Sunday, December 23, 2012

Fair Trade Not Free Trade


This National led Government, and the Labour Government before it, put great store on free trade agreements. Our most significant trade agreements would have to be our one with China and our CER with Australia. There has been great enthusiasm for both agreements but little evidence that we have really benefitted from them.

In regards to the CER a New Zealand Productivity Commission report found the the magnitude of the benefits were uncertain and any supposed benefits may have occurred without an agreement. There is always the concern that an FTA between a larger and smaller economy will always favour the former. Australia has certainly benefited from the flow of dividends from our banks (3.4 billion over the past year) and the steady stream of skilled labour. The fact that they don't pay safety net benefits for around half of the 483,400 New Zealanders living, working and paying tax in Australia must be a huge saving, especially when we provide those benefits for Australians living here.

Australia may have gained from their agreement with us but in their FTA with the US they also appear to be disadvantaged as the smaller economy. The US saw their exports to Australia almost double by 2010 while Australia has seen a decline and now their exports to the US only make up 41% of the value they import.

While our exports to China have more than doubled in from 2005-10 there is still a $2 billion imbalance. We have also suffered from our relationship with their dairy industry and the melamine scandal and are about to lose ownership of Fisher Paykel to the Chinese whiteware giant, Haier. Fisher and Paykel have already outsourced their manufacturing to Mexico (at the cost of 1000 jobs) and now their highly innovative technologists and engineers will probably leave our shores too.

There are currently huge concerns regarding the secret negotiations for the Trans Pacific Partnership Agreement. New Zealand is again one of the smaller economies in the partnership and already there are indications that we may soften Pharmac's control over pharmaceutical imports to benefit US drug companies and the potential to be sued by international corporations who do not get their way.

While free trade may allow a greater flow of goods and services between countries and mean a loosening of controls and tariffs, it is pretty clear that it also tends to favour the more powerful economy. When the US negotiates trade agreements they are largely advocating for their powerful corporates and while New Zealand is one of the most open economies in the world, the US still protects its own industries well and agriculture in particular.

Perhaps it is about time we realised that we will never be able to match the worlds largest economies in bargaining power and the might of their corporates. Rather than "free" trade we should be negotiating for "fair" trade. There will always be a need for food as the world struggles to provide for a growing population and shrinking availability of arable land. There is also an increasing demand for food that is safe and reliable and New Zealand still has a reputation for being a clean and healthy country (though not for long if we don't heed scientific warnings). We should be focussing on keeping our skilled labour in New Zealand and helping ensure our manufacturing industries can compete on a more level playing field. The Greens recently released paper on ICT is probably worth pursuing. If we produce stuff that is in high demand an FTA is probably not necessary.

There are two good articles in a recent Listener, one on ethical buying and another about Viv Cottrell, the co-founder of Trade Aid (and possibly the cause of New Zealand becoming the highest per-capita purchasers of fair trade craft). We should ensure that all our imports are really necessary and are ethically produced. I wonder how many of our Christmas presents, bought as bargains, were actually made in sweatshops (where none of the workers will have a Christmas of their own) and will probably be soon discarded as junk by the recipient? Over the past few Christmases I have largely given plants (often edible) to my family and when I am properly organised I grow them myself.


7 comments:

Shane Pleasance said...

Australias exports to the US grew, and did not decline. You are incorrect.

bsprout said...

Shane my reference was Rodney Tiffen, professor of government and international relations at the University of Sydney, but his comment was over two years old. You may be right that exports to the US may have actually increased but it does appear that imports have increased at a faster rate and there is still an imbalance.

Shane Pleasance said...

No, his own reference states an increase of 2.5 %. Other exports have simply grown more quickly.

bsprout said...

Thanks for the correction, Shane, but it still doesn't alter my main argument that the larger economy tends to do better under FTAs. Rodney's claim that Australia's exports to the US are only 41% of the value of imports from them must still stand. This certainly doesn't indicate a balanced relationship.

Shane Pleasance said...

Do free trade agreements infer a balanced relationship?

bsprout said...

Not at all, Shane, probably a better description would be a "free for all" and like lolly scrambles the bigger kids tend to get most of the lolls. What's the point of such agreement for smaller economies, if they have something worth trading they could probably sell it anyway. For larger economies they use FTA to off load stuff they probably couldn't through any other means.

Of course if you want to be more technical there is this thing called the "balance of payments".

Shane Pleasance said...

Galt forbid we should ever become technical. Lets just stick to emoting.