International business environment
- WTO facilitation of international trade
- The Doha Development Round of trade negotiations
- Bilateral trade negotiations
- Technical trade barriers
Introduction
This paper outlines the overall business environment and policy framework in which the agribusiness and forestry sectors operate. For the purposes of this paper, agribusiness includes agricultural and horticultural production and processing and associated servicing industries. Forestry includes forestry production and processing and related servicing industries. Agribusiness and forestry therefore include the farm, orchard and forestry production industries, plus the forward and backward linkages, that is, post-farm/orchard/forest gate processing and supporting activities. This paper discusses issues in the broader business environment that need to be addressed, and strategic directions relevant to the sectors that may significantly enhance their contribution to per capita income growth.
This paper is part of a series prepared for the Growth and Innovation Advisory Board (GIAB) and the papers should be read as a package. The other papers are sector overview papers for each of the dairy, forestry, meat, horticulture, wool, arable and pig and poultry sectors. These overview papers outline sector structure, size and dynamics, growth potential, constraints on and risks to the sectors and areas for policy to focus on.
Agriculture, horticulture and planted forestry are the dominant economic land uses in New Zealand, and use 52 percent of the total land area. The agribusiness and forestry sectors contribute an estimated 20 percent of real GDP, 65 percent of merchandise exports, and around 47 percent of total exports. The agribusiness and forestry sectors’ contribution to total employment in the 2001 census was 10.9 percent, with agribusiness employment at 9.6 percent.
International business environment
The international environment for New Zealand’s agricultural and forestry exports is determined by the global trading and wider economic and geopolitical situation, which affects demand for New Zealand’s products. It is also determined by the international trading environment, which we try to influence at the multilateral, plurilateral and bilateral levels. Considerable efforts are required not only to improve the international trading environment, but also to maintain the existing opportunities.
Trade Policy issues
As a small, open, trade-dependent economy, New Zealand has a compelling interest in trade liberalisation and reducing market distortions caused by others’ subsidies. This is especially important given that New Zealand’s merchandise trade is dominated by agricultural products that are subject to exceptionally high market access barriers in many key markets. These barriers include quotas, prohibitive tariffs of up to 500 percent on some products, and technical trade barriers. Export subsidies (particularly prevalent for dairy products) force down prices on world markets, reducing the returns New Zealand farmers receive. High levels of domestic support provided within the European Union (EU), the United States, Japan, Republic of Korea and other developed and developing countries impede imports and distort international markets.
Trade liberalisation for agriculture depends on addressing market access, domestic support and export subsidies in a comprehensive way because there is a high interdependence between them, and trade agreements addressing all three issues are only as strong at the weakest link. For example the current WTO Agreement on Agriculture, agreed to during the Uruguay Round in 1994, included quite strong provisions addressing export subsidies but weak provisions relating to domestic support.
While tariffs have been reduced, they have not been reduced in a way that has lowered the threshold sufficiently to allow exports to compete effectively in many markets. Export subsidies have been reduced, but are still significant in certain sectors. Most domestic support is often still delivered as market price support and output payments, which generate surplus production. This surplus production appears on world markets as competition from subsidised exports or lost access opportunities in others’ markets. Both impact on and depress prices received by agricultural exporters such as New Zealand.
Many of the same issues apply to New Zealand’s forestry exports, although generally subsidies and tariff barriers are lower. A major factor in forestry, however, is “tariff escalation” – the charging of higher tariffs on products with greater processing, such as plywood compared to logs. This problem is particularly evident in New Zealand’s developing country markets, but is also a factor in some developed countries.
In practice, trade protectionism tends to apply to high volume and/or politically visible products such as food, fibre, cars, semiconductors, steel etc. It tends not to apply to “invisible” niche products such as biochemicals, agritech electronics and software. This is significant because it creates opportunities to develop more differentiated market niches that are both higher value added and less likely to be subject to trade barriers.
We consider that free trade is welfare enhancing and beneficial for all participants, and that multilateral trade liberalisation is critical to poverty reduction and developmental opportunities in less developed countries. The only restrictions that should be placed on free trade are those that have a legitimate technical basis, essentially relating to sanitary, phytosanitary and other safety issues, and perhaps special provisions to assist poorer countries to develop industrially to the point where they can participate fully in openly competitive international trade.
MFAT and MAF work together on New Zealand’s agricultural and forestry trade negotiation effort that centres around the WTO and its rules-based system of facilitating international trade, multilateral negotiations within the Doha Round, bilateral negotiations, and overcoming technical trade barriers.
WTO facilitation of international trade
The WTO agreements and dispute settlement procedures underpin a rules-based trading system that is essential for small, trade-dependent countries such as New Zealand. The WTO allows countries such as New Zealand to challenge the major economic powers on equal terms because of the independent and judicial nature of WTO proceedings. New Zealand has actively invoked the WTO dispute settlement procedures, for example in relation to US lamb tariffs, EU barriers to spreadable butter and Canadian dairy export arrangements. Without the WTO rules-based system, New Zealand would be subject to damaging protectionist trends in a number of major markets and our current access opportunities for agricultural and forestry products would be reduced.
Some countries seek to impose their own standards on other countries in relation to, for example, labour rights, environmental protection, animal welfare, food “safety” and labelling requirements. While the aims of such measures may be valid, without a robust international legal framework there is a high risk of abuse of border requirements for protectionist ends. New Zealand believes that non-tariff technical measures governing trade must be in line with international standards or scientifically justified as provided for by the WTO Agreements on the Application of Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT).
The SPS agreement is especially important for New Zealand as it explicitly recognises the existence of key multilateral technical standards, and ascribes to the bodies administering those standards: the World Organisation for Animal Health (OIE), Codex Alimentarius and the International Plant Protection Convention (IPPC). Measures approved by these bodies apply even-handedly across domestic products and imports and different suppliers. New Zealand is a major participant in SPS issues and processes, with MAF staff chairing international committees, serving on expert panels and providing a high level of technical input. MAF’s scientific and technical credibility internationally is the key to the influence New Zealand has in such international forums. The work done is highly technical and specialised and it provides a fundamental underpinning for New Zealand’s trade.
The Doha Development Round of trade negotiations
The Doha Round is important for New Zealand because of the agricultural and forestry trade negotiations within it.
The Doha Development Round: agricultural trade negotiations
The principal elements of the Doha declaration on agriculture are that the negotiations will aim for “substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support”. All of these elements are of vital importance to New Zealand. Supporting New Zealand’s objectives in the negotiations are other Cairns Group members (largely unsubsidised agricultural traders) and a range of other developing countries.
Non-trade concerns such as animal welfare and the environment, food security and rural development issues are also being raised in the agricultural trade negotiations. While New Zealand agrees that these issues are important, the WTO agricultural negotiations are not the place to address technical issues such as standards, and they should be pursued in non-trade distorting ways.
The Doha Development Round: forestry trade negotiations
Forestry is included as part of the Doha Development Round’s “industrials” or non-agricultural market access negotiations in which countries aim to “reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well non-tariff barriers...” Reducing or removing tariffs and non-tariff barriers are key elements in improving market access for New Zealand’s forestry products.
Bilateral trade negotiations
Following on the long-standing success of the CER agreement with Australia, in recent years the focus of New Zealand’s bilateral trade negotiations has been aimed at negotiating Closer Economic Partnerships (CEPs) with Singapore, Hong Kong, Chile and the US. So far, agreement has only been reached with Singapore.
Nevertheless, as New Zealand’s interests lie primarily in promoting multilateral trade liberalisation and the removal of trade distorting domestic support, bilateral agreements are regarded as second best options. This is because major trading nations can use a proliferation of bilateral agreements as substitutes for, rather than complements to, multilateral trade negotiations, and this can effectively erode multilateral trade liberalisation. The benefits of CEPs also depend on the extent to which they are comprehensive rather than being distorted by protectionist concessions to domestic agricultural and other lobbies. New Zealand also faces some risks from bilateral arrangements negotiated by other countries which could result in New Zealand exporters losing a competitive advantage in the countries concerned.
Technical trade barriers
New Zealand often needs to respond to new technical market access requirements, some of which are imposed to ensure product safety and integrity or to meet customer requirements, and some of which are simply aimed at protecting domestic interests in importing countries. A recent example was the need to respond to new wine labelling requirements imposed by the European Union. There is potential for a more proactive role in providing input into evolving technical standards, for example in areas such as timber specifications in building codes. In some cases market access may depend on domestic technical standards in New Zealand that are verifiable, publicised and internationally recognised.
Contact for Enquiries
Monitoring and Evaluation
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0623
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