Today’s signing of a free trade agreement (at 3.30 pm NZST) with China is a very good day for New Zealand. And while there are many many people who have contributed to its successful conclusion, the two primary ones are Helen Clark and Phil Goff.
Goff deserves our thanks for being the primary negotiating Minister, and never dropping the ball on this. This is a highlight of his nine years as Foreign and Trade Minister.
Clark also should be praised by supporters of free trade. Those on the right instinctively support free trade. On the left it has always been treated with far more scepticism, or often hostility. Clark has led her party away from its protectionism instincts and has embraced globalisation rather than tried to fight it like King Canute. The political risks for her has not been insignificant, especially in terms of doing a deal with China – a country so easy to criticise for so many things. She deserves our thanks for putting NZ’s interests first. Her legacy will be not just the FTA with New Zealand, but a modern Labour Party not stuck in the protectionist past.
Why is this free trade deal a good thing – both economically, and politically? My reasons:
- It will removes tariffs on 95% of NZ exports to China, saving exporters $115 million a year.
- The tariff reduction is projected to increase exports to China by $225 to $350 million a year.
- The vast majority of Chinese imports to NZ already have no tariffs on them.
- Consumers will benefit with cheaper prices in those areas where tariffs are to be removed.
- While employees in some areas which have protection removed can and do experience short-term pain, moving capital and labour into areas where we have a competitive advantage is good for employers and employees in the medium to long term.
- Industries can become more wealthy with the loss of protection. When we used to have large duties on wine imports, the NZ wine industry produced cheap low quality wine as no imported wine could compete on price. As protectionism was removed, the wine industry generally went from trying to compete on price in the domestic market only to competing on quality globally. From 1987 to 1997 exports as a percentage of production went from 3% to 29%, and both production and staff levels increased. This has continued today with exports of wine in 2007 totalling 84 million litres selling for$760 million.
- Free Trade lifts people out of poverty. I am amazed that people argue against free trade agreements on the grounds that (for example) it means people in China are working for say NZ$1 an hour. Do they think that if we refuse to trade with them, that that person will be better off on NZ$0 an hour earning nothing? China has reduced the proportion of its population in absolute poverty from 64% in the 70s to 10% in 2004 and India has gone from 51% in 1978 to 28% in 2005. have between them lifted . Think how many people in Africa could be lifted out of poverty if the EU did not spend 50% of its budget on agricultural subsidies, if Japan did not spend US47 billion on agricultural subsidies (four times its foreign aid) and the US did not spend $4 billion a year subsidising cotton growers.
- We are first. China is a growing economic super-power and being the first developed country to sign a free trade agreement strengthens economic ties for the future.
- Dialogue and trade is better than the alternative. Yes the Chinese Government is a repressive regime, and has little regard for fundamental human rights. But a policy of shunning China is not likely to be effective, or help the Chinese people (why punish them for a Government they do not get to choose). And while there are still a million miles to go, China is gradually becoming a more free, not a less free, society. Exposing China to trade, to information, to market economies is more likely (no guarantees) to help bring about gradual improvements than refusing to deal with them, because we disapprove of their human rights record.
- NZ can criticise as a non threatening friend. I believe that the closer economic ties, will put NZ in a position where we can have some influence, precisely because we are so small and insignificant. When the US or Australia criticise China, they react with hostility as they regard those countries as having ambitions of influence globally or regionally. If a “friend” such as NZ is also there saying “Hey this is not a good idea, and makes it hard for us to deal with you”, I think that voice is listened to as we do have an excellent international reputation.
So I do regard this as a very good day for New Zealand (and China). And while I have many many things I disagree with the Government on, I do praise Clark and Goff especially for their leadership on this issue. As a small trading nation, we need barriers to trade to be lowered, and this is a great step forward.