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15 June 2009

Hormone-fuelled allies remain at war

It's much easier to create a trade barrier than it is to create demand for your products in countries that don't want them. Just ask the United States.

The release of 68,000 tonnes of subsidised US skim milk powder (SMP) onto world markets this month has put the skids under world prices, upsetting NZ dairy farmers already struggling with falling incomes.

An angry letter from Federated Farmers has appeared in the Wall Street Journal, capping off a container-load of angst in the local media. Behind the anger and frustration is a nagging fear that tit-for-tat protectionism will escalate into a full-blown trade war.

Coinciding with this brouhaha has been an article in the NZ Listener in which right wing commentator George Friedman chastises New Zealand for having an independent foreign policy. He argues that unless it cosies-up with US on foreign policy, Uncle Sam will never grant us a free trade agreement nor, in the event of war, protect our trade routes.

Friedman's logic is thin. To cite just two examples, neither Mexico or Canada -- partners with the US in the North American Free Trade Agreement (NAFTA) -- sent troops to Iraq. Also NAFTA has done nothing to restrain the US in its bitter trade war over forest products with Canada.

The reality is that American politics is internally focussed. Without so much as a wink or a blush, a close ally or a "very, very close friend" can get slapped with a trade ban or an export subsidy on competing products if US domestic politics so dictates.

Still, Friedman won't have done any harm if he gets Kiwis thinking about what we can do to protect our trading interests internationally.

Ironically, a case study in how not to go about this comes from the US. For nearly 25 years it fought with the EU to get trade access for beef from animals treated with growth promotant implants.

The EU has a legacy of meat-related health scares. Swine fever, BSE (mad cow disease), E coli, foot and mouth, traders falsifying use-by dates ...you name it, they've had it.

Also, in the 1980s thanks to slack regulatory enforcement, many European farmers went over-the-top with growth promotants, using everything available. The illegal hormones included diethyl stibestrol (DES) which builds impressive muscles in cattle, chickens and weight lifters. However, the European public ceased to be impressed when boys eating treated meat grew breasts.

Massive protests against growth promotants followed, even though scientists argued quite correctly that legal implants used properly were perfectly safe. An EU ban on their use, and on the import of meat from GP-treated animals, was imposed in 1986.

US trade negotiators, backed by their pharmaceutical giants, didn't understand that the issue was not about science. It was about public confidence in the EU food supply. They also failed to notice that a massive beef mountain was growing in Europe at taxpayer expense.

After banging unsuccessfully on the EU's front doors, the US backed by Canada, took a case to the World Trade Organisation (WTO). This didn't work either but eventually the WTO said the US could impose countervailing tariffs on EU imports to the value of the sales of beef that the US would have otherwise made to Europe.

Only when the US threatened to impose these tariffs on a new range of imports did the EU budge. In May - 25 years after the battle began - it offered the US a new 20,000 tonne tariff-free quota for each of the next three years, with another 25,000 tonnes in 2013.

Hands were shaken, Champagne corks popped, toasts were proposed. Trouble is, the hormone ban was still in place and the US beef industry has no means of distinguishing GP-treated from untreated beef.

Faced with getting beef from treated animals that its consumers don't want, and not wishing to undermine the WTO, the EU has now told US meat exporters that the carcase rinses used in American meat packhouses are unacceptable to their regulators. Trials they say will take three years.

The US has now given up on the GP argument and has acquiesced to the carcase rinse trials - even though most of the rinses are based on lactic acid (derived from milk) and are demanded by most US customers to reduce the risk of the spread of E coli and other nasties. The countervailing US tariffs remain.

The lessons from all this, apart from the fact that the US has wasted 25 years and millions of dollars on a pointless crusade?

1.       A careful line must be drawn between trade barriers based on self-interested protection of domestic producers and those that reflect the wishes of the public at large. The former are worth fighting for. With the latter, once the issue becomes polarised, it's better to channel your energies elsewhere.

2.       Science is used to justify marketing claims and to challenge the basis for technical trade barriers. But it doesn't have the last say. In a democracy, when science is pitched against raw human emotion, emotion will win every time.

3.       When it comes to trade, the big economies play dirty. Allies, friends and enemies get treated much the same. Countries like New Zealand need to be nimble and non-threatening or they risk being crushed underfoot in the battles between giants.

4.       Public sentiment in western countries increasingly favours domestic food production and sometimes flaky perceptions of what sustainable production entails. This creates a major risk for food exporting nations like New Zealand. Unless we engage with consumers in the marketplace, the growth promotant ban may just be the first of many consumer-led trade barriers.

For example, food miles remains a live issue in the EU, despite the efforts of our diplomats and marketers. It is vital for New Zealand to  build understanding in the EU that the carbon footprints of imported NZ foods are no larger (and sometimes less) than for foods produced at home.

As for the dairy export subsidies, the consensus among experts is that they won't result in an all-out trade war. From time to time the big economies will indulge in a little tit for tat protectionism for domestic political reasons, but there is no suggestion that anyone wants to recreate the protectionist spiral that led to the Great Depression.

Nevertheless, New Zealand dairy farmers should keep their complaints flowing into the US media. It's helpful for politicians there to be able to point out that their dollop of protectionism has caused pain somewhere else, while reminding them that such gestures come at a price.

After all, contrary to Mr Friedman's logic, the very independence of New Zealand's foreign policies gives our little country a credibility in international forums that it wouldn't have if it was simply a US poodle.

That credibility is very useful to the US when it is looking for support for the Afghanistan war or to deplore the latest round of nuclear-powered strutting by North Korea. And, oh yes, when the US is looking for support in the Doha round of negotiations to free-up world trade.

Acknowledgement: Thanks to Straight Furrow columnist Steve Kay (p7, 3 June edition) for bringing us up-to-date on the US/EU growth promotant battle.

- Trevor Walton

What do you think?

Venison man
Most interesting and reinforces the need for a move by NZ to control our product into the marketplace through brands and linkages direct with the consumers.

Of the Wall Street Journal's millions of readers, only three were moved to comment on the views expressed by Federated Farmers' Don Nicolson in his letter bemoaning dairy subsidies (10 days after the letter appeared in print). Maybe it was good politics with his members at home, but a less than sophisticated tactic abroad.

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