Six months to make a sandwich without trade

May 14th, 2016 at 12:00 pm by David Farrar

Stuff reports:

What do you get when you give a man six months and NZ$2400 (US$1500)? A single sandwich.

But it’s not just any sandwich, of course.

Andy George, host of YouTube series How To Make Everything, attempts to make everyday things from scratch, gathering and growing the raw ingredients before assembling the final product.

This is a good lesson about the value of trade.

Some people think trade is a zero sum game. Exports are good and imports are bad.

Trade is about relative value. You could spend six months of your time making a sandwich from scratch, or you can trade with other people who allow you to purchase a sandwich for $5 instead of $2,400.

Sanders says no trade with poorer countries

April 14th, 2016 at 11:00 am by David Farrar

Vox reports:

In a new interview with the New York Daily News, Bernie Sanders said something striking — he basically doesn’t think the US should be trading very much at all with countries where wages are much lower than its own.

“You have to have standards,” the senator said. “And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.”

From Sanders’s point of view, this makes sense. He has recognized, correctly, that freer trade with countries like China has hurt a subset of American workers (while benefiting others).

But there’s one big problem, according to development economists I spoke to: Limiting trade with low-wage countries as severely as Sanders wants to would hurt the very poorest people on Earth. A lot.

Free trade is one of the best tools we have for fighting extreme poverty. If Sanders wins, and is serious about implementing his trade agenda as outlined in the NYDN interview and elsewhere, he will impoverish millions of already-poor people.

Yep. Also it won’t really help the US. A few workers in inefficient industries will stay in those industries instead of retraining. And US consumers would be massively less well off and relatively poorer.

Why Sanders and Trump are wrong on trade

March 23rd, 2016 at 7:00 am by David Farrar

Former deputy United States trade representative Miriam Sapiro writes in the NYT:

Here are some facts lost in the heat of primary season. Excluding oil, the United States actually has a trade surplus in manufactured goods (you read that right) with the 20 countries with which it has trade agreements (although that does not include China). Over all, the United States enjoys an annual trade surplus in services, driven by financial services and intellectual-property licensing, of more than $200 billion.

Trade agreements support these trends by prying open foreign markets for American goods and services. Without greater access, the United States will have a difficult time creating more jobs: Nearly all of the world’s population lives outside its borders.

The Department of Commerce estimates that every increase of $1 billion in exports sustains nearly 6,000 jobs, and that export-related jobs pay on average 18 percent more than jobs focused on the domestic market. We’d be foolish to start a trade war by imposing tariffs on products from China, Mexico or other countries, which would increase prices and invite retaliation that would hurt American exports.

Tariffs damage both countries. They damage exporters, they damage consumers and they also damage the overall economy by protecting selected industries and not having investment flow to the areas where a country has the best competitive advantage.

To understand how dismantling trade barriers helps the country, we also need to take a broader view of the American economy, and not focus solely on disruptions and lost jobs in particular sectors.

There are many things economists disagree on. But there is a near universal (over 85%) view that reducing trade barriers helps the economy of all countries. The political problem is that the sectors that lose jobs are specific and known and can be blamed on the loss of protection, while the job gains are more widespread and not associated with the removal of barriers.

For example, while the North American Free Trade Agreement is routinely criticized as sending American jobs abroad, data from the Peterson Institute shows that in the seven years after the pact’s passage, nearly 17 million jobs were added in this country and unemployment fell to 4.0 percent, from 6.9 percent.

The rhetoric against NAFTA is false.

Agricultural export subsidies eliminated

December 26th, 2015 at 4:00 pm by David Farrar

Stuff reports:

Fonterra is hailing an agreement to eliminate all agricultural export subsidies at the World Trade Organisation talks in Nairobi as a “historic breakthrough”.

John Wilson, chairman of the dairy co-operative, said it was good news for New Zealand dairy farmers.

For years the use or the threat of export subsidies had pushed world dairy prices below their true level, he said.

“The Nairobi outcome takes global trade rules one essential step further towards a level playing field for dairy trade.”

It’s a good step forward. I’m not sure how widespread such subsidies were, but it is encouraging that agreement was reached to eliminate them.

Labour defending Canadian dairy industry

May 21st, 2015 at 9:15 am by David Farrar

The Herald reports:

Trade Minister Tim Groser says he is not bothered that his name has apparently become a byword for undiplomatic behaviour.

The Labour Party today accused him in Parliament of insulting Canadian diplomats by comparing the country’s dairy industry to the Soviet Union.

Are the Soviets upset?

The description, while harsh, is not inaccurate. The Government limits the amount of domestic dairy production and has huge tariffs on imports. Farms have quotas and a single dairy cow quota is worth around $30,000. Tariffs are around 300% and they also have import quotas so that only say 1% of yoghurt can be imported.

I’d say it is an apt comparison.

Trade spokesman David Parker cited a scathing article by an American policy analyst, which said Mr Groser’s behaviour had led to a new slang term in Washington: “Grossing”.

The article said the Canadian Embassy in Washington was “privately bristling” at the minister’s “counter-productive, undiplomatic sledging”.

Oh no, the Canadian Embassy in Washington is upset. This could form an episode of Southpark!

He said that Canada’s dairy interests had been “diametrically opposed” to New Zealand’s interests for 30 years, and it took “just a little bit of spine to stand up to it”.

Mr Parker said Mr Groser’s comments were “abrasive and arrogant”.

“How does he think slagging off the Canadians using derogatory terms is going to result in a good outcome for those negotiations?” Mr Parker asked.

Mr Groser stood firm: “It’s called a negotiation. And to use one of Tana Umaga’s memorable phrases, ‘We ain’t here to play tiddlywinks’.”

So Labour is attacking the Minister for criticizing the Canadian Government’s dairy policy. Nice to know they’re focusing on the big issues.

3,000 agreements have an investor-state dispute settlement clause

May 16th, 2015 at 2:00 pm by David Farrar

Some anti-trade activists are saying that NZ should not agree to any TPP, as it will have an investor-state dispute settlement clause in it. They would have you think that this is some new clause that will give multinationals rights to over-turn decisions by Governments.

As I previously blogged, almost every trade agreement signed by New Zealand in the last decade has an ISDS clause. Labour signed half a dozen with such a clause.

But as Brian Fallow reports, they are even more common that that:

More than 3000 bilateral investment treaties and other international agreements include ISDS.

3,000 agreements to date have such a clause!

In fact the number of agreements providing ISDS protections for foreign investors greatly exceeds the number of cases brought under them over the years.

According to the United Nations Conference on Trade and Development (UNCTAD), which monitors them, by the end of last year 356 investor-state cases had been concluded, of which 37 per cent were decided in favour of the state and 25 per cent ended in favour of the investor with monetary compensation awarded.

So over the last 40 years the number of cases has been less than 10% of the number of agreements. So on average you only get one case for every 10 agreements.

I have concerns over some of the clauses proposed by the US in the TPP. But a decision on whether to support or oppose the final agreement (if there is one) should be based on what is actually in the agreement, not on scaremongering.

The left against free trade rather than the US

April 19th, 2015 at 7:00 am by David Farrar

I’m a strong supporter of free trade agreements. Freer trade has lifted hundreds of millions out of poverty, and the empirical evidence that trade helps both exporting and importing countries is very strong.

Whether any individual trade deal should be supported comes down to the details of it. There are provisions being pushed by the US in the proposed TPP deal which I oppose. There are provisions being pushed by NZ which I strongly support. If there is an agreement, then we’ll be able to see whether the deal over all is a good one.

(Some of) The Left in NZ is very anti the TPP. They do nothing but highlight the worst aspects of the provisions being pushed by other countries, and never ever focus on the benefits. Their opposition is often seen as being traditional anti-US sentiment.  It is painted as the US bullying NZ to get a deal that sells out NZ interests to benefit the US

But the left in the US is just as opposed to free trade, as much of the left in NZ. Politico report:

The most important trade bill in a decade has pitted Harry Reid against President Barack Obama. Liberal Democrat Rosa DeLauro against moderate Democrat Ron Kind. Labor unions against pro-business Democrats. And Elizabeth Warren against virtually everyone who supports a landmark piece of legislation that would allow the president to close what could be the biggest free-trade deal in history. …

Most other Democrats in Congress, too, are skeptical of Obama’s free-trade agenda and are expected to vote against the trade promotion authority legislation, which will fast track trade deals through Congress by limiting amendments and subjecting the agreements to up-or-down votes.

So the NZ left think the TPP will be bad for NZ and the US left think it will be bad for the US. Why? Well basically because most (not all) of the left don’t think free trade is a good thing. They are protectionists.

The benefits of fighting protectionism

November 5th, 2014 at 9:00 am by David Farrar

Stuff reports:

Labour has fallen in behind the Government’s decision to join a trade pact that gives Kiwi firms the right to bid for more than $2 trillion of overseas government contracts.

New Zealand has joined 43 other countries, including the United States, Japan and all European Union countries, in becoming a party to the World Trade Organisation’s Government Procurement Agreement (GPA).

Exporters including Fisher & Paykel Healthcare and Hamilton’s Gallagher Security are celebrating the agreement, which is designed to ensure companies are treated equally when competing for government tenders in any of the signatory states.

However, the reciprocal deal could have a flipside for some local businesses which may now face more competition from overseas firms when bidding for work with the New Zealand public sector.

So why is Labour supporting this, when they have spent years complaining that companies like Dunedin’s Hillside should have been protected from foreign competitors? In fact wasn’t their policy to tilt the field towards local companies?

Labour foreign affairs spokesman Phil Goff supported the agreement. “I am prepared to accept the balance of advantage lies in opening up new opportunities for the best of our exporters to sell goods and services into those markets,” he said.

Although it does not cover all government procurement in all those countries, Joyce said the deal would ensure New Zealand firms were able to bid for work worth more than US$1.7 trillion ($2.16t) annually.

Good to see Goff ignoring the rhetoric of his colleagues, and signing Labour up to support this agreement. If you have confidence in NZ firms, we stand to win more than we lose by having equal access to government procurement tenders across the developed world. Plus it is better for taxpayers to more competition for tenders.

But I wonder why the left blogs who daily denounce neo-liberalism have been so silent on Labour’s support of the GPA? Shouldn’t they be demanding that the four leadership candidates denounce it as neo-liberal trickle down policies?

NZ exports 1983 – 2018

July 13th, 2014 at 2:00 pm by David Farrar

An interesting display of how our exports have changed over 35 years, by NZ T&E. It shows the benefits of free trade agreements.

Mapp on Labour and free trade

June 21st, 2014 at 3:00 pm by David Farrar

Wayne Mapp writes at Pundit:

For decades now National and Labour have had a cosy little arrangement when it comes to free trade. Both parties could count on each other to provide a solid bloc of votes in parliament to pass any bill implementing free trade agreements.

So any hyperventialting by the Greens, New Zealand First, the Maori Party or Mana counted for nothing. Jane Kelsey might get to write as many op-eds as she likes, but she has virtually no influence on the actual outcome of the free trade agenda. The solid National–Labour coalition ensures that the relevant legislation will pass.

But will this arrangement prevail after this election?

A very good question. Monetary policy used to have bipartisan support also, but Labour have abandoned that to go along with the Greens and NZ First. Will they do the same with trade?

This election could see Labour down in the low 30s as a percentage of the total vote. If a combination of Labour, the Greens, New Zealand First, the Maori Party and Internet Mana can form a government, Labour is only going to be 60% of the government, at most. All its likely partners have opposed every single free trade agreement over the last two decades. Collectively they could demand that Labour not support the TPP as a price of coalition. And could Labour resist such a demand?

What’s more, if the Left (apologies to Winston who is not really left) do not have enough votes to form a government, would Labour still continue the cosy arrangement of supporting free trade agreements? Increasingly Labour activists, including their left leaning MP’s, oppose TPP. David Cunliffe, supported by Phil Goff and others, has positioned the party to be able to vote for TPP. But that is before the election. An election loss could well weaken the free trade faction in Labour.

I’m not sure there is a free trade faction left in Labour. Goff, and O’Connor maybe. Who else?

Does Fairtrade help the poor?

June 4th, 2014 at 4:00 pm by David Farrar

Forbes reports:

This will come as a surprise to those who have bought into the marketing malarkey about Fairtrade products and not as a surprise to any of those who have really looked at the issue. Which is that there doesn’t seem to be any great benefit in the system for the poor peasantry that it’s supposedly designed to help. In fact, it actually seems to make people worse off, not better off. This isn’t I hasten to add, the result of a study done by some hateful neoliberal like myself. No, this is the result from a four year long research program by the impeccably liberal (and veering over into Marxian third world nonsense at times) School of Oriental and African Studies in London.

So what did they find?

What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than for those in other areas.

Careful statistical analysis allowed us to separate out the possible effects of other factors, such as the scale of production. Still, the differences were in most cases, and especially for wages, statistically significant. Explaining why it should be that workers in areas dominated by Fairtrade organisations are so often worse off than workers in other areas is a complex and challenging task. 

Indeed. A good reminder though that good intentions often have perverse consequences.

Forbes looks at why this might be:

The first is implicit there, in the way that they talk about the scale of production. Fairtrade is really only open to people working at the level of an individual peasant. Indeed, some of the various schemes insist that mechanisation should not be allowed as one example of the resolutely small scale that they insist everyone work at. And in agriculture (where almost all Fairtrade is) is one of those sectors where there are huge, vast even, economies of scale. This matters, this matters a lot.

For the maximum amount that labour can be paid is of course the value of the production from that labour. And it might be all very well to insist that people using the most basic hand tools to grow something should get a bit more money. But their productivity is still going to be that of someone growing something using only hand held tools. Whereas mechanising the production process (which inevitably means much larger scale production) will mean vastly more productive labour and thus at least the potential for much higher wages for that labour.

So the insistence that there’s a bit of extra money but only if you stick with the inefficient methods therefore means that Fairtrade is putting a cap on the possible earnings. For they’re resolutely ruling out the possibility of using some more efficient production method. Fairtrade might make the poor peasantry marginally better paid but at the price of insisting that they remain poor peasants.

The second thing is that about the community projects. Some of that Fairtrade premium is meant to be spent on public goods in those areas. Which is just absolutely great, assuming (as in the case described, it isn’t) that the public good is actually available to those it is supposed to benefit. But even then we come back to the same old problem. They might now be poor peasants with free toilets. But they’re still poor peasants, free toilets or no. And this is something that hateful neoliberals like me have been saying for a long time now. Fairtrade is simply a vastly inefficient method of making the lives of the poorest people in the world better.

Liberalising markets has been beyond doubt the best way to lift people from poverty. China and India have shown this with several hundred million people.

All of which leads us to one final difficult question. There is a substantial premium paid for Fairtrade products. If it’s not going to those peasants and the community projects aren’t all that much either, then where is it all going? The answer being that there’s an awful lot of Sebastians and Jocastas being employed on western world middle class wages to run these schemes. And that’s where the money is going. Sure, non Fairtrade products have marketing systems too but which do you think is going to be more efficient? That of Nestle or that of some well meaning and not very driven do-gooders?

To be frank about this Fairtrade simply doesn’t do what it says on the tin. Imagine that you are worried about the poor of the world (I am, it’s a morally good thing to worry about, to try to do something about). And that you’d like to do something about it. The best answer is to go buy things made by poor people in poor countries. And if they’re not charging you enough, if you want to pay a premium over their price, then simply bundle up that extra money and send it to one of the better development charities.

It’ll make the world a better place both more efficiently and more quickly if you do that.

Good advice.

A NZ-EU free trade pact?

March 26th, 2014 at 6:10 am by David Farrar

Stuff reports:

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. 

The EU is highly protectionist so a free trade pact would be a very good thing.

However as indicated, not likely to happen anytime soon. However an agreement for one to be considered is a worthwhile start.

The flip side of protectionism

February 5th, 2014 at 6:31 am by David Farrar

Tracy Watkins at Stuff reports:

Spurred on by an aggressive Buy Australia campaign, the big Australian supermarkets are systematically stripping their shelves of New Zealand-produced goods sold under their ‘‘house brand’’ labels, in a move that threatens hundreds of millions  of dollars worth of exports.

Now hands up all those who have been saying that we should have a Buy NZ campaign, and that the NZ Government should only deal with NZ companies?

Protectionism is bad for New Zealand. Consumers pay more, and exporters get shut out.

Key will raise the issue in his meeting with Abbott in Sydney this week and it is understood the Government has received advice the move could be in breach of the decades-old Closer Economic Relations agreement with Australia.

One option would be for the Government to lodge a formal objection but sources say the situation is complicated by the fact that CER is a government-to-government agreement, and it is not ‘‘straight forward’’ whether supermarkets are captured by that process.

With respect, I think it is straight forward. Private supermarkets are not captured. CER is an agreement between Governments.

Labour’s economic development spokesman Shane Jones said  it was ‘‘essential’’ Key raise the plight of New Zealand food producers who were being ‘‘monstered’’ by the Australian supermarkets, who controlled 80 per cent of the market.

‘‘They are victimising Kiwi businesses and have created a culture of fear and menace. I have been told New Zealand food producers were warned not to complain about their poor treatment publicly or they would be blacklisted.’’

Is this the same Labour Party that has spent five years insisting that the New Zealand Government should discriminate against Australian businesses, and only let NZ companies win tenders? Isn’t it hypocrisy to complain when Australian businesses do exactly what they advocate?

My consistent view is that quality and price, rather than country of origin, are what you should decide things on. Only if the quality and price are identical or at least similar, should you then take into account country of origin.

But Woolworths Australia is a private company. If they think their customers want to pay more for inferior Australian food, then they can decide to use Australian suppliers only. I think it is a bad business decision, but it is their decision to make.

Where there could be an issue under CER is if the Australian Government is encouraging such protectionism. But I’ve not seen any details in this story that states they are.

Chart of the greatest and most remarkable achievement in human history

January 25th, 2014 at 12:00 pm by David Farrar



Mary Perry at AEI writes:

Everybody’s featuring their “graphs and charts of the year,” like The Atlantic and theWashington Post (be sure to see Vice-President Joe Biden’s “Graph of the Year” on Amtrak ridership). Well, the chart above could perhaps qualify as the “chart of the century” because it illustrates one of the most remarkable achievements in human history: the 80% reduction in world poverty in only 36 years, from 26.8% of the world’s population living on $1 or less (in 1987 dollars) in 1970 to only 5.4% in 2006.

And what has been the major reason for this huge success?

So what did that? What accounts for that? United Nations? US foreign aid? The International Monetary Fund? Central planning? No.

It was globalization, free trade, the boom in international entrepreneurship. 

Yet so many who profess to care about the poor fight so hard against free trade.

Goff on TPP

September 28th, 2013 at 12:00 pm by David Farrar

Fran O’Sullivan writes in NZ Herald:

Labour’s Phil Goff is back in business, adding his strong and rational voice to New Zealand’s advocacy for the completion of the Trans Pacific Partnership (TPP).

Goff wants to see a renewed focus on the upside for New Zealand from achieving greater access to some of the Asia-Pacific’s economic powerhouses through a deal which will link 12 nations.

To Goff trade is New Zealand’s lifeblood.

He reckons the Labour Party has to become focused on economic growth, jobs and tax revenue – “You can’t legislate for revenue.”

Or wages!

The challenge for Labour is to interpret trade policy around its own core values. “There are huge advantages from being involved with TPP and even bigger disadvantages of being locked out. But there are defensive issues where we need to fight tooth and nail to protect interests.”

Such as intellectual property laws

Goff has had the shadow trade portfolio only since Monday but already he is signalling that the bilateral consensus that has sustained New Zealand’s international reputation for nearly three decades will be continued.


This could be significant

August 31st, 2013 at 7:00 am by David Farrar

Nigel Stirling writes at Farmers Weekly:

The fight for open access for New Zealand farm exports into the United States has taken a big step forward, with key American agricultural lobbies giving their backing to a comprehensive Pacific Rim trade deal with no exclusions for agriculture.

Thirty-seven of the US’s peak agricultural and farming lobbies have written to their government pledging support for the TransPacific Partnership (TPP) free-trade talks, which aim to eliminate tariffs and other barriers to trade between 12 countries.

In a letter sent to new US Trade Representative Mike Froman and Secretary of Agriculture Thomas Vilsack, the industry groups gave their backing to US negotiators to pursue a comprehensive deal, with no exclusions for agriculture in any country involved in the talks.

The importance of this is quite huge. If the major agricultural lobby groups do not try and block eliminating agricultural barriers and tariffs, then not only is a deal more likely, but it may actually get past the US Congress. These lobby groups have considerable sway in smaller rural states.

“There must be no product or sector exclusions, including in agriculture. Exclusions would limit opportunities in each of the member countries to reach new markets, grow business and generate economic growth and jobs,” it said.

Importantly the letter was signed by the US Dairy Export Council and the National Milk Producers Council.

Both groups have in the past been sceptical about the US joining the TPP and have highlighted the threat to American farmers from opening their domestic market to competition from NZ exports.

They may be starting to see the potential gains from having their own access to some Asian markets.

Trade Minister Tim Groser said the backing from the US dairy industry could be critical in getting a deal past American lawmakers that included agriculture and therefore was beneficial to NZ.

“The political game here is pretty obvious. The way Congress works is through these sorts of letters and people add up the number of lobbies for and add up the number against and that is the political process under way,” Groser said.

The letter was sent to US Government officials last month but came to light only last week.

I’ve been very skeptical up until now that the US might make meaningful concession on the agricultural side. This changes that.

He expected the US to have made an offer on dairy by the time TPP country leaders meet on the sidelines of APEC in Indonesia in early October.


Lomborg on the benefits of free trade

June 20th, 2013 at 4:00 pm by David Farrar

Bjorn Lomborg writes at the Huffington Post:

British Prime Minister David Cameron has rightly put free trade on the top of the G8 agenda. It is possibly one of the best ways we could help the world foster economic prosperity and development.

Cameron writes that comprehensive free trade “could boost the income of the whole world by more than $1 trillion.” As it turns out, this is likely a serious understatement.

The classic argument for free trade points out that specialization and exchange benefits everyone, because goods are produced by the countries that specialize in those goods and produce them most efficiently. The standard World Bank models show that realistic free trade, even just by the end of this decade would increase global GDP by several hundred billion dollars per year, with perhaps $50 billion accruing to the developing countries. Towards the end of the century, the annual benefit will likely exceed Cameron’s $1 trillion annually, with half going to the developing world.

But a growing number of academic studies now show that the free trade story goes much further than simple specialization. History shows that open economies grow faster. Good examples include Korea from 1965, Chile from 1974 and India from 1991, which all saw their growth rates increase significantly after liberalization. Even modestly freer trade helps domestic markets become more efficient and get supply chains better integrated. At the same time trade transfers knowledge, which spurs innovation. Free trade means we don’t all have to reinvent the wheel over and over again.

This is perhaps best captured in a recent state-of-the-art literature review by Professor Kym Anderson for the Copenhagen Consensus think tank. Anderson, one of the World Bank’s lead modelers, shows that the long-run benefits from even a modestly successful Doha free trade round would be vast. The annual GDP compared to no extra free trade would in 2020 be about $5 trillion larger, with $3 trillion going to the developing world. Towards the end of the century, slightly higher growth rates will have accumulated to benefits exceeding $100 trillion annually, with most going to the developing world. By then, benefits would add about 20 percent annually to developing world GDP.

The benefits of free trade to both the world, and especially developing countries are enormous.

In New Zealand we would have far higher unemployment and lower wages if it were not for our free trade agreements, especially the recent one with China which has seen exports treble.

Bear in mind that NZ First and the Greens both bitterly opposed the free trade agreement with China. The latter party has voted against every trade deal ever, as far as I know. If they had been around in 1983 they would have opposed CER with Australia.

While the benefits of global free trade seem so starkly obvious to the world, it is also clear that vested interests, especially in agriculture, fight for their privileges. About 40 percent of government expenditure on global subsidies goes to agriculture. Despite farmers comprising a very small proportion of the population in developed countries, agricultural interests seem to have a stranglehold over OECD governments to keep their $252 billion in annual support.

An obscene amount of money.

Yet, there are many reasons we need to get farmers and others off subsidies. Even with austerity, the EU’s Common Agricultural Policy makes up the biggest share of the EU budget, costing 363 billion euro between 2014 and 2020. The upcoming U.S. farm bill might waste $950 billion over the next decade.[viii] Here, the G8 should take the creative and courageous steps necessary. For example, it could compensate entrenched interests for their losses over the next decade or two, while it phases out subsidies and other trade distortions. This cost would run to another $50 billion per year globally, but would be a miniscule price to pay for the benefits yielded by free trade — for every dollar spent, the world would see much more than a hundred dollars of long-term growth benefits.

That would be a great step.

Protectionism in 1926

October 9th, 2012 at 12:00 pm by David Farrar

This image is from the National Library.

Interesting to see the same arguments then, that we still get today. Some are still in the 1920s though, with the Greens policy being to retain or impose tariffs to stop “unfair” competition. They also advocate “Support the option of using an across-the-board tariff to address balance of payments problems”.

China and India has delivered hundreds of millions out of poverty thanks to the reduction of trade barriers and opening up their economies, yet the Greens still support tariffs and protectionism.

Greens against fair NZ dairy access to Canada

August 20th, 2012 at 4:00 pm by David Farrar

A stark reminder of how the Greens out global solidarity ahead of NZ’s interests.

Audrey Young reports:

Meanwhile, the Green Parties of New Zealand, Australia and Canada are joining forces to campaign against the Trans-Pacific Partnership.

They issued a joint statement yesterday after Metiria Turei, co-leader of the NZ Greens, held a press conference in Canada with her counterpart from there.

Among the Greens’ concerns is the prospect of the heavily protected Canadian dairy industry being de-regulated, removing safeguards which they say aim to preserve farmers’ livelihoods.

So the NZ Green Party is against NZ dairy farmers being able to have fair access into Canada!!! Their concern is to protect inefficient subsidized Canadian farmers, not to help NZ farmers export more milk.

The Financial Post point out how the Canadian system works:

Canadians must hope New Zealand and Australia force Canada to scrap its protectionist supply management system for dairy, poultry and eggs before being allowed to join the coveted Trans-Pacific Partnership (TPP).

The Aussies and Kiwis have been upset with Canada over these agricultural subsidies for decades and are doing consumers in Canada, and the economy as a whole, a favor by opposing them.

Canada’s dairy, poultry and egg farmers belong to government-sanctioned cartels that keep out foreign competition with the help of tariffs as high as 300%. The government guarantees their success by setting a floor price. The result is monopoly profits and an estimate, by the OECD, that Canadians overpay $3 billion annually for these foodstuffs.

The Greens basically don’t like trade. They voted against the FTA with China which has seen us export an extra $12 billion to China since it was signed. They want Canada to keep up its tariffs of up to 300%.

As the most remote developed country in the world, trade is vital to our future. Yet, the Greens want to kill it off.

At long last

August 26th, 2011 at 11:00 am by David Farrar

It’s been a long battle, but great to see this story of New Zealand apples being sold in Sydney.

Labour on India FTA

July 4th, 2011 at 6:53 am by David Farrar

John Hartevelt at Stuff reports:

Labour has been accused of “trying to have it both ways” on free trade, after one of its MPs raised concerns over the outsourcing of labour to India.

On her Twitter account yesterday, Labour MP for Dunedin South, Clare Curran, posted the question: “Wonder what we’ll hand over. More labour outsourcing?” alongside a link to a media report on negotiations for a free trade agreement with India.

Labour leader Phil Goff last week said Labour supported an FTA with India.

As trade minister in 2007, Mr Goff launched a feasibility study for the deal, which he said at the time “would have significant economic benefit for New Zealand”.

“We went into it, we laid the foundation, and were supporting this government building on that foundation,” he said last week.

Ms Currankeep said she did not have concerns about an FTA with India and that her statement had been particularly in relation to the outsourcing of contracts to countries like India.

Oh dear. So Clare is saying she is against free trade, if it involves a contract.

We own Phil Goff and Helen Clark a debt, for keeping Labour away from going down the failed path of protectionism. The FTA with China is a huge credit to them.

My concern is once Goff goes. Labour have already started backsliding on issues such as monetary policy, and my fear is that post-Goff they will join the Greens as an anti-trade party.

I hope not, as trade should be as bi-partisan as possible – and largely has been for the last 20 years or so. But it obvious from Clare Curran’s comments she doesn’t in fact support free trade, and she would not be alone in the Labour caucus with that view. To be fair, I suspect there are a few protectionists in National also.

Goff knows you don’t do unilateral bottom lines in trade

May 31st, 2011 at 11:51 am by David Farrar

Phil Goff was Foreign and Trade Minister for many years, and most would say he was a very good trade minister. The China FTA is a huge credit to him (and Clark).

He also knows that one rule to trade negotiations is that the parties do not publicly lay out bottom lines, or rule things out. The reason for this is simple – doing so destorys negotiations. The moment one country says publicly “we will never ever agree to this”, it means all the other countries will do the same. And then you have nothing to negotiate.

So reading the Andrea Vance story:

New Zealand’s drug-buying agency should not be sacrificed for a trade deal with the United States, Labour leader Phil Goff says. …

But Mr Goff said yesterday: “We should not be trading Pharmac off for a free trade agreement with the US.” The agency was an “absolute bottom line and we should not be trading it away”.

You need to understand Goff is saying something in Opposition, he would never ever say in Government.,

For the record as a fiscal conservative, I think Pharmac is great and keeps the cost of drugs down for the NZ taxpayer. I find it hard to imagine that the US could offer us something so good that the Government would consider major changes to Pharmac. But again to have negotiations proceed in good faith, you can’t lay down unilateral bottom lines in public.

Personally I’m sceptical that the US will offer anything greatly worthwhile in terms of trade access. Their rhetoric is much stronger than their commitment to free trade.  However there are strategic advantages to the US in concluding an agreement, so maybe they will actually offer something decent.

The Trans Pacific Strategic Economic Partnership Agreement

March 21st, 2011 at 9:00 am by David Farrar

Few people are more enthusiastic advocates of free trade than me. I basically want to see a world without trade barriers.

The path to free trade is difficult due to entrenched interests. The best path is a multi-lateral agreement such as the GATT agreement which set up the WTO. Failing that, bilateral trade deals are worth pursuing. The China-NZ FTA, for example, has already led to a huge increase in exports to China. And CER with Australia is part of our economic DNA.

Personally I think bilateral free trade agreements are far too complex. My ideal FTA would be as follows:

  1. Country A agrees that the businesses and residents of Country B can sell any goods or services they like to the business and residents of Country A, so long as they are legal in Country A.
  2. Country B agrees that the businesses and residents of Country A can sell any goods or services they like to the business and residents of Country B, so long as they are legal in Country B.
  3. There shall be no duties, tariffs or other barriers on exports or imports between Country An and Country B
  4. ENDS

NZ is currently negotiating a free trade agreement, called the Trans-Pacific Strategic Economic Partnership Agreement, or TPP.

The TPP is now a brand new agreement. It is an extension to an existing agreement between Brunei, Chile, Singapore and NZ called the P4. Five additional countries are seeking to join it – Australia, Malaysia, Peru, Vietnam and the US.

Now New Zealand would gain immensely from free trade with the United States. One study estimated our exports to the US would increase by 51%. That’s an extra $2b a year approx.

So free trade with the USA would be great. But sadly free trade agreements are not as simple as the one I wrote above. They include areas which are not about reducing tarrifs, such as intellectual property laws. The United States wants New Zealand to agree to change our intellectual property laws, as part of any TPP agreement.

Top IT lawyer Rick Shera, has done a guest post at Public Address on what the US is asking for. I highly recommend you read his post in full. A summary is:

  • Rights holders would be allowed to prevent parallel imports
  • Massive extension of copyright terms, from life of author plus 50 years, to 70 years
  • Circumventing a Technological Protection Measure (TPM) will to be a criminal offence even if the work it protects is in the public domain or you want to exercise fair dealing rights like educational use or current affairs reporting
  • The return of guilt upon accusation three strikes Internet termination laws
  • Forcing us to reverse the decision recently taken to exclude software from being patentable
  • Introducing statutory damages (which give rights holders windfall damages up to 3 times their actual losses)
  •  ISP policing of IP rights including a requirement for ISPs to give up their customers’ identities when they receive a mere allegation from a rights holder
  • Criminal liability even where the infringement has no commercial value at all
  • Pushing Courts to impose imprisonment as the default sentence for infringement even where no monetary benefit is obtained

Bloody nasty isn’t it. And it is not as if NZ is a country with weak copyright laws. The Property Rights Alliance do an annual index of property rights. Their 2010 report for New Zealand ranked NZ the 4th best country (out of 125) in the world for (lack of) copyright piracy.

The New Zealand Government position has been to reject these provisions, which is good. But at some stage, there will be some calls to be made and compromises to occur to get an agreement.

This will pose a challenge for free trade advocates such as myself. Is allowing the United States to rewrite our copyright laws, a price worth paying?

Well if it was a true free trade deal, where the United States agreed to phase out all (or at least the vast majority) of its tariffs, then yeah it might be. An extra $2b a year of exports would create a lot of extra jobs, extra investment, extra wealth and extra tax revenue.

But what if we don’t get the US to agree to let in our lamb, our beef, our wool, our milk, our fruit without restrictions? What if the lowering of trade barriers is modest at best? This can not be ruled out – the US/Australia free trade agreement was very modest in terms of lowering trade barriers.

Eric Crampton has blogged on the TPP agreement. I know Eric well enough to confidently say that he is probably just as big a fan of free trade as I am. However he is pessimistic about the TPP:

I suggested New Zealand might do best by sidelining the US for now. The biggest potential gains to New Zealand from a free trade deal with the States would be an opening of American dairy markets to New Zealand dairy products. But that won’t happen – a trade deal that would actually open up American dairy markets to New Zealand product would never make it through the Senate.

The actual economic impact on the US of allowing dairy competition would be minor overall. But it would create a political fuss in certain states which would make it very difficult for Obama to ignore.

Eric continues:

I’d put decent money that, if America signs onto the deal, there’d be years of costly arbitration before New Zealand had any kind of increased access to American dairy markets. For starters, American dairy farmers would argue that failure of the New Zealand competition authorities to prosecute New Zealand dairy cooperative Fonterra as a monopoly constituted a subsidy under US law and justified counterveiling duties. …

I don’t think the United States has any credibility on free trade when it comes to agricultural products. They can’t make time-consistent pledges. At point of signing it’s all friendly, then you’re straight into arbitration over whether you’re hurting US domestic competitors – never mind the benefits to American consumers who are paying double what Kiwis are paying for baby formula.

His solution:

And so it’s better that New Zealand sidelines America in the Trans Pacific Partnership negotiations so the rest of us can have a serious free trade zone. Get a serious free trade zone, then look to widen it by inviting China. The threat of a Pan-Asian free trade zone that includes China is about the only thing I can imagine that would bring the States around on agriculture. Since New Zealand already has a free trade deal with China, it’s not implausible that China could someday join the TPP.

The idea of a TPP without the US may sound implausible, but I think it is more important to have a high quality agreement that actually reduces trade barriers and doesn’t force IP law changes on us, then a free trade agreement that is more symbol than substance. John Key I believe wants this too – he basically told Japan to stuff off from the TPP negotiations, unless they were seriously willing to commit to a “high quality” agreement.

The same attitude should apply to the US. If at the end of the day we can’t get decent lowering of trade barriers, and they insist in trying to force draconian IP laws on us, then we should be willing to say that we’ll go ahead with Australia, Malaysia, Peru, and Vietnam joining the P4 – and leave the US for another day.

Invent your own brands, DB

September 6th, 2010 at 11:00 am by David Farrar

Stuff reports:

A beer drinkers’ society warns it faces bankruptcy if it loses its dispute with DB Breweries over a shandy-like lager which most of its members do not drink.

The Society of Beer Advocates (Soba), an organisation with about 500 members run by volunteers, has taken legal action against DB over the term “Radler”, which the brewing giant uses on a citrus-flavoured brand of Monteith’s.

DB has a trademark over Radler which Soba is attempting to have declared invalid, arguing that like pilsner or lager, the term is a generic name for a recognised style of beer over which no-one should have exclusive rights.

I agree with SOBA. It is a generic term.

A spokeswoman for DB said its application to trademark the term in 2003 was not contested.

DB does not claim to have come up with the term, acknowledging the German origins on its website, but bases its right to trademark it on the lack of public awareness of the origins, and the “considerable” investment in the brand.

My advice to DB is not to try and trademark generic terms, even if obscure. Go invent your own brandnames and trademark them.

The US-Israel Free Trade Agreement

April 22nd, 2010 at 12:00 pm by David Farrar

An e-mail from the US Democratic Leadership Council highlights that 25 years ago Israel and the US signed a free trade agreement.

The change in aid and trade in that time has been massive

  1. Aid has reduced from $3.7b to $2.3b
  2. Services trade has gone from $1.0b to $7.5b
  3. Goods trade has gone from $2.4b to $44.2b

The US used to supply more in aid, than trade to Israel. Now their trade is more than 20 times greater than their aid.

Europe and the US should drop their trade barriers so that we have more trade, and less need for aid.