This transcript is copyright to Front Page Ltd but may be used provided acknowledgement is given to Agenda and TVOne.
SIMON Monsieur Lamy why have Free Trade talks attracted so much antagonism?
PASCAL LAMY Well you’re right, it wasn’t the case 20 years ago, and it's more and more the case probably because trade is sort of a large part of globalisation, I mean trade connects more and more people, more and more businesses, it's more and more visible, and of course as it expands which is a sort of basic rule of market capitalism many people benefit from trade opening, you do, I do.
SIMON Well the antagonism though suggests that many people don’t benefit.
PASCAL LAMY Well that’s the problem because you do, I do, but we usually do not know it, whereas if the sort of game of international specialisation hurts you or me because there is a better competitor somewhere else we will know it, and there is a large number of people who benefit from trade opening and a small number of people who are hurt by trade opening, and it's a reality we have to cope with and the more globalisation grows the more it disappears, so it has become a topic of public interest, that’s the first reason.
SIMON So can it be positive for both rich and developing nations, or is there an inherent imbalance?
PASCAL LAMY No it can be positive, it is a win win game, I mean if you sell what you do better than I do, if I sell what you do better than I do, it's good for everybody, I mean your purchasing power increases, my purchasing power increases. Now of course it's not an automatic game, there are impacts which need to be coped with and you know it's a game where usually the big become bigger and the rich become richer and we need to address this by a number of rules.
SIMON So I guess you may have answered my next question. How does free trade then, how to you envisage free trade benefiting the wealthier nations, your own EU or say the US?
PASCAL LAMY What it does, if we are able as we've been in the past but it's more and more the challenge to climb up the added value layer. We import lots of t-shirts, we sell lots of air buses.
SIMON That suggests that it's in your favour the whole time.
PASCAL LAMY No not always, not always. Look at the US trade balance, I mean the US trade balance is pretty negative. The EU trade balance is usually structurally either positive, but it's specialisation. Chinese do t-shirts cheaper than we do, we do air buses better than the Chinese.
SIMON Doesn’t that then perpetuate a lower cost labour regime in the likes of China?
PASCAL LAMY No because, China is a good example where they move quite rapidly from t-shirts to electronics, from electronics to cars, and they're raising. Now this creates development in China, this creates a sort of middle class who's able to buy European or by the way New Zealand exports.
SIMON Benefits though don’t automatically flow through, this is largely a theoretical model. What are the dangers if free trade fails to deliver?
PASCAL LAMY There are dangers as I said in many areas if you are a small economy. If you don’t have the right governance, if you have poor natural conditions for instance in agriculture the risk is that you’re a victim of this specialisation.
SIMON Because you have nothing to specialise in.
PASCAL LAMY That’s right, I mean if you cannot be the best in something then you have a problem, and then it needs compensations. We need to recognise that a number of developing countries for instance cannot play the sort of big game of trade opening and compare to advantages as US, EU or China would now, and by the way this is something which we've started addressing seriously in multi lateral trade talks. There needs to be specific delegations or protections for sectors or people or countries who have a specific problem, provided, I mean it's not run the way it used to be run in the past which is just to protect the few vested interests whose condition will be affected by more trade opening.
SIMON So you’re suggesting then that measures must take place, there must be some sort of protectionist measures to preserve those countries that don’t have any natural advantage. Isn't that the converse of what free trade is trying to achieve though?
PASCAL LAMY True, true true, but free trade or opening markets in my opinion is a sort of necessary condition for development and for raising the level of standard of living of other populations but it is not a sufficient condition. A lot of the reasons why free trade is a good thing rely on the ability of countries to distribute correctly, for instance the benefits of opening. If the benefits of growth and trade opening is confiscated by a few people or by a few cartels it won't work.
SIMON You increase disparity?
PASCAL LAMY Absolutely. If you don’t have the right sort of governance system and you know trade opening translates into a lot of corruption for instance this is very negative, so we have to cope with these issues.
SIMON Doesn’t the concept of free trade suggest that market forces should rule and aren’t you just simply substituting one lot of protectionist measures for another?
PASCAL LAMY Well I think, I mean I belong to a school of thought which believe that market forces can be positive but are not automatically positive, they only are positive if accompanied by governance and by rules, and this is all the more true that in the future obstacle to trade won't be in sort of tariffs and quantity restrictions. Obstacle to trade which we will have to cope with and it's already true now somehow are with things which are more value based, which are more culture based. Take the example of GMOs for instance, I mean if you have a system of GMOs authorisation which is a very lax one and if I have a system of GMO authorisation which is a very tight one how are we going to trade GMOs between you and me? So that’s an issue for the future which connects cultures, it connects social fabrics and not only businesses or manufacturers and it's something which is coming and which we have to care about because if you have a feeling that I'm imposing on you, not only my comparative advantage but my culture, my values, then you will have a problem of sort of identity and reaction, and perfectly understandable because we all care about our identities. So these are the problems we'll have to face in sort of 10 or 20 years from now and which the multi lateral trading system needs to cope with.
SIMON Why then do we need the World Trade – I mean you've partly answered it, but why do we need the World Trade Organisation, what role does it serve in the pursuit of free trade?
PASCAL LAMY I mean it's the sort of – it's the place where the rules of the game of international trade are decided, litigated, implemented, I mean international trade is not the law of the jungle. No it's not just that the strongest gets the biggest part of the pie, it only works if there is a level playing field.
SIMON And you’ve called the WTO the UN for trade, is that how you see it applying?
PASCAL LAMY Yeah, absolutely, and it is a sort of United Nations of trade where the Security Council will be composed of 150 members.
SIMON Does it have real teeth, can the US thumb its nose at it?
PASCAL LAMY Of course it does, I mean look at recent examples between Europe and the US or between Britain and the US where the US because they have subscribed to these international rules of the game have to abide by them and if they don’t there's a litigation system and if after litigation they don’t comply trade sanctions can come, so it's a system which to the difference of many international organisations has real teeth.
SIMON Let's move to the Doha Round of Talks. The Doha round of talks began in 2001 but they were a failure when they came up in Cancun last year, why?
PASCAL LAMY Well I mean if you look at the sort of five last years we've had two unsuccessful negotiations, Sietoland, Cancun and two successful negotiations at Doha and Geneva. You've got ups and downs, I mean it's like mayonnaise it's complex, it has to be done with a sort of special cleverness and it sometimes works, sometime doesn’t work, depending on the ability of the actors to realise that at the end of the day there is some good compromise which they will be able to present at home as a win win compromise. Yes I will have to give, I had to give for instance export subsidies in agriculture which is a painful thing for us but for the price of that I get a reform of the US home bill which is a big prize for us, I get more opening in the industrial market which is a big prize for us, I get more opening in the services market, which is big prize for us. It's a compromise it sometimes works and sometimes doesn’t work like any negotiation.
SIMON You mentioned the export subsidies being cut and how painful that is for the EU and I imagine also for the Americans, that was the success that came out of the Geneva round a couple of months ago wasn’t it?
PASCAL LAMY Yes it was.
SIMON When can we actually expect to see the export subsidies being cut, when will we get the numbers.
PASCAL LAMY This remains to be negotiated, I mean we negotiated progress so that it's step by step. We agreed in July in Geneva on the framework which sort of is like the building, we've set the founding stones, so the basement and we now need to build on that and discussing the numbers is part of the negotiation, and these numbers will have to do with other numbers elsewhere in domestic support production in agriculture in reduction of industrial tariffs, in opening of services market because it's a trade off between a variety of topics which we jointly decided are part of this negotiation.
SIMON But when you build a house though you have a timeframe to it, what's the timeframe here?
PASCAL LAMY The timeframe is the timeframe of the conclusion in the round.
SIMON Which is what now?
PASCAL LAMY Well it hasn’t been decided, I mean some say 2005, end of 2005, some say 2006, I mean I don’t think I can sort of give a sort of precise deadline but the membership will have to decide at some stage which sort of deadline do we agree on, probably around 2005 or 2006.
SIMON You’re no doubt aware of course that New Zealand has become largely deregulated and has opened its markets to almost everything and you can understand that I'm pushing you for time because we have a degree of impatience on the part of our producers and exporters.
PASCAL LAMY I understand that.
SIMON There are exceptions and loopholes aren’t there to the export subsidies cut, the sensitive areas for instance.
PASCAL LAMY No there won't be exceptions in export subsidies elimination.
PASCAL LAMY No no no, there won't be, we've agreed that they would be zeroed at the time arising to be decided.
SIMON Even Japan with its 490% tariff on imported rice.
PASCAL LAMY We're talking about export subsidies, market access is another pillar of this negotiation. We've all agreed that we would increase our market access but in conditions where we will do more on areas where we can do more and we will be allowed to do less on sensitive product, rice for Japan and probably for Indonesia, probably things like milk and beef for European Trade which doesn’t mean we want to increase our market access but we will have to do it through another way than just the normal average tariff reduction for instance in opening more import quotas.
SIMON Let's look at the reasons for your being here in New Zealand, what is the purpose of your visit to this part of the world?
PASCAL LAMY Well the purpose is threefold, WTO where New Zealand and Europe have a sort of extremely similar priority for moving the world trade system multi laterally forward, I mean Europe because we've all been scared about this, New Zealand because of its size and the fact that you know in a bilateral trade negotiation New Zealand doesn’t have such a big cut over things like, countries like China or Japan or US or even Europe, so New Zealand cares about the WTO as a multi lateral forum, we do, and we have the sort of same priority there. Second reason for my being here the region. The Pacific region is a very important region for Europe.
PASCAL LAMY I mean we've traditionally because most of these countries were former European colonies have a very strong development relationship with the Pacific region which is part of what we call the ACP African Caribbean and Pacific grouping and I discussed here with the Prime Minister and with Jim Sutton and others what the European Union and New Zealand can do together in order to help this region to develop, notably whether our sort of joint endeavour that more regional integration should happen in the Pacific forum. How do we do that together? What sort of transparency do we have on what we do, and I mean it works well. I think we have the same sort of concept in New Zealand and in Europe that it has to walk with two legs, one is development assistance, the other one is trade opening, and the third reason is our bilateral relationship which overall is fine, I mean we've spent decades after the United Kingdom joined the European Union about sheep meat and butter quotas, I mean all this is now…
SIMON They're still sensitive areas for New Zealand.
PASCAL LAMY They are.
SIMON You've largely described how New Zealand's relationship or how you perceive New Zealand's relationship with the EU how do you see it evolving into the future.
PASCAL LAMY Well I mean it's a good relationship and probably even more important it's a warm relationship, I mean there is a sort of commonality in terms of flesh between the social fabric here and the social fabric in Europe, not only because of emigration and because of traditions but you know the sort of market economy, plus environmental sensitivity, plus minority attention, plus social safety net which is a sort of special mix in New Zealand if you compare it to the animal in the region it is very European like, and this creates sort of rather if not automatic at least easy co-operation.
SIMON There's an empathy there.
PASCAL LAMY That’s right, exactly, I mean that’s the word.
SIMON The EU has expanded during the course of your tenure to 25 countries but quotas as you mentioned earlier haven't increased accordingly, what advice or encouragement could you offer our primary producers with regard to that?
PASCAL LAMY Well they have increased accordingly.
SIMON But recently we've got Crete and Malta added in, they’ve taken sufficient amounts of lamb and beef and there are issues there.
PASCAL LAMY Lamb is not a problem.
SIMON Beef is.
PASCAL LAMY We have a small problem on beef yes which we are discussing and which we're addressing, but I mean it's a small problem as compared to the overall relationship but I mean globally the EU's expansion, the EU's enlargement is good news for New Zealand as it is for other trade partners, I mean you can accede a single market which has enlarged by 100 million people which is a big client potential.
SIMON Well New Zealand farmers of course are known for best practice and having truly compared to the products in the classic purest sense of true competition, when could they expect to have open access?
PASCAL LAMY There are areas where there is open access, there are areas where we have our sensitivities because in some productions New Zealand will be sort of much more efficient and competitive than Europe, if you take milk for instance I mean the average New Zealand farm is a 100 hectares, the average European farm is probably below 10 hectares and it won't change in Europe because of our geography, because of our sort of landscape partition, and we want these people to remain at land.
SIMON And how do you ensure that while you’re cutting export subsidies?
PASCAL LAMY We are cutting export subsidies because we've reformed our system sort of starting from high internal prices which we are making a difference with international prices our internal prices are decreasing so the rationale for export subsidies is disappearing because we're lowering prices and replacing these by partially by direct subsidies to small farmers, but there will remain a difference and there is a difference which will remain between New Zealand and Europe is that for New Zealand agriculture is just like manufacturing cars or tyres or footwear. We don’t view agriculture as like tyres footwear or coal, to us there is a sort of specificity in the agricultural activity which we agree should be sort of largely run by market forces but for reasons of environment protection for instance, landscape preservation, food safety, food security, a number of limits to the sort of game of efficiencies of international division of labour will remain, only these have to remain.
SIMON EU Trade Commissioner, Monsieur Pascal Lamy thank you very much for your time.
PASCAL LAMY Pleasure.
Copyright to Front Page Ltd but may be used PROVIDED attribution is made to TVOne and Agenda