1996 Post Election Briefing - Improving Trade in Primary Products

Improving Trade in Primary Products

Trade Policy Priorities for Ministry of Agriculture (MAF)

MAF comprises part of a team along with other key agencies, in particular the Ministry of Foreign Affairs and Trade (MFAT), that devotes considerable time and resources to expanding trade opportunities for New Zealand’s agricultural products. Effective reforms of global agricultural and trade policies remain the key to New Zealand’s longer-term growth and prosperity. Of overriding importance in coming years will be the need to ensure that agriculture features prominently in the next multilateral round of WTO trade negotiations. Negotiations on the agricultural component of the next round are scheduled to begin by the end of 1999.

The key trade policy issues for MAF essentially revolve around trade liberalisation. MAF will continue to play a significant role, through the provision of economic and technical advice and expertise, in line with the Government’s strategy to improve global access and conditions for New Zealand’s agricultural products.

On the technical and scientific side, MAF’s major priorities are promoting greater international harmonisation of SPS measures based on standards and systems elaborated by Codex on food safety, International Organisation of Epizooties (OIE) for animal health and the International Plant Protection Convention (IPPC) for plant health. MAF will also be actively supporting the uptake and adherence to the WTO SPS and Technical Barriers to Trade (TBT) Agreements and their provisions in national decision making. MAF will work to further increase the effectiveness of its compliance auditing programmes for export certification so that importing countries are encouraged to move towards accepting that procedures developed here meet their requirements.

Ensuring New Zealand remains at the forefront of innovation in agriculture also requires imports of new plant and animal material, in addition to a sustained research effort. The fair trade principles we ask of trade partners for our exports need to be applied consistently to imports into New Zealand as well.

Responding to a New Generation of Agricultural Issues

Food Safety

Considerable opportunities exist for increased efficiency and productivity in respect of food safety issues. The SPS Agreement emphasises the use of international agreed standards, the establishment of SPS rules on the basis of risk analysis, risk management, rigorous science and recognition of the concept of equivalence. This latter aspect recognises that there are differing ways of achieving the same outcomes and provides us with an opportunity to tailor our export food safety regime to the realities of the New Zealand situation. In addition the food industries and regulators have for some time recognised the importance of industry taking responsibility for coordinated food quality and food safety programmes to meet both market access and consumer requirements.

The circumstances referred to above provide the background for changes to our export food safety regimes which will enable industries to integrate and take responsibility for managing food safety risks as a part of their processing systems. This, together with the establishment of outcome based food safety standards developed using risk analysis and risk management techniques, and backed up by rigorous audit systems, will enable industries to take on board functions previously undertaken by government inspectors. It is also likely in the medium term that current requirements for government certification of export products will give way to certification by authorised certifiers subject to approval and audit by government regulators. These measures will increase efficiency and productivity by removing unnecessary historical food safety requirements, integration of food safety and food quality activities and competition in the supply of food safety/quality services.

These factors point to the need to give high priority to reviewing our current export food safety legislation, in particular with respect to the meat industry.

Border Issues

As tariffs fall and other trade barriers are removed, attention is increasingly being paid to technical measures protecting domestic industries which place unfair restrictions on New Zealand’s ability to trade competitively with agricultural products. We need to recognise that agricultural products can never be 100 percent free of health or safety risk. As such, trade measures aimed at ensuring ‘zero risk’, are unrealistic. We should therefore try to ensure that any restrictions against the entry of New Zealand food exports are based solely on scientific principles. In doing so, we need to recognise that other countries will also be applying these principles. New Zealand will have to be as open to food imports as we expect our trading partners to be.

Increased Need for Consultation

A new parliamentary era, and increased interest on the part of consumers, mean new pressures on MAF to consult and inform the public of processes being used on New Zealand’s agricultural policy issues, and the international dimension.

More so than previous rounds, the Uruguay Round attracted the attention of non governmental organisations (NGOs). Growing numbers of concerned people, with more ready access to information, are likely to ensure that NGOs play a greater role in the next trade negotiations round. Any strategy that New Zealand develops should take account of this. Most people are not economists, and the arguments in favour of freer trade should be made accessible to all, if they are to be wisely accepted. A fundamental part of a New Zealand strategy for the new WTO round of multilateral trade negotiations should be to promote the benefits of liberal trade for societies as a whole.

Agriculture is subject to particular emotions, and any public relations approach in which New Zealand invests should aim to address arguments, or unarticulated sentiments, in favour of protection on the grounds of food security and self-sufficiency. It is important to anticipate, and legislate against, determined attempts to circumvent the spirit of effective trade disciplines; but more public support, both in New Zealand and in the wider world for freer trade would also be of immense value.

More specifically, MAF could be part of a government-wide effort to:

anticipate arguments against economic growth, especially on environmental grounds, and prepare strategies to address them; and
quantify benefits to New Zealanders and overseas consumers of free trade, especially in agriculture.

Continuing High Levels of Assistance in other Producing Countries

Despite unequivocal undertakings to reduce farmer support, there is little evidence of real commitment in many OECD countries to bring this about. The average level of support in OECD countries fell from 45 percent to only 41 percent, when measured by PSEs, in the past ten years while New Zealand support, mainly on basic research to control pests and diseases, fell from 24 percent to 4 percent.

In 1990 the OECD estimated the economic effects of a complete removal of OECD agricultural support. It was projected that New Zealand would gain a 2.7 percent rise in real household income, a 10.6 percent improvement in terms of trade, and a 7.9 percent rise in agricultural production. The implementation of the Uruguay Round Agreements has led to some lowering of barriers to agricultural imports, but there is still a long way to go.

Figure 3.1, based on OECD data, shows percentage PSEs, for all products, received by farmers in the major OECD countries, in 1995.

Figure 3.1

Undisplayed Graphic

Figures 3.2 and 3.3 show prices received by dairy and beef farmers in different OECD countries in 1995.

Figure 3.2

Figure 3.3

GATT Uruguay Round Implementation

The GATT Uruguay Round outcome, with the exception of the commitments of developing countries, will be fully implemented by the end of 2000. New Zealand will need to ensure that the momentum of agricultural trade reform is continued beyond this. In particular, it will be important for New Zealand to ensure that agriculture features prominently in the next multilateral round of trade negotiations under the World Trade Organisation, which superseded the GATT on 1 January 1995. Negotiations on the agricultural component of the next round are scheduled to begin by the end of 1999.

A meeting of trade ministers from WTO member countries is to be held in Singapore in December 1996. At this meeting New Zealand, along with the rest of the Cairns Group, will be seeking to secure a sound foundation for the future negotiations on agriculture.

A Four-track Approach to Trade Policy Issues: Multilateral, Regional, Bilateral and Domestic

Exports are crucial to New Zealand’s economic well being and growth prospects. The ultimate goal of New Zealand’s trade policy is to achieve completely free trade access for all our exported agricultural products, along with the elimination of all output-linked domestic support programmes by our trading partners. In the shorter term, New Zealand’s objectives include facilitating and securing market access and minimising distortions on world markets for farm products caused by export subsidies, and high tariff and non-tariff barriers to trade. While New Zealand seeks the lowering of other countries’ trade barriers, it is also important to ensure that New Zealand’s own border measures are in line with international standards or, if stricter, are fully justified in scientific terms.

Multilateral Trade Policy

The overall aim of multilateral trade policy is to secure further improvements in world trading rules, especially in areas such as agriculture and trade in services, where the GATT Uruguay Round results are partial at best. This will be pursued by participation in multilateral organisations, the most important of which is the World Trade Organisation (WTO) but the OECD and the United Nations Food and Agriculture Organisation (FAO) are other fora in which the promulgation of the benefits of free trade could have a decisive influence. In all these fora, New Zealand will also need to play an active and positive role in negotiations on a new generation of trade issues, including particularly the application of scientific (risk analysis) principles to trade in agricultural items, and trade and the environment. International health standards for primary products and animals have acquired new relevance under the WTO commitments to greater alignment of its members’ measures, thus raising the importance of the bodies that set these standards.

Specific MAF goals currently being pursued are to ensure that:

the terms of the GATT Uruguay Round Agriculture and Sanitary and Phytosanitary Agreements are fully implemented;
New Zealand’s trade policy agenda for agriculture in the post-Uruguay Round is identified and our participation in targeted international fora is used to influence and shape future multilateral negotiations and agreements;
technical barriers to market access for New Zealand agriculture products are minimised;
agriculture is helped to increase its contribution to economic growth by identifying and publicising opportunities and risks from the GATT Uruguay Round and what follows;
closer trade relationships with key markets in the world are achieved through effective negotiation of trade rules in international fora and bilateral agreements on trade protocols.

Regional Trade Policy

Regional economic groupings — including the North American Free Trade Agreement, the European Union, ASEAN, and MERCOSUR (Southern America Common Market) — have a growing influence on New Zealand’s trade policy. The overall aim of New Zealand’s regional trade policy is to continue to explore regional trade and economic relationships. New Zealand needs to remain open to investigating further trade liberalisation arrangements within regional trading groups.

The Asia-Pacific Economic Cooperation (APEC) group is a major market for New Zealand’s agricultural products. Its agenda for liberalising trade includes, inter alia, work on aligning food standards and providing alternative means for assurance of product safety (such as mutual recognition arrangements). New Zealand’s experience as a world trader in primary produce means it plays a central role in shaping APEC outcomes.

New Zealand works to ensure that such regional groupings are outward-looking, open-ended in terms of potential membership, consistent with New Zealand’s domestic policy directions, and ‘Asia-Pacific friendly’.

Specific goals currently being pursued are:

to foster the development of the Asia-Pacific Economic Cooperation (APEC) group and New Zealand links with other regional groupings;
to ensure that guidelines established for regional trading blocs are consistent with multilateral objectives, especially those pertaining to openness and transparency;
to participate in regional organisations involved in developing sanitary and phytosanitary (SPS) and related standards for agricultural trade, especially to encourage the adoption of aligned market access and health standards by Pacific rim countries; and
to participate in regional discussions on developing appropriate plant health, animal welfare and environmental standards.

Bilateral Trade Policy

The overall aim of New Zealand’s bilateral trade policy is to continue to pursue bilateral channels for enhancing New Zealand’s trade opportunities and resolving trade problems, on a country-by-country basis. New Zealand has global trading interests and needs to continue developing closer relationships with all its major trading partners, identifying border measures that do not comply with the SPS Agreement, and working with trading partners to attain fairer access.

Specific MAF goals include:

to strengthen and widen the scope of Closer Economic Relations (CER) with Australia; already one of the most broadly based bilateral free trade arrangements in the world, covering a single market of around 20 million people; and
to encourage the use of international SPS standards to facilitate trade while maintaining an appropriate level of protection for New Zealand’s animal and plant health status.

Domestic Trade Policy

The overall aim of domestic trade policy is to maintain an outward-looking stance for New Zealand’s domestic policies, which will enable New Zealand to retain its international competitiveness and take advantage of opportunities overseas.

Specific MAF goals include:

to amend regulatory, infrastructural and institutional arrangements that are no longer cost-beneficial and that are prejudicial to the performance of the primary sector;
to implement the conclusions of reviews of exotic disease and pest res-ponse programmes for animals, animal health surveillance, meat inspection, and quarantine operations;
to reduce remaining protection given to industry in New Zealand so as to minimise flow-on costs to the agriculture sector; and
to ensure that decision-makers have access to information on trade policy, market issues, product volume and price trends, technical standards and guides.

Role of Ministry of Agriculture in Trade Policy

In formulating and implementing trade policy, MAF is involved in providing technical and economic policy advice, developing procedures that meet the food safety and plant and animal health requirements of importing countries, and certifying that the procedures are met by exporters, and applying plant and animal health standards to imports. Different teams within MAF work closely to bring together economic and technical aspects of trade policy.

MAF Policy provides economic policy advice on each of the four tracks of trade policy. MAF Policy works closely with other agencies, in particular the Ministry of Foreign Affairs and Trade, and Producer Boards, in efforts to maintain and improve market access for New Zealand’s agricultural products.

MAF’s Regulatory Authority is the Government’s standard setter for the range of activities related to the maintenance of agricultural security, the assurance of health and safety and certification of New Zealand exports of agricultural products, the management of endemic pests and diseases, and animal welfare.

MAF Quality Management is the principal provider of services relating to agricultural security, export certification, animal welfare and pest and disease management. These services are provided contractually to the specified standards set by the Regulatory Authority.

Trade Policy Issues on the International Scene

Domestic Agricultural Assistance in Major Producing Countries

High levels of domestic assistance to agricultural producers in developed countries create severe trade problems for New Zealand producers. The proposal in the GATT Uruguay Round to reduce domestic assistance to agricultural producers by 20 percent from the average levels in 1986-88 is designed to address such problems. Reductions are to be made over a six-year period beginning in 1995. Unfortunately, a 20 percent reduction will still leave assistance at uncomfortably high levels in many countries. While it is a step in the right direction, MAF uses every opportunity to advocate to others the benefits of reducing assistance to farmers. Such activities include:

promoting trade liberalisation in multilateral fora such as the OECD, FAO and associated technical working groups;
sharing New Zealand’s experience in multilateral and regional fora, of removing assistance to encourage the international acceptance of trade liberalisation; and
assisting in visitors’ programmes aimed at, amongst other things, informing overseas visitors of the benefits of removing assistance to agricultural producers.
priority areas for MAF and the New Zealand Government include:
Deeper cuts in the domestic agricultural support commitments of our trading partners. New Zealand should advocate deeper cuts, following the 20 percent reductions agreed in the Uruguay Round, with support levels ratcheted downwards.

• Exempted policies. New Zealand needs to attempt to investigate the degrees to which the current or possible domestic support policies of our trading partners have distortionary effects. We should aim to ensure that payments are more decoupled and less distorting than in the current Agreement, target, for example, structural adjustment assistance payments and regional assistance payments.

• Tighter specification of domestic support commitments of our trading partners. The Aggregate Measure of Support, used to indicate assistance, is aggregated over all of a country’s farm products. Reductions in support for individual products in excess of 20 percent can therefore be used to allow smaller reductions for other, politically sensitive, products. Indeed, under the domestic support disciplines, support for some products can even be increased. In the new round we should press for cuts to be made on a product-specific basis to prevent increases in support levels in key sectors.

Export Subsidies

The Uruguay Round included provisions to reduce the volume of subsidised exports by 21 percent, and reduce budgetary expenditure on export subsidies by 36 percent, both from 1986-90 base levels.

Specific objectives include:

seeking further cuts, in both volume and value terms, and aiming to eliminate and prohibit export subsidies in line with WTO rules on industrial products;
seeking tighter disciplines on surplus disposal, working through the FAO.

We should also continue to play an active role in the OECD’s work towards compiling a draft sector Understanding on export credits for agriculture. The goal is an early agreement that would prevent the effective use of export credits as export subsidies.

Tariff Escalation

Tariffs faced by agricultural exports to many countries typically increase the more a product is processed. This ‘tariff escalation’ makes it harder to export products that embody higher degrees of processing. To increase the opportunity for New Zealand companies to engage profitably in further processing we should counter current, or potential, tariff escalation. It may be possible to forge alliances with less developed countries on this issue in fora such as FAO.

A specific MAF goal is to:

seek guidance from industry on where most gains are likely to be made from targeting tariff escalation.

Tariff Quotas

New Zealand has been experiencing difficulty in achieving effective market access owing to ways in which importing countries have administered tariff quotas. This is a systemic issue, which may assume greater importance in the WTO in the coming year.

A specific goal is to:

look at the different ways in which tariff quotas can be administered, and determine, and promote, those ways likely to be feasible, transparent and least trade-distortionary.

Sanitary and Phytosanitary Measures in International Trade

Improved international rules governing the development and application of sanitary and phytosanitary (SPS) measures are critical to ensuring that countries do not unfairly use technical measures to protect their domestic industries in the face of increasing import competition. The GATT Uruguay Round SPS text represents the first significant attempt at the international level to establish a practical multilateral set of rules and disciplines governing SPS measures.

The principles, concepts and procedures set out in the SPS agreement have provided a framework for New Zealand to develop similar approaches to bilateral, regional and multilateral negotiations on SPS measures.

The focus of New Zealand’s involvement at the bilateral level has been to negotiate improved market access for New Zealand agricultural products based on the provisions of the SPS Agreement. With regard to imports, the emphasis has been on the development and application of risk analysis principles to decision making on SPS matters, so that New Zealand is able to facilitate market access, even while protecting its borders from unwanted pests and diseases.

New Zealand has also been working with Australia to harmonise registration of agricultural chemicals and veterinary medicines. Work towards practical harmonisation of registrations is already under way. The long term objective is to explore and assess structural options for harmonisation, enabling industry, consumers and registration authorities to obtain maximum benefit from which option is ultimately chosen.

New Zealand activities include strategic involvement in the Quadrilateral Group (comprising New Zealand, Australia, the US and Canada) and in regional and international groupings of the FAO, APEC, Codex Alimentarius Commission (for food), OIE (International Organisation of Epizootics — on animal health) and the International Plant Protection Convention.

New Initiatives on Food Safety

MAF/MoH Memorandum of Agreement

The Ministry of Agriculture has responsibilities for food safety assurance and export certification for virtually all primary products exported from New Zealand, and for fresh meat and dairy items and some seafood produced and consumed domestically. The Ministry of Health has responsibilities for domestic food safety and regulatory issues. To provide for improved coordination between the two agencies MAF and MoH have drawn up a memorandum of agreement which clarifies the respective roles and responsibilities of the two agencies.

Australia New Zealand Food Authority

On 1 July 1996, the newly created Australia New Zealand Food Authority began work towards joint Australia/New Zealand standards for all food produced in both countries. MAF will need to monitor moves by Australian industry to alter standards that might impact on New Zealand’s food exports to Australia.

Quality Standards

New Zealand has been worried by the tendency of some countries to attempt to use quality standards as a means to regulate trade when these are less a safety concern than an issue between the seller and buyer. New Zealand’s primary concern is to ensure that quality standards applied by overseas governments are, to the maximum extent possible, based on international standards and guidelines, are an appropriate area for governments to intervene in, and have a legitimate objective, and are consistent with the provisions of the WTO Agreement on Technical Barriers to Trade.

MAF has been working with the different industries to get them to accept greater responsibility for quality standards through application of the principles of total quality management. New Zealand industries’ commitment to quality standards is reflected in a growing number of companies obtaining accreditation to the ISO 9000 series of quality system standards established by the International Standards Organisation. For example, New Zealand has been active within the OECD in developing international quality standards for fruit and vegetables. MAF has played an active part in developing the OECD Standard for Kiwifruit, which had as its objective the facilitation of trade on the basis of common quality standards.

Regulating for Safe Agricultural Trade

MAF’s role in the areas of export certification and import control is to ensure that the product, plant or animal exported meets the requirements of the importing countries, and that the imports meet New Zealand standards for animal and plant health and food safety. MAF’s export certification is primarily concerned with the safety or health status of the export item, and truth in labelling, but it includes other quality standards aspects when an importing country specifically seeks such certification from a Government agency.

Food safety standards for both export and domestic consumption of New Zealand products are developed by government in conjunction with industry. Government seeks to ensure that these safety standards are aligned with international standards (particularly those of Codex) and meet the requirements of bilateral trade agreements concerning government certification.

MAF provides certification that the product concerned complies with importing country requirements in terms of being:

safe to eat (within limits for pesticide residues, infectious agents and organisms);
wholesome in the case of food products; and
true to label.

The process by which this certification is provided differs between industries. MAF has actively encouraged industries to assume greater responsibility for establishing the systems to comply with the standards for their products. Where industry has assumed this responsibility government’s involvement is one of auditing compliance. This approach is increasingly accepted by major trading partners, but there are risks, which require a high degree of vigilance. These involve temporary, undetected failure of self-compliance, and fraudulent activities by individual firms wishing to by-pass certification requirements. Such activities can discredit the integrity of certification for the industry as a whole and jeopardise market access. These risks must be constantly evaluated and appropriate action taken by both government and industry. The Government’s response to such activities must be adequate to dissuade potential negligence. Penalties must be seen to be imposed if such situations occur. What is at stake is the long term credibility for New Zealand to be seen as a concerned, competent and honest exporter.

Specific MAF goals are:

to expand MAF’s collaboration with industry organisations and enterprises to promote the development of management practices that incorporate those elements of health, safety and quality in which we have an official interest;
to promote simple, on-farm, quality management systems that improve efficiency of processing and reduce costs; and
to continue progress towards devolution of lower-level inspection out of government agency hands, while maintaining and improving the integrity of the official regulatory framework and its audit and compliance system.

Trade and the Environment

International negotiations are under way on a variety of environmental issues, and there could have significant implications for New Zealand agriculture. The most important is clearly the Framework Convention on Climate Change (FCCC), under which governments are currently negotiating additional commitments, to be agreed by the end of 1997. In addition to possibly increasing general emission limitations on greenhouse gases, active consideration is being given to sector-specific policies and measures, and agriculture has been frequently mentioned.

A major part of MAF’s work is ensuring that agricultural production subsidies are not converted into environmental subsidies in such a way as to stimulate output. This means trying to ensure that any proposed use of environmental subsidies are WTO-consistent, having ongoing involvement in the WTO environmental and trade policy discussions, and ensuring that international fora proposing trade measures for environmental problems follow the principles of effectiveness and necessity.

MAF is also involved, along with MFAT and other departments, in analysis and briefing for other international environmental negotiations. MAF will need to stay closely involved in all of these, which include:

further amendments to the Montreal Protocol for Protection of the Ozone Layer (which could affect the use of methyl bromide, a key quarantine treatment for both exports and imports), and keeping a watching brief over any proposed trade measures;
a proposed Biosafety Protocol under the Convention on Biological Diversity, which could put constraints on New Zealand’s access to products of biotechnology and could also undermine principles of the WTO Agreement on Sanitary and Phytosanitary Measures;
two proposed agreements on hazardous chemicals, one to provide for phaseouts and/or bans on Persistent Organic Pollutants (POPs), the other to make mandatory and possibly extend an existing agreement on Prior Informed Consent relating to export of other hazardous chemicals. While both proposed agreements are appropriate to deal with specific issues, either could unduly complicate New Zealand’s access to important agricultural chemicals if there is a move to take import and management decisions out of the hands of sovereign national authorities.

Other Aspects of Multilateral Negotiations

Specific MAF goals in other areas of multilateral negotiations are:

to seek the effective use of the new dispute settlement procedures agreed in the Uruguay Round; and
to forestall possible attempts by lobbyists in countries with high labour costs to deny trade access to countries with different social systems.

Other priorities include the development of co-governance principles under CER, the servicing of international agencies and the continuing promotion of agricultural and trade policy reforms in bilateral and multilateral fora.

Another major agricultural issue that may be important for New Zealand in the coming year is the possible accession of China to the WTO.

Contact for Enquiries

MAF Information Services
Pastoral House
25 The Terrace
PO Box 2526
Wellington, NEW ZEALAND

Fax: +64 4 894 0721
Contact this person