Free trade 2-way street

October 21, 2017

Free trade is vital to New Zealand, Horticulture NZ Mike Chapman says.

New Zealand is a trading nation. We rely on export earnings from free trade for our financial prosperity. But free trade is a two way street – the countries involved open up their borders to allow free movement of goods and services on an equal basis. This includes property ownership.

The pathway to premium export earnings is through innovation and having a point of difference. Access to the latest techniques and innovations is key to New Zealand remaining competitive and market leaders.

The truth here is that to do that, New Zealand needs strong links with the international science community, companies involved in innovation, market leaders and companies with scale and market penetration. Many of those international companies have operations based in New Zealand. Equally, New Zealand also has operations based in their home countries. That involves property ownership. Here, I’m not talking about residential properties.

The importance of trade was recently highlighted in a report by the New Zealand Institute of Economic Research (NZIER). Here are a couple key points from their analysis:

– Trade accounts for $85 billion (43%) of New Zealand’s GDP.
– Trade gives each household in New Zealand improved product choice worth $3.9 billion, or $2,300 per household.
– A US study estimates that trade contributes about 30% to the average US household’s purchasing power. In New Zealand this would be far higher, given how trade reliant we are compared to the US.
– More free trade agreements will increase New Zealand’s GDP by $18 billion and create 42,000 skilled and 20,000 low skilled jobs.

Freeing up trade and keeping trade free are vital for New Zealand’s continued prosperity.

Tightening up on any aspect of our free trade may have a ripple effect. As a country, we do not want to slip into economic decline. So Horticulture New Zealand’s plea to New Zealand’s new government is to keep the previous Government’s free trade agenda running. Foreign investment in New Zealand enhances our economic prosperity.

We need to keep the door open for three key reasons:

– New Zealand’s prosperity depends on free trade – we can’t compete if, due to tariffs and other barriers, our goods and services are more expensive than those from other countries. Simply put, our goods and services will not be purchased.
– Many overseas companies that have invested in New Zealand enhance our ability to be market leaders and innovate, provide many jobs, and contribute to our economic prosperity and ability to buy goods from around the world.
– New Zealand’s companies need to invest in overseas countries to enhance our ability to compete for premium prices and keep ahead of innovations – it is a two way street.

We can’t win the fight to open doors for our goods and services if we close our own.

Successive Labour and National governments have agreed on the importance of free trade and worked to advance it.

We’ll all lose if the new government attempts to return to the bad old days of fortress New Zealand.


Frédéric Bastiat on free trade

September 25, 2017

Debate on free trade isn’t new.

Frédéric Bastiat  wrote this in 1845.

A PETITION From the Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting.

To the Honourable Members of the Chamber of Deputies.

Open letter to the French Parliament, originally published in 1845 (Note of the Web Publisher)

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us [1].

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

Be good enough, honourable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle behind all your policy.

Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?

We have our answer ready:

You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.

Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles, “Yes,” you reply, “but the producer has a stake in their exclusion.” Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.

“But,” you may still say, “the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods.” Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.

Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?

But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else’s would be tantamount to accepting the equation: + x + = -; in other words, it would be to heap absurdity upon absurdity.

Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.

If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.

Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.

Now, it is precisely on the basis of its being semigratuitous (pardon the word) that you maintain it should be barred. You ask: “How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?” But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.

To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labour than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

Frédéric Bastiat (1801-1850), Sophismes économiques, 1845

Notes:

[1] A reference to Britain’s reputation as a foggy island.

More than 150 years later too many people don’t understand the arguments in favour of free trade and are convinced by poor ones against it.


NZ-Korea FTA completed

November 16, 2014

New Zealand and Korea have completed a Free Trade Agreement which will save our exporters $65m in the first year.

Prime Minister John Key today announced that New Zealand and the Republic of Korea have completed Free Trade Agreement negotiations.

“Korea is New Zealand’s sixth largest export destination for goods and services and eighth largest import source of goods and services, with total two-way trade of $4 billion in the year ending June 2014,” says Mr Key.

“The FTA will put New Zealand exporters back on a level playing field with competitors from Korea’s other FTA partners, such as the United States, Chile and the European Union.

“At the moment our exporters to Korea pay $229 million a year in duties. Under the FTA, New Zealand exporters will save an estimated $65 million in duties in the first year alone. . .

This is very good news for producers, manufacturers and consumers in both countries.

One of the messages from Rabobank’s F20, which we attended last week, was that protection threatens food security and hurts the poor most.

Free trade is fair trade.

 

 

 

 


Free trade fairest

August 28, 2014

Prime Minister John Key says free trade will lift kiwi incomes:

National today released a set of policies that reinforces the Party’s commitment to openness with the world as the path to lift New Zealanders’ incomes, in contrast with opposition parties that want to isolate us from the rest of the world.

“New Zealand’s economic prosperity relies on selling our goods and services to the rest of the world,” says National Party Leader John Key.  “The fewer barriers there are for our exporters, the better off New Zealanders will be.”

“That is why as Prime Minister I have been working hard on behalf of New Zealanders to crack open more doors to free trade, alongside Foreign Affairs Minister Murray McCully and Trade Minister Tim Groser.

“This includes pushing for a high-quality free trade agreement under the Trans-Pacific Partnership, which includes economic giants like the United States and Japan.

“The choice for voters in this area, like so many others, is stark.

“The Greens want to end free trade and Labour, riven by caucus division, is very confused about what it wants after previously being in favour of free trade.  The Dotcom party, of course, is totally opposed to free trade.

“There can be no doubt that this combination in government would damage the cause of New Zealand’s exporters and damage New Zealand’s economic prosperity.

“Raising barriers to the rest of the world and halting the momentum of trade agreements with key markets like the US, Japan and Korea, would be disastrous,” says Mr Key.

“Our policy to encourage free trade is one of the most important ways we can become more prosperous.

“Trade agreements allow New Zealand companies to access big international markets as if they were part of New Zealand’s domestic market.  For a small country they are hugely important.”

Mr Key made the comments at the opening of the New Zealand Winegrowers conference in Blenheim today as National released its Trade, Foreign Affairs and Tourism policies.

“The wine industry is a leading example of New Zealand companies thriving on the world stage,” says Mr Key.

“The policies we are releasing today show our commitment to remaining open to trade with the world, having an independent foreign policy, and encouraging and supporting our crucial tourism industry.

“Should National have the privilege of forming a government after the election, I would continue as Minister of Tourism, working hard to promote New Zealand as a tourism destination,” he says.

Mr Key also announced along with Education Minister Hekia Parata that the National Government has decided to create a $10 million fund over five years to increase the provision of Asian languages in schools.

“These policies together demonstrate National is committed to seeing New Zealand remaining open to the world, continuing to generate economic prosperity through good relations with other countries, and lowering barriers to trade.”

New Zealand would not be where it is economically or socially if it wasn’t for the free trade agreements negotiated by successive governments.

Until recently National and Labour have had a reasonable degree of consensus on the importance of free trade.

That is no longer the case.

Labour is back tracking on its commitment to open borders and it would be dragged further back if it needed the support of the Green, New Zealand First and Internet Mana parties to govern.

Only a National-led government will guarantee continuing focus on free trade and the economic and social benefits which come from that.

 


EU-NZ free trade deal on table

March 26, 2014

Prime Minister John Key has more good news for trade:

New Zealand and the European Union are to pursue a free trade pact – but don’t expect any action until at least 2015.

Prime Minister John Key made the announcement in The Hague after meeting European Commission president Jose Manuel Barroso and European Council president Herman Van Rompuy. He described it as “quite an important” meeting

Two-way trade between New Zealand and the 28 members of the EU totals $16 billion a year.

Key said the EU has, for the first time, agreed to consider a free trade agreement.

But he admitted an ambitious EU-US trade deal, as well as a pact with Canada, will take priority for the Europeans. 

Further progress is also not possible until after European Parliament elections this year, but officials will undertake a scoping study.

“We are actually seeing progress and a breakthrough that historically hasn’t been a option available to us,” Key said.

The deal has the support of both the British Prime Minister David Cameron and German Chancellor Angela Merkel, who he met on the sidelines of the major international summit. . .

Some of the credit for this must go to the good relationship between them and Key.

Two-way trade between New Zealand and the EU is worth about $16bn a year and has the potential to rise to $20bn by 2020. 

But exporters are hamstrung by hefty tariffs – including 8.2 per cent on kiwifruit. By comparison, Chile pays nothing because it is already signed up to an FTA with the 28-country bloc.

“It is easy to look at Europe and think Greece and Spain and some of the well pronounced debt problems,” Key said. “But sitting in amongst that are hundreds of millions of very wealthy consumers who earn a lot, spend a lot and fundamentally are the target market for what we sell.” . . .

A free trade deal with the EU won’t happen quickly but it would bring benefits for producers and their consumers who are paying far more than they need to for our produce because of tariffs.

The EU is our third biggest trading partner in spite of the handicaps we face from duties imposed on our products.

Spain is our biggest market for kiwifruit, even with that 8.2% tariff. The only other New Zealand produce I’ve seen there was apples.

It’s not hard to find New Zealand lamb in the UK and our venison in Germany.

A free trade deal would make it easier for our produce to compete on price and give people their more choice at a lower cost.

It would allow us to put our trading eggs in more baskets which would give better security and bargaining power.


WTO delivers

December 8, 2013

The World Trade Organisation has delivered:

The World Trade Organisation (WTO) has agreed on its first-ever global deal aimed at boosting commerce. Analysts say it could add $1 trillion to the global economy.

The agreement – reached in Bali after marathon negotiations between trade ministers from 159 nations – simplifies trade procedures and also makes it easier for the poorest countries to sell their goods by reducing export barriers and allowing such nations more scope to use subsidies to safeguard food supplies.

It is seen as an important step for the WTO, which has struggled to make new trade agreements since being founded in 1995, the BBC’s economics correspondent reports.

“For the first time in our history, the WTO has truly delivered,” says WTO chief Roberto Azevedo. “This time the entire membership came together. We have put the ‘world’ back in World Trade Organisation.”. . .

The core of the deal is trade facilitation:

. . . This is about reducing the costs and delays involved in international trade. It is often described as “cutting red tape”.

Some analysts suggest the benefits could be large. An influential Washington think tank has put the potential gains to the world economy at close to $1tn and 20m million jobs.

It also estimates the cost of administrative barrier as double the cost of tariffs.

The rich countries have agreed to help the poorer WTO members with implementing this agreement.

Another important aspect of the Bali package is about enabling poor countries to sell their goods more easily. This part is about tariffs, and also quota limits on imports.

Rich countries and the more advanced developing countries have agreed to cut tariffs on products from the poorest nations.

The head of New Zealand’s International Business Forum says a new global trade deal agreed by the World Trade Organisation (WTO) will mean cheaper and faster exports.

International Business Forum executive director Stephen Jacobi says exporters’ goods will be fast-tracked through international customs as the facilitation part of the deal cuts down on red tape for traders.

“The main benefit of this agreement is that it will become easier and faster and cheaper to move goods around supply chains, to export our goods around the world, and indeed to import our goods from other countries.”

Business New Zealand chief executive Phil O’Reilly says the WTO deal will boost the confidence of trade ministers meeting in Singapore to try to reach agreement on the proposed Trans-Pacific Partnership trade deal.

The deal marks the WTO’s first global trade agreement since it was created in 1995 and follows years of failed attempts to secure the required unanimous approval from all its members. . . .

British Prime Minister David Cameron says the deal could be worth more than £1 billion a year to British businesses and £70 billion globally.

“. . . By slashing barriers to trade, this deal will also provide a lifeline to the world’s poorest people. Helping developing countries to grow is not only the right thing to do, but it also increases potential markets for us all. So this really is win-win and the World Trade Organisation is to be commended for this historic deal.”

Trade restrictions mean people get less for what they produce and pay more for what they consume and this hurts poorer people and poorer countries hardest.

Freer trade is fairer trade and poorer people and countries have the most to gain from it.


Free trade is only real fair trade

July 31, 2013

Fair Trade – that’s got to be good, hasn’t it?

No.

Over at Anti Dismal, Paul Walker discusses an article in The Economist by Amrita Narlikar and Dan Kim which argues that like a lot of other ideas that sound good in theory,  it does more harm than good in practice:

Despite the claims of its champions, the fair-trade movement doesn’t help alleviate poverty in developing countries. Even worse, it is just another direct farm subsidy of the kind most conscientious consumers despise. In the long term, the world needs free trade, not fair trade. . .

The stated purpose of the fair-trade movement is to give economic security to producers in developing countries — often of unprocessed commodities such as fruits, live animals, and minerals — by requiring companies and consumers to pay a premium on the market price.

Until now, any questioning of the fair-trade movement has been limited to the micro level. The movement has faced repeated criticisms, for example, for the relatively expensive fees that producers must pay to get a fair-trade label, which make it ineffective for many poor farmers. Another area of concern is just how lucrative the process is for middlemen and retailers. Finally, several studies show that very little of the premium that consumers pay actually reaches needy producers. Consumers might be surprised to learn that only one or two percent of the retail price of an expensive cup of “ethical” coffee goes directly to poor farmers.

The adverse effects of fair trade are even more worrying at the macro level. First, fair trade deflects attention from real, long-term solutions to rural poverty in developing countries; and second, it has the potential to fragment the world agricultural market and depress wages for non-fair-trade farm workers. . .

Walker points out in spite of the marketing which tries to convince consumers that Fair Trade is good for producers, they get only a tiny percentage of the money made:

An interesting statistic is that in 2010, retail sales of fair-trade-labelled products totalled about $5.5 billion, with about $66 million premium — or about 1.2 percent of total retail sales — reaching the participating producers. There has to be a better way of helping poor farmers. Having only 1.2 cents out of every dollar spent on fair-trade products reach the target farmers is a hugely inefficient way of helping these people. If people wish to help these farmers there has to be charities out there that can transfer more than 1.2 cents per dollar to them.

Also a more efficient and straightforward way to help poor farmers is to remove the massive OECD subsidies and tariffs we see on agricultural products. In other words, a move towards free trade is needed.

Fair Trade has a powerful brand but it’s not one which really helps producers.

They, and consumers, would have much more to gain from free trade, which is the only real fair trade.


%d bloggers like this: