Case for FTAs

Trade Minister Tim Groser puts the case for Free Trade Agreements:

Over the last 30-40 years, NZ has suffered grievously, perhaps more than any other developed economy, from lack of trading opportunities. This is the consequence of massive protectionism and subsidies on the products where we are internationally competitive.

This was not an issue for NZ until 1973. That was the year when our dominant market, the UK, which had been completely open to us, joined the then EEC. From that date, protectionism became a huge constraint on our growth and incomes. I have no doubt this is one major reason why NZ was still the 6th richest country in the world in 1975 but then started to slip sideways in the last quarter of the 20th Century. As a consequence, Trade Policy has been a very large part of any sensible NZ economic policy over the past decades. And frankly, to anticipate what I am going to say, we did not need then (or need now) any econometric model to tell any responsible NZ Government that they needed to negotiate new trade agreements to provide our people with opportunities and space to compete.

A simple way of looking at it is that NZ tends to sell what we do best to middle income and high-middle income consumers. In the past, by and large, they lived only in Europe and North America and there we faced historically huge barriers and massive unfair subsidisation, until successful trade negotiations in the last GATT Round, the Uruguay Round, started to chip away at these trade barriers. But NZ is no longer totally dependent on what happens in Europe and North America and thus access to their middle class customers. Today, the middle class of Asia is emerging. It is estimated today around 500 million and as soon as 2030 will be some 3.5 billion. This is simply a phenomenal opportunity and what is driving NZ Trade Policy.

But economic opportunity is one thing. As an exporter you still need access to those consumers and this is about trade agreements.

To the New Zealanders present, I will put it bluntly. We will never persuade certain people who are trying continually to foment opposition to NZ’s participation in these agreements in spite of New Zealand’s demonstrable need for trade opportunities and a fairer deal in world trade. They have been opposed to the GATT and WTO. They opposed the NZ/Singapore FTA, the origin of both TPP and the AANZFTA Agreement which is merging the contiguous FTAs of Australia/NZ with the ten countries of ASEAN. Some of them opposed the recent deal with Taiwan and most of all – because it involves the United States – they are opposed to TPP, the Trans-Pacific Partnership negotiations. When they wake up and realise there is another TPP-like negotiation going on – RCEP, or Regional Closer Economic Partnership Agreement which involves 16 countries including crucially China – I am sure they will be opposed to that too.

I am not going to talk about them directly, because they are not my concern. In fact, I can go further: I think they feel the same way about us – we are not their concern either. I don’t believe for a minute that either I, as Trade Minister, or the National-led Government of which I am a part, is their real audience. They are trying to influence other people, and other political constituencies. They are hoping that they would, if given the political opportunity, take NZ in a different direction on trade, when historically NZ has had a strong and highly successful bipartisan approach to trade for at least three decades.

It is not that we, and people with the same pro-trade views, have not thought closely about the issues. Start, not with models, which try to look forward, but with empirical work done on the link between open trade policies and growth, which looks backward to measure practical results.

The Gains from Trade: Empirical Work

The most comprehensive survey of hundreds of scholarly articles over the last decade or two was put together in 2011 in a collective study by the world’s pre-eminent international economic institutions – the OECD, the World Bank, the WTO, the ILO, UNCTAD. It was called ‘Policy Priorities for International Trade and Jobs’.

I only have time to give you their overall conclusion. Their conclusion is dripping in irony, which is rare for such organisations:

“Despite all the debate about whether openness [on trade] contributes to growth, if the issue were truly one warranting nothing but agnosticism, we should expect at least some of the estimates to be negative…The uniformly positive estimates suggest that the relevant terms of the debate by now should be about the size of the positive influence of openness on growth….rather than about whether increased levels of trade relative to GDP have a positive effect on productivity and growth”.
Even that will not stop some outlier academic coming out with a different view. But such views are extreme views. The overwhelming majority of economists support open trade policies. As the OECD caustically said, the debate should be only about the size of the positive gains from trade. . .

This is a relatively small extract from a long speech which concludes:

. . . Trade is vital to jobs, to a growing economy that can provide New Zealanders with a range of good choices. NZ is a country which has suffered grievously from the sovereign right of other countries to cut us out of their markets, to subsidise relentlessly their companies and competitive sectors not just in their domestic markets but in other markets through export subsidies, and to refuse to recognise our technical or quarantine standards as legitimate for sale to their consumers.

Protectionism has been a disaster for NZ over the past 30-40 years. Thanks in part to these pretty well designed trade agreements I am very optimistic about this country’s long term future. We are in a much better space today and I see every reason to believe it will get better still.

Tariffs and other protectionist measures restrict choice, add costs for consumers and taxpayers, reward inefficiency and encourage corruption.

Free trade is fair trade and without it New Zealand’s economy would be stuffed.

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