome was not fully in line with World Trade Organization (WTO) expectations; I objected to an economy which generates 68% of its GDP and 30% of its export revenue from services activity essentially leaving services out of the FTA, and I objected to the fact that creative industries - an area of real competitive strength for the New Zealand economy (anyone recall a movie called Lord of the Rings?) - was essentially carved out of the agreement. I argued that the path to economic prosperity in New Zealand did not lead in the direction of trade in agricultural and forestry commodities.

Bad precedents, like the Thai-New Zealand FTA, create problems. China, the Association of Southeast Asian Nations (ASEAN) and Malaysia could try to use the Thailand FTA as a model in their negotiations with New Zealand. My criticism - in public - was to make clear that the New Zealand business community would not stand for any more substandard deals and that our negotiating partners should realize that the New Zealand government was under pressure to improve on the model of the Thai FTA.

Partially I was acting as a self-interested representative of the New Zealand business community. But I also have a real concern about the responsibility resting on New Zealand's shoulders as the first Organization of Economic Cooperation and Development (OECD) country to begin FTA negotiations with China. We can't allow China to negotiate a substandard FTA with New Zealand - if they are let off the hook by New Zealand then the rest of the OECD will have an even harder negotiation with China when their turns come.

I hope that this same sense of responsibility is being felt by trade negotiators in Canberra and Santiago.

Australia and Chile are also in negotiations with China. While New Zealand was the first to start negotiations it is always possible that Australia or Chile could do a deal that sacrifices quality for haste and so move ahead of New Zealand in the queue.

In essence, this is what happened with Thailand. Thailand initially approached New Zealand for an FTA but New Zealand could not get its act together. Australia jumped in to fill the vacuum and many of the flaws found in the Thailand-New Zealand Agreement have their origin in the Australia-Thailand FTA negotiated the year before (particularly the ridiculously extended tariff phase out timings and the special safeguard rules). And while Australia's agreement with Thailand does cover services, the services coverage agreed for Thailand's commitments are underwhelming. Once Thailand had reached agreement with Australia on a substandard model, New Zealand's negotiating task became much more complex.

I hope also that when New Zealand and Australia are required - as they are under WTO rules - to notify and justify their FTAs with Thailand that the rest of the OECD gives what has happened proper attention. The OECD needs to make it clear that this new model for FTAs is not up to the mark. The responsibility for setting a high standard lies with the US, EU and Japan.

The WTO process has had many challenges to its credibility in recent years, but none is more glaring than in the WTO's watchdog role in scrutinizing FTAs negotiated around the world. The Thailand/Australia/New Zealand FTA model is far from the worst model that has been developed. And given that the bilateral or regional option is becoming increasingly more palatable to WTO members than global liberalization, it is increasingly important that the standards set for FTAs in both the General Agreement on Tariffs and Trade (GATT) Article XXIV and General Agreement on Trade in Services (GATS) Article V are being met. If they're not, then these FTAs will be a flagrant breach of the WTO's most important principle - that of Most Favoured-Nation Treatment. And if the WTO can't do something about breaches of its most fundamental principle, isn't its credibility weakened even further?

I also think APEC should lift its act in enforcing basic standards for FTAs among its member economies. Given that more trade negotiators believe in Father Christmas than in APEC's ability to achieve free and open trade and investment by 2010/2020 through unilateral action, any hope of APEC having credibility on its most fundamental goals lies in the outcomes of the proliferation of FTAs between its members. But if these members agree bilaterally that liberalization in FTAs can extend beyond the Bogor Goal timelines (Australia and New Zealand are keeping tariffs on for Thailand until 2015 while Thailand will have tariffs on New Zealand and Australian product until 2025) what does this say for APEC's credibility?

Now, when I made my criticisms of the Thailand deal, the reaction from the New Zealand government was swift and sharp. I was apparently being disingenuous and denigrating the important contribution of commodity exporters.

A similar thing happened when my former colleague Tim Groser chose to throw his hat into the political ring to try and improve the quality of the New Zealand Parliament. He was accused of kicking all New Zealanders in the teeth. How dare he stand aside from his important role in chairing the WTO Agriculture negotiations?

This type of criticism of Tim and myself is fine, but let's be consistent. What is worse? Is it letting the side down by opposing the government (Tim is running for the major opposition party) or highlighting a particularly substandard policy outcome (my crime)? Or is it undermining the credibility of the two most important trade policy processes for New Zealand -- processes which set the conditions for the trade on which our economy depends for its growth and survival?

Charles Finny is CEO of the Wellington Regional Chamber of Commerce and formerly director of New Zealand's Ministry of Foreign Affairs and Trade China FTA Task Force.


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