By Ronnie Horesh
This article appeared in the February 2003 issue of the New Zealand Orchardist.
Even for those of us living in our largest cities New Zealand’s special sense of space can be at once liberating and deceiving. Unless we have just flown in from the northern hemisphere or Latin America it’s easy to forget how densely populated are the conurbations in which the majority of the world’s urban population lives. And it is not only in the raw numerical sense that the people who form our major markets live closely together. The ever-growing complexity of their social organisation, the number and range of the links between cities and individuals: all exert intense pressure on their physical and social environment. These stresses, while not entirely absent in New Zealand, are at least mitigated here by the accessibility and emptiness of our land- and sea- scape.
Our mindset, I believe, reflects our environment. At its simplest, we in New Zealand have ‘new world’ values. We have room to expand and let off steam. We are purposeful and strive for success; we have an inherently optimistic view about what we can achieve; our lifetime goals read like a manifesto. Most of us, most of the time, see change as an opportunity, and we believe that things can improve within our own lifetime and especially for our children. Trade to us is like enterprise and technology. We see the benefits they bring and, on the whole, we welcome them. Our interactions with others are a positive sum game.
The mindset of influential people in our major markets is different. Of course there are many individual exceptions, but the stresses imposed by a complex, densely populated society mean that containment in these countries is a more important driver than change. Social stability looms larger as a policy objective. Fear of failure matters more to decision makers than thirst for success. Opportunities exist, and are taken, but more people see them as problematic. New imports, new products and new scientific techniques are regarded with suspicion. The longer histories of these countries have enabled vested interests to entrench themselves. Decades of favoured treatment have seen them accumulate enormous influence, and given them the resources to defend themselves against change.
With such a worldview people regard imports as threats, and genuinely believe that ‘protection’ from foreign goods benefits them. Trade is seen as a game that you either win or lose. A ‘precautionary’ approach to new products and new techniques is the default habit of mind.
My belief is that as the world continues to urbanise, and as its population continues to rise, so the trend in many of our overseas markets, at least in the world of trade, will be to take an increasingly ‘old world’ line.
The triumph of process
What will this mean in practice? It does not necessarily imply a fall in trade volumes, or even a net increase in protectionism. But it does mean that the character of trading relationships and trade negotiations will change. I foresee a future in which patterns of trade will be determined more by legal expertise than by the interplay of economic forces and entrepreneurship. The costs of bringing or defending trade actions will rise. Government-to-government relations will become increasingly important. Lobbying will become an even higher priority for more and more businesses. Following correct procedure will be as important as offering competitive products. In general, the burden of proof will shift away from protectionists’ having to prove that imports would be injurious, and onto would-be traders to show that society benefits from trade.
The lawyers take over
One indication of this tendency is the enhanced ‘legalisation’ of the world trading system, as embodied in the World Trading Organisation (WTO). The 1947 GATT was a treaty, which, though it imposed obligations on its members, operated through a flexible process of political bargaining, rather than strict attention to a fixed set of rules. Disputes were resolved by consensus. The WTO, which succeeded the GATT in 1995 has changed that. Rules have been progressively refined from the general to the specific, while the dispute settlement system has moved from being consensus based to quasi-judicial, with penalties for recalcitrant members. These changes may or may not help to lower barriers to trade. But increasingly decisions as to whether trade can flow will hinge more and more on arcane points of law, backed up by the esoteric arguments of expert witnesses on all sides. Trade negotiations were always contentious, but this type of negotiation will further obscure the fact that trade can benefit all parties. As in other areas of human affairs, once lawyers assume a pivotal role then the nature of debate tends to change from one of seeking mutually beneficial solutions into a protracted, adversarial contest.
Increasingly it will be government that tries to open up new market opportunities. One straw in the wind is a recent list of markets that the European Union wants opened up as the price for giving up its protectionist Common Agricultural Policy. An internal document on the subject was leaked to the UK newspaper, the Guardian. Two features are worth noting. First, its length: it is a thousand-page document, and it is only the first volume, which deals with the rich and middle-income countries. Second, the specificity of the closed markets in which it is taking an interest. Take just three examples of markets that the EU identified as currently restricted to citizens of the countries concerned: water treatment in Malaysia, accountancy practices in North Carolina, and salt distribution in Japan. But what is especially noteworthy is the fact that it is Brussels that is here taking the initiative. This is no doubt at the behest of industry lobby groups, and most governments have long worked to expand trade opportunities for domestic industries. But the microscopic level of detail, and the wide range of markets considered, indicate that more and more companies, now both need government intervention in their favour and can lobby effectively for it.
Standards and procedure
All being well, the new WTO multilateral trade round launched in Doha in November 2001 will help lower barriers to trade, and will strengthen the disciplines on agricultural export subsidies and domestic output-based support first imposed by the Uruguay Round. As tariff and ‘traditional’ non-tariff barriers to agricultural trade come down, so there will be a tendency for new sorts of barriers to rise. Most of these will be based on differences in production and processing methods, including environmental impacts and labour standards. We can expect to see a continuation of a familiar trend: a heavier regulatory burden, in this case applied to produce for export and fulfilment of specified procedures. Product standards can cover matters ranging from packaging requirements to permitted additives, food hygiene and processing standards to pesticide residues. Of course, most of these standards genuinely aim to protect public health. However, the rules can be applied in ways that undermine the ability of countries to take advantage of export opportunities, and leave them locked out of important markets. Even exporters in the rich countries find it difficult to meet stringently applied product standards. For example, US fresh fruit exporters have frequently complained that the EU applies product rules in the most rigorous possible manner, effectively using them as a non-tariff barrier. But this sort of burden is even more effective against imports from developing countries because they often lack the capacity to comply. Monitoring and enforcing compliance with these standards requires a level of scientific and technical expertise not often available in poorer countries. Meeting standards is not cheap: the costs of complying with legislative requirements, including testing and certification, can be as high as ten per cent of the overall product cost for some developing countries’ agricultural goods.
Implications for New Zealand
Let me say at once that I do not find this trend toward more pervasive government and legal involvement in trade to be very inspiring. It may be the inevitable result of living in a world in which the boundless spaces that we have in New Zealand are an ever more precious rarity. But while this trend may not lead to lower trade volumes or even a lessening of opportunities, it is likely, I believe, to mean that the exploitation of these opportunities will need more in the way of administrative, bureaucratic and legal resources. There remains, then, the question of how to respond. Fortunately, both our industry and our bureaucracy have the advantage of adaptability.
I have no doubts at all that we in New Zealand can continue to compete on quality, price, wholesomeness or any other desirable attribute. We have sound scientific expertise, entrepreneurial flair, and excellent quality control systems. These plusses are all necessary but, in a world of closer government involvement in trade, they may not be sufficient to maintain our edge. We do though have another advantage, arising from our short history and small size: in comparison with almost any other country, we have a nimble and responsive bureaucracy. New bodies, such as ANZFA and ERMA and new legislation, such as that dealing with Hazardous Substances and New Organisms, can be created relatively quickly, while our existing government departments undergo quite frequent overhauls. A recent example is the creation within the Ministry of Agriculture and Forestry of a semi-autonomous food agency, to reduce duplication and allow the management of food-related risks from the ‘farmgate to the consumer’s plate’.
What about the future? I believe that we shall have to channel more resources into convincing people in our markets that they will benefit from trade in general, and New Zealand’s primary products in particular. We can do some of this fighting for the hearts and minds of consumers in conjunction with our Cairns Group partners. In the longer term, though, I wonder whether New Zealand, more dependent than most on trade for its living, can continue to go it alone. If, as I believe, the administrative costs of maintaining and expanding our exports rise as I have indicated, what should our response be? Perhaps it is time to consider a country nearby with which we share many values. A country with its own abundant spaces and sense of unbounded freedom. So let me close then, by registering my strong belief in the inevitability and desirability of New Zealand’s economic union with Australia.
© Ronnie Horesh September 2002
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