Is free trade worth it?

Written By: - Date published: 12:00 pm, December 18th, 2010 - 24 comments
Categories: Economy, exports - Tags:

Is free trade worth it?

For the past few decades, since the NeoLiberal revolution, our government has aggressively pursued a policy of free trade. Since 2000 we have signed bilateral free trade agreements with Hong Kong, Singapore, Thailand, Brunei, Chile, Malaysia, and China, and we are currently negotiating with the US, Japan, South Korea, the Gulf Cooperation Council, India, Peru, Vietnam, Russia, Kazhakstan and Belarus (yes, Europe’s last dictatorship). We are told that these deals will deliver enormous economic benefits to New Zealand. But the evidence from Australia shows that that may not be true, and that these agreements may in fact cost us money:

A YEAR-long investigation of Australia’s free trade agreements has found they are often nothing of the kind. The Productivity Commission has told the government there is little evidence to suggest Australia’s six free-trade agreements have produced “substantial commercial benefits”.

Some may have actually reduced trade by introducing complex rules that make it difficult to sell goods made with products imported from countries not in the agreements.

The extra cost imposed by these “rules of origin” could amount to 8 per cent of the value of each export shipment.

As an example, the US-Australia FTA meant a 25% increase in copyright royalties – effectively a “Hollywood tax” – and enshrined anti-competitive rules such as DVD regionalisation. And it means more expensive drugs due to restrictions on the Pharmaceutical Benefits Scheme (Australia’s equivalent of Pharmac). These seem to outweigh the benefits of the deal, and result in a net loss for Australia.

The report also criticises the Australian government for assessing FTAs in secret, and “oversell[ing] the likely benefits”. It suggests that future deals be subjected to an independent public assessment to avoid this problem. New Zealand could benefit from the same approach. But given how entrenched the dogma of free trade is in political and business circles, I don’t see that happening anytime soon. No-one in power wants to find out if the emperor is in fact wearing clothes.

24 comments on “Is free trade worth it? ”

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  1. Bored 1
    18 December 2010 at 1:08 pm

    Anybody here who has tried exporting to countries like the USA and Britain will know that “free trade” is a term that could be translated as “we the big fish are free to trade on our terms with anything and everything in your economy BUT you little fish are free to pay these tariffs or go away”.

    • lprent 1.1
      18 December 2010 at 3:03 pm

      It is certainly complicated selling to the US, every company that I have been in over the last few years that does spends an inordinate amount on lawyers. Somehow I don’t think that a FTA is going to change that because there are so many different impediments.

      Selling to Aussie is easy. So for that matter is China and even India. The latter is a really big change from the early 80’s when doing anything with India was like trying to walk through sump oil.

      I’m told that it is pretty straight forward to sell to us. Just make sure of the biosecurity and have fully filled out paperwork.

      I really don’t see too many benefits in FTA’s for NZ. With the extent of some agricultural products and other raw materials, most of the IP we sell is not that price sensitive. What is of more use is getting help when marketing offshore. For startups, after the lack of development capital, then that is the biggest pain.

  2. Bill 2
    18 December 2010 at 1:38 pm

    If we separated out the rhetoric and the reality, we’d see that free trade works just fine for those it is intended to benefit. But can you imagine those actors being honest and advocating free trade on the basis that only they and their interests will benefit?

    What I wonder about is whether naivety and gullibility, or deliberate dishonesty and a desire to hide their culpability, is the reason for governments pursuing free trade deals. I honestly don’t get it. No half way intelligent person…not even a politician… could possibly (could they?) advocate free trade on the premise that it will somehow benefit the lesser economic power or benefit any make up of a majority of people anywhere.

    What’s the likely consequences for NZ if a free trade deal is signed off with the US?

    Apart from ‘bye-bye pharmac’? Oh, do we get to import GE corn ’cause trade is free from social control? And could we maybe get some of those heavily subsidised US milk products that are contaminated with genetically-engineered bovine growth hormones (Banned in Europe, last I heard.)? That’d be good, wouldn’t it? Feed us on dodgy cheap milk products leaving NZ dairy products to attract a premium in export markets.

    But since NZ has already presented its uplifted and unprotected arse for the world to deal with as it see fit, we got the following. The UK dumped its BSE infected protein food supplements on the world market. Gelatine subsequently produced in those countries was subject to an industry self regulatory certification regime. Those countries then exported quantities of certified said gelatine to NZ…..Ah, trade, free from pesky constraints that might impact on profit. Lolly, anyone?

    • Bored 2.1
      18 December 2010 at 1:44 pm

      That Bill is exactly my point laid out in detail, if you are small you have to accept that there is a cost to trading with the big players. Regulating the trade to ensure it meets fairness criteria is the best approach in my mind.

    • Draco T Bastard 2.2
      18 December 2010 at 2:28 pm

      What I wonder about is whether naivety and gullibility, or deliberate dishonesty and a desire to hide their culpability, is the reason for governments pursuing free trade deals. I honestly don’t get it. No half way intelligent person…not even a politician… could possibly (could they?) advocate free trade on the premise that it will somehow benefit the lesser economic power or benefit any make up of a majority of people anywhere.

      The politicians just do what the experts say and the “experts” are economists that couldn’t even predict a global financial meltdown while it was happening. They have a theory that “works” but refuse to accept that the theory doesn’t actually apply in reality. Hell, while at uni studying economics I even had a professor put up a chart explaining why free trade was bad for small economies and then justified by saying “but the global economy will be bigger as a whole”. NZ is a small economy and free-trade is harming our society.

      Hell, I think that the politicians and the economists have forgotten that we are a society and not just an economy.

      • Bill 2.2.1
        18 December 2010 at 2:51 pm

        “…we are a society and not just an economy.”

        Nope. We are an economy. A society would not comprise of ‘rationally optimising economic units’. ‘Units’ are people, by the way. Individual people, that is. Not groups of people. ‘Cause that would be an expression of society. And society doesn’t exist. Society is just a quaint wrong headed idea that would ( if it actually existed) tend to get in the way of the natural relations of the market.

        So, efficiency only has meaning when measured in purely monetary terms.
        Individual choice is the path to cornucopia for rationally optimising economic units.
        And the market must be given the freedom to determine the true costs associated with all interactions between rationally optimising economic units.

        This way lies the path to truly cost efficient happiness.

        • Bored 2.2.1.1
          18 December 2010 at 3:26 pm

          Good one Bill, perhaps the market will “find its level” of cost efficient happiness. It may be low but who am I to argue with the invisible hand, the force on Earth of the great God that is the Market? Hallelujah!

          • Colonial Viper 2.2.1.1.1
            18 December 2010 at 7:38 pm

            This way lies the path to truly cost efficient happiness.

            Yes, this and realising that spending money you don’t have to buy shit you don’t need in order to make an impression which won’t last, on people you don’t care about is plain stupid. There is much much more to life.

            • Bill 2.2.1.1.1.1
              18 December 2010 at 7:40 pm

              No it isn’t. No there’s not. You’re obviously in dire need of re-education. Can be arranged. For a cost, of course.

  3. Jenny 3
    18 December 2010 at 3:00 pm

    According to Professor Jane Kelsey the Trans Pacifice Partnership Agreement is not even a trade agreement in the accepted sense.

    The TPPA as it has been described by it’s critics, is a plan to give powers to foreign multi-nationals and investment companies to over ride government statutes and laws that impinge on the right of investors, this is likely to include exemption from environmental controls and/or any concept of indigenous rights over marine resources etc.

    Government drug purchaser Pharmac would be restricted in seeking the lowest prices and purchasing generic drugs, which would become illegal, as anti-competitive restriction on trade.

    The TPPA shares the same purpose as it’s previous failed incarnation, the Multilateral Agreement on Investment, or MAI.

    The MAI like the TPPA also sought to over rule the sovereign power of it’s signatory countries to regulate the power of big business.

    New Zealand Not For Sale

    “If this TPPA really is so good for us, why are they scared to release the draft text and open it to scrutiny?”, asked Professor Kelsey.

    “The challenge then is for Parliament to convene an inquiry before the process has reached the stage where irreversible commitments have been made where we can test out the arguments for and against a TPPA and New Zealanders, including MPs, can know what we are signing up to for the next century”.

    capcha – “severe”

  4. Gina 4
    18 December 2010 at 4:06 pm

    Free trade in NZ’s case is actually freedom to import slave labour goods from countries where workers live on wages that do not cover a lifesyle in any way similar to our own.

    The way I see free trade’s effect on our economy.

    1. We have lost most of our manufacturing jobs so we have more unemployed to pay the dole to.

    2. Our wages must remain low to compete with the incursion of chinese goods into almost every sector of our economy.

    3. Lowered wages mean we have a smaller tax take to cover our social services.

    4. Lowered wages = familes need welfare because their wages no longer cover living
    costs. This welfare for the working poor is costly but necessary due to free trade and with tax reductions for the wealthy the burden is falling more and more on the poor to covder those benefits.

    3. Lower wages mean mothers often have no choice but to go out to work. Hours worked by everyone have increased to meet necessities and a decent lifestyle.

    4. Lower wages means New Zealand businesss which are not export orientated find it difficult to survivie thus they need more debt because workers low wages cannot support their existance.
    This is the big opportunity for multi nationals to take over our retail and small business sector leaving us with supermarket duopolies etc and no competitiion.

    5. A low wage society means New Zealanders find it hard to afford accomodation and housing because of the other policy of increasing population. The increases in population continually moves house prices out of the reach of New Zealands working poor. The increase in population and subsquent increase in house prices increases mortgages which is great for the banks.

    My view is that accepting slave labour goods into the New Zealand market is a deliberate ploy promoted by the World Bank ( who are Wall Street ) and international bankers as a way of aquiring more and more of the worlds economy in multinational corporate hands ( the bankers)

    Its a step on their journey in aquiring everything ( consolidation ) as they have done in the case of the worlds media, now controlled by a small group of individuals.

    • Murray 4.1
      18 December 2010 at 4:39 pm

      And all these benefits to the NZ Worker brought to us by Helen Clarke and the Labour Party with their free trade deal with China

      • Colonial Viper 4.1.1
        18 December 2010 at 7:40 pm

        The insidious ones were Roger Douglas and his minions then Ruth Richardson. All right wing Chicago school neo-cons.

        Also Murray you conveniently forget the low unemployment under Clark and Cullen’s outstanding economic management.

        • Murray 4.1.1.1
          18 December 2010 at 8:55 pm

          So the free trade deal with china was another example of Cullens outstanding economic management and would further more low unemployment.

          • Colonial Viper 4.1.1.1.1
            18 December 2010 at 9:19 pm

            I’m not sure what your point is here. China is a very large market, and an increasingly affluent one. However, NZ business and NZ Govt still have to use smarts amd entrepreneurship to identify and enter specific markets in China. Making contacts, building relationships and demonstrating capability is crucial. No FTA will do those things for you off the starting blocksMurray.

  5. Gina 5
    18 December 2010 at 5:32 pm

    Murray

    New Zealand had removed almost all our tarriffs by the time of our free trade agreement with china, anyway. The policies of National also support free trade and increasing our population. We actually need a new party that wont sell us out to the international Bankers. At least Labour have to a large extent stopped assett sales. Thats an improvement on National who are willing to sell them the whole damned lot.

    Both National and Labour are complicit in this. National are worse. They would have us all starving in the streets if they thought they could.

    So we have 2 evils in NZ, one a lesser evil and that is Labour for now.

  6. Murray 6
    18 December 2010 at 5:42 pm

    I agree Free Trade seems to be a downward spiral. But that seems to be the way the world is moving at the moment. so I guess we follow.

  7. Gina 7
    18 December 2010 at 5:55 pm

    Murray

    I think maybe if we don’t comply with the wishes of the elite then they will put the screws on us economically throught their banking instiutions. If we follow their prescription they will eventually take everything. The best chance I see for us for now is to wait it out and hope the international climate changes, hope that other larger countries rebel against this system. Then we might have a chance of following a new world direction. A larger green constituant in parliament might help fend off extreme policies for a while and we must keep MMP.

  8. Murray 8
    18 December 2010 at 6:21 pm

    I always look to the fishing industry as an example of this madness. Imagine what a healthy and vibrant industry we would have if all fish in NZ,s economic zone had to be caught by NZ owned and crewed boats. Instead we give most of it away

  9. SPC 9
    19 December 2010 at 5:42 pm

    We should restore tariffs on goods from countries we do not have free trade in agriculture with. They have no incentive to grant us free trade otherwise.

    The money from tariffs would be nice at the moment (it’s better than increasing GST on local necessities like food, rates and power to raise revenue).

    And our trade agreements should be focused on free trade in goods including agriculture.

    Basically we should lead a third world revolt against big economy bullying on free trade issues (such as free trade in the industrial goods supplied by the first world and or developing world, while allowing them to regulate agriculture – and only including agriculture if the third world allow foreign domination of the ownership and delivery of local utility services and allow foreign ownership of land and local business exporting agricultural products etc).

    Only when there is full free trade in goods including agriculture should there be a next phase of agreements on services and investments, including global rules regulating this business. And this stage should also include labour rules and environment rules and carbon tarrifs on goods exchanged across borders in global trade.

    In entering these last phase talks with those who have not yet allowed free trade in agriculture we have sold out our own best interest and we have sold out the third world.

  10. Jenny 10
    19 December 2010 at 7:51 pm

    .
    Congressional Research Service

    Note 44 – “Labor, Environmental Standards to be Same Across all Eight TPP Countries” International Trade Reporter, August 19, 2010.

    In August 2010, USTR officials announced that all TPP participants, despite differences in levels of development, would be required to meet the same labor and environmental conditions. Note 44

    Two weeks ago I attended a public meeting at St Mathew’s in the city on the Trans Pacific Partnership Agreement.

    Here are some of my notes on this meeting. (any errors in notation are all my own)

    The meeting was called at St. Mathew’s, just across the road from the Sky City the venue for the secret negotiations on the TPP. A number of the speakers at Saint Mathew’s had been keeping up a permanent presence outside of this secret gathering, so as to be able to to attend the official press briefings given once a day outside the centre, and maintain outside this conference, a protest against the secretive nature of these talks. As Jane Kelsey told the attendees at the St. Mathew’s meeting, “who had ever heard about this meeting going on, before we started protesting against it.”

    On the secretive nature of this meeting she reported that “everyday we attend the briefing, where they tell us nothing.”

    “They haven’t even released the text of what they are discussing”

    Jane Kelsey said the St Mathew’s meeting is “designed to give information about what we do know about the TPPA.”

    Scoop has published audio here of the St. Mathew’s meeting, lead speakers, are, Jane Kelsey, Sanya Reid Smith, Mike Smith and Andrew Campbell the Green Party’s new political director.

    CTU economist Ron Kippenburger chaired the meeting.

    Jane Kelsey began her remarks by saying, “The TPPA, is an unusual kind of agreement”.

    She said:

    “The scale is unusual”

    “The scope is unusual”

    “The TPPA is not much about trade at all, as we understand it.”

    There are three reasons why this agreement is not about trade:

    Firstly: The nine countries involved in the talks, already have a raft of free trade agreements between them.

    Secondly: Many of the nine, like New Zealand have already moved all trade restrictions.

    Thirdly: Just as the Australian’s sought to get sugar into the US market in their free trade deal, New Zealand’s biggest trade concern, getting milk into the US market is off the table.

    The TPPA is the MAI revisited in a much bigger way and scarier form.

    At the Monday 6th Briefing it was admitted that “This is not an ordinary FTA”

    The purpose of the TPPA is to remove restrictions on multinationals to operate in the signatory countries.

    Once signed, if any future government deviates from the TPPA, we will be in danger.

    Any breaches of this agreement that impede multinational profitability will be decided in secret foreign court hearings, with the right to hand huge penalties to the offending countries.

    (As an example of how this will work: When the government of Uruguay legislated that cigarettes be sold in plain packaging. Phillip Morris sued Ururguay for unspecified damages for loss of profits at the World Bank which has the power to demand huge reparations from this third world country. Uruguay’s gross domestic product is half the size of Phillip Morris $66 billion in annual sales.)

    Under the TPPA if National privatised ACC Labour would be unable to take it back, without incurring huge fines and compensation for loss of profits.

    Maori Activist Mike Smith spoke after Jane Kelsey.

    “The TPPA is a vampiric trade agreement.” “It sucks the life out of our democracy.”

    “Our children’s futures are being traded away, rights to water and natural resources and the environment.”

    Politician’s play the race card, painting Maori as usurpers of natural resources while mineral rights to seabed and foreshore are being handed to foreign multinationals.

    “The hypocrites of the Coastal Protection Coalition support this.”

    Mike Smith challenged the Maori Party to make a stand against the TPPA.

    “This agreement, (the TPPA) is in contradiction with the International Declaration on Indigenous Peoples.”

    “What they want is much stronger intellectual property rights and patent exclusivity to be increased to 25 years. The difference in price between anti-AIDS drugs under patent and their generic replacement is $1,300 per year vs. $80 per year.”

    “Copyright to be increased from 50 years to 70 or even 100 years.”

    “Same as Australia the TPPA will constrain Pharmac’s preference pricing scheme which allows us to get medicines much cheaper, as well as Pharmac’s ability to buy cheaper generic drugs.

    In Quatmala costs went up 1000% when the government monopoly on buying medicines was overturned.

    “The TPPA is a Free Trade Agreement on steroids.

    “The US have got their demands. Can New Zealand hold firm?

    If a future New Zealand government acts against the constraints imposed under the TPPA, huge fines and taxes can be levied on our exports.

    (So much for free trade).

    Andrew Campbell for the Green party spoke next.
    ( the only parliamentary party represented)

    The government have defended the secrecy around these talks (as being commercially sensitive).

    “But this is not a private business contract. This is a public contract. The same as it is for all the other countries.”

    We call for transparency.

    At the press briefing we were told “If it were made public it would derail the agreement.”

    “Dishonesty is the motivation for the secrecy.”

    “There is a consensus between the two main parties over Free Trade.”

    “Global capitalism brought itself to it’s knees. Now it wants to lock in rules that cannot be changed.”

    “How do we respond?”

    “I wish to challenge the Labour Party to break the consensus.”

    “I think that this would be hard for Goff. But it would be for the best . Labour’s position holds Labour back.

    “Labour say there are bigger issues like jobs”

    “But rejecting the TPP will protect jobs.”

    In discussions after the meeting Andrew expressed his opinion that it would be easier to move the Maori Party away from supporting the TPP than the Labour Party.

    TPPA No Good For Maori

    capcha – “account” as in “my”

  11. Gina 11
    19 December 2010 at 11:32 pm

    Thanks for all that information Jenny. I think we have no alternative but to act as you say. They will continue to push our govenments around untill we are all slaves in NZ. There might be economic consequences but we will at least remain sovereign rulers and owners of NZ.

    Maybe we need an anti free trade website?

  12. Draco T Bastard 12
    24 December 2010 at 5:47 pm

    More Wikileaks, this time about the TPPA.

    As recently as February this year, New Zealand’s own chief negotiator Mark Sinclair conceded to US officials there was little in a TPP Agreement for New Zealand. The only real “pay-off” was a remote long-term prospect to “put the squeeze” on Japan and Korea to stop protecting their agricultural markets.

    Sinclair reportedly pointed to “a public perception that getting into the US will be an ‘El Dorado’ for New Zealand’s commercial sector. However, the reality is different.’”

    Professor Kelsey observed that this “false perception” has been scripted by the government itself.

    According to the government we will get no benefit from the TPPA. So, why are they even bothering with it?

    A second set of cables from 2004 analysed by the New Zealand Herald show the US diplomatic post has been working with its pharmaceutical companies to undermine the world-leading Pharmac drug purchasing regime that makes medicines affordable to New Zealanders, claiming this would enhance New Zealanders’ access to health care.

    The cable suggests the US drug industry helped foment the furore over Herceptin and Alzheimers medicines as part of campaign to “fire up pressure from below”.

    So, the US is trying to push prices up for medicines in NZ at the behest of their corporates.

    “That’s not good enough. It is time the government came clean to Kiwis that it sees no tangible gains from a deal and justify why it is continuing with negotiations that have potentially serious costs for our health system, consumer laws, ultimately for our sovereignty”, Professor Kelsey said.

    This. We really need to know what the pros and cons about such deals are before the politicians sign them. Hell, such agreements should probably be put through a referendum before being ratified.

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