2.5 Free Trade and GATT

There has been a huge amount of publicity about the recently completed Uruguay Round of (the General Agreement in Tariffs and Trade (GATT). While the agreement may seem far removed from rural New Zealanders it is people living in rural areas who may benefit most from it, in terms of personal gain and improved rural services. Women living in rural areas could have a very significant effect in securing these benefits.

The purpose of the following discussion is to briefly describe GATT, what has been achieved, the potential benefits for New Zealand, possible impediments to realising these benefits, and some suggestions about ways women in rural areas can lever the best outcomes for themselves and their communities.

The GATT environment

It is generally accepted that by freeing up world trade, new trade opportunities will arise and there will be world-wide economic benefits. However, there is a tendency for governments to want to protect their domestic industries, jobs and investments from outside competition, and to encourage exports by assisting their industries. The assistance can be through:

  • internal, and export, subsidies
  • tariffs and anti-dumping duties
  • technical impediments to imports (eg labelling, standards)
  • quarantine regulations (ostensibly to protect human, animal and plant health)

The resulting highly protected industries pass costs on to consumers and taxpayers, and usually have low productivity. GATT was established to lower levels of frontier protection through, for example, the removal of subsidies and quantitative restrictions, and lowering tariffs.

GATT is a legal contract, to which some 115 countries are signatories. It limits countries’ rights to impose restrictions and subsidies, and requires a commitment to removing subsidies. Negotiations are conducted through ‘Rounds’, which are lengthy processes of establishing international trade rules between governments. The most recent ‘Round’ was the Uruguay Round, completed on 15 December 1993, after 7 years of debate.

The Uruguay Round achievements

From New Zealand’s viewpoint perhaps the most significant result was the inclusion of agriculture into GATT. Agriculture was previously excluded, leading to unfair trade practices, barriers, and distorted domestic and export subsidies:


By 1992 total transfers to OECD agriculture from consumers and taxpayers amounted to $US354 billion —enough to pay for each of OECD’s 41 million cows to fly first class around the world 1.5 times (MFAT, 1994).

The Cairns Group of countries, of which New Zealand is a member, was instrumental in the inclusion of agriculture in GATT, against some opposition. Specifically the Uruguay Round agreement provides that in the 5 years between 1995 and the year 2000:

  • internal support for agriculture will be reduced by 20% from 1986-88 base levels
  • all non-tariff barriers will be converted to tariffs (tariffication) and reduced by a simple average of 36% with a minimum cut of 15% for any tariff line from 1986-88 base levels
  • after tariffication, minimum access must be made available, equivalent to 3% of local production and rising to 5% by the year 2000
  • existing market access opportunities must be assured at least at 1986-88 average levels
  • volumes of subsidised agricultural exports will be cut by 21%, and budgetary expenditure on export subsidies cut by 36% from 1986-90 base levels
  • sanitary and phytosanitary (plant health) measures will be revised and tightened, to ensure they are imposed only to the extent necessary to protect human, animal or plant health according to objective scientific criteria
  • government purchasing procedures will ensure foreign suppliers are on an equal footing with local suppliers, and must establish appeal procedures.

In addition a new World Trade Organisation will be set up requiring members to accept the Uruguay Round agreements as a single package, and providing dispute settlement procedures.

Potential benefits for New Zealand agriculture

New Zealand is well down the track of trade reform and the only commitment affecting our agricultural sector is a requirement to remove, or express as tariffs, all non-tariff restrictions. This will only affect apples, pears and hops.

New Zealand agricultural exports were restricted in many major and potential markets. As the world’s most efficient pastoral-based agricultural producer New Zealand stands to gain more than any other developed country from the liberalisation of agricultural trade. Access has been assured to existing markets and has opened up many additional opportunities, as well as protecting our exports from unfair and predatory practices by other larger economies.

In the short term existing access levels are assured, and some additional access gained in some markets — eliminating the need for regular, drawn out quota negotiations. In the medium term other major benefits could be achieved — provided the exchange rate remains stable and New Zealand makes the effort to secure them — through:

  • lower tariff barriers
  • achieving higher agricultural prices as other countries reduce export and domestic subsidies
  • increased demand resulting from higher economic growth in other economies
  • increased demand as subsidies are reduced and the European Union (EU) and the USA have less incentive to produce at their current levels
  • increased demand in third markets as export subsidies are reduced and competitors’ export sales fall
  • forging new trade alliances
  • the World Trade Organisation helping to ensure compliance with GATT commitments.

Overall:


The Round is likely to produce a modest one-off increase in growth [for New Zealand] of 2-3% over the next decade ... farm sector revenues are expected to increase by between NZ $1.0 to $1.5 billion over the next decade ... [Growth] in employment of some 20,000 to 30,000 new jobs can be anticipated at current rates of employment growth related to increasing GDP (MFAT, 1994).

As farm profitability, investment and production increase this will boost the performance of secondary sectors that service New Zealand agriculture.

Possible impediments to gaining maximum benefits

The most crucial impediment could be the extent to which New Zealand industry takes advantage of the Uruguay Round agreement. The Round has only provided the opportunities. There are, however, a number of external and internal potential impediments.

The external impediments are:

  • dairy, grain and meat price gains could be eroded if the EU and the USA replaced export subsidies with deficiency payments schemes (which are exempt from GATT)
  • the ‘Peace Clause’ prohibits challenge of any agricultural policy unless it contravenes the Uruguay settlement. This has effectively legitimised the EU Common Agricultural Policy (CAP)
  • direct payments to producers which are not related to volume, types or prices of products are exempt from production requirements. Much of the CAP and USA agricultural support payments are in this ‘Green box’ category
  • the volume of subsidised exports able to be traded may not remain significant
  • international competition for available new quotas will be fierce
  • GATT commitments may erode over time
  • the extent to which signatory countries observe the letter and intent of the agreement.

Possible internal impediments may be the greatest inhibitors to maximising benefits, and are manifested by such problems as:

  • fluctuating prices and stock numbers
  • a lack of market forecasts for producers
  • pricing policies which do not reflect the costs of production
  • uncoordinated product research and development
  • some deficiencies in marketing techniques
  • price undercutting in international markets
  • competition increasing purchase prices and reducing selling prices
  • restrictive marketing arrangements
  • escalation of New Zealand’s exchange rae in relation to other countries.

GATT and women in rural areas

Essentially it is the role of industry and government to secure the gains overseas for New Zealand arising from the Uruguay Round, by taking advantage of the opportunities provided and by ensuring the effects of external impediments are kept to a minimum. However, women in rural areas can have a profound effect in rectifying some of the internal impediments, and in ensuring that rural communities benefit from increased national income.

Through involvement in company and producer boards, cooperatives, rural groups, committees and associations, women can focus attention on the problems besetting some agricultural sectors. By exposing and airing these problems, dialogues between those involved can be opened and some of the entrenched negative attitudes and practices, which have developed over decades, could be resolved. Overcoming these impediments and achieving industry cooperation is necessary if New Zealand is to take full advantage of the opportunities from the Uruguay Round.

Similarly, through involvement with lobby groups and local and regional authorities women can influence the disbursement of national gains arising from GATT to the benefit of their rural centres and communities.

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Contact for Enquiries

Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND

Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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