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An alternative view of the lamb tariff debate
12 Jul 1999
Lamb Exports and Free Trade
Marlborough farmer and Green Party agriculture spokesman Ian Ewen-Street provides a refreshingly different view on what United States lamb tariffs have done for New Zealand trade.
I believe the tariffs imposed on our exported lamb are the best thing to happen to New Zealand in years. And I'm a sheep farmer.
Of course Bill Clinton's decision is unfair. Of course it is a slap in the face for people like me. Of course it makes a mockery of free trade. So why has he done it? Why has the leader of the country most aggressively advocating of free trade suddenly taken to imposing tariffs?
The answer is purely and simply to protect American farmers. Which seems entirely fair enough, as their local industry is being (as they see it) over-run with cheap imports and they cannot make a decent living.
But hang on a moment, doesn't that have a familiar ring back here? Aren't we also having prices pushed down to a level where producers struggle to make a living? So, if tariffs protect American farmers, maybe it means that tariffs would protect NZ farmers as well.
Tariffs? Surely there is no greater heresy for our own government's free trade zealots than to consider tariffs. And on top of that, US farmers are now calling for $28 billion in further protection from imports.
So, if the strongest economy in the world is turning its back on free trade in order to insulate its producers from "the lowest commodity prices in history" there may well be a lesson for us as well. Let's have a dispassionate look at what free trade has done for NZ since Philip Burdon and Mike Moore gushed about the potential benefits to the country in general and to farmers in particular of joining the World Trade Organization (or GATT, as it then was).
Well, for a start, Statistics NZ have just released figures which show that over the last year, we have imported $1.5 billion more than we exported and that this is the fifth successive year in which we've had a balance of trade deficit (which means we are living beyond our means). Oh, and remember how Labour insisted we sell off our state assets to pay for our $14 billion foreign debt? Well, with the later assistance of National, the assets are almost all gone and our foreign debt now stands at $102 billion, or more than seven times what it was when the process started.
Try running your farm or your corner dairy in this way and see how long you stay in business.
So, why has free trade failed and what are the alternatives to it? First, free trade is not about improving the lot of the farmer or, for that matter, about improving the lot of New Zealanders. It is about making profits for the shareholders in multinational corporations. We have been sold the concept of free trade eliminating barriers at national borders so that goods can be transported backwards and forwards with a minimum of fuss so that our exports can have easier access to a broader range of foreign markets.
It certainly sounds good, but the net result has clearly been disastrous. Why? In a nutshell, it is because free trade is not geared towards enriching producers, but middle men. Basically the WTO is a rich man's club dedicated to perpetuating the wealth of the already wealthy.
So, how does it work? Let's take the hypothetical example of a big shoe manufacturer in the US - let's call it Bloggs Shoes. In the bad old days before free trade, Bloggs bought their leather at other fabric from US producers at the going rate and they paid their employees at the going rate for a US citizen to make fair living. All up, they made shoes for say $120 a pair and sold them for $200 a pair. At this rate, Bloggs made a reasonable profit from their trade, they employed local people and the profits stayed in the community.
However, with the advent of free trade, Bloggs Shoes International moved their production line to Tainesia, where they were able to pay local workers a dollar a day - or less - for their skills. Free trade also meant that, because they were a big producer, they could import their leather and fabric from the cheapest foreign supplier by using their buying power to force down the price. Bloggs Shoes now produced their shoes for $10 a pair, but still sold them in the US for $200. So their profit had gone from $80 a pair to $190 a pair - nice work if you can get it.
But what did this mean for NZ? Well, the first consequence of opening our borders was that cheap shoes undercut local producers, who cut their profit margins to the bone, then quietly laid off their staff and went out of business. The second consequence was that our exports of cattle hide were subject to fierce competition from countries all around the world and the price plummeted.
We became internationally competitive, but only by reducing our own incomes for producers and increasing our unemployed (such as the redundant shoe workers). Today, every time we go to a footwear outlet and buy cheap imported shoes (which is all many of us can afford), we not only encourage Bloggs Shoes to continue paying virtually slave wages to the Tainesians working in sweat shops, but we further undercut the local shoe industry's ability to employ NZers. The only winners in the process are the American shareholders in Bloggs Shoes.
The only unusual thing about Bill Clinton's decision to impose tariffs on our lamb is that it is a US industry that is on the receiving end of exposure to the icy gale of global competition and they have suddenly found that free trade is not necessarily good. And that tariffs are not necessarily bad.
I believe we should follow the example of the US and impose tariffs to protect our own industries - I am in no way advocating a return to the isolationism and protectionism of the Muldoon era, but merely saying we should look after the needs of average NZers rather than the greed of shareholders in multinational corporations. Even the research by the Harvard Business Review indicates that companies in minnow countries like NZ should create and defend niche markets, rather than trying to be internationally competitive in commodities.
I believe that we should treat imported goods as the icing on the cake, not the cake itself. We should encourage exports of the things we do well - notably in agriculture - in areas where we can develop niche markets rather than trying to compete with huge players on the global scene. Perhaps the most promising niche market for us is in organic food, where overseas consumers are willing to pay big premiums for the guarantee that their food is free of chemical additives and genetic pollution.
Malcolm Bailey, the President of Federated Farmers, summed it up (unwittingly, I suspect) in a letter to me in August last year, where he said "Farmers were the first group in the economy to be reformed. We have been waiting for 14 years for the process to be completed so that we can gain the benefits as well." Yes, that's about right - 14 years of reforms without any benefits to farmers. I think it is just about time for us to say "the reforms have failed and free trade has failed". Let's move on from them and start putting our house in order.
Thank you, Bill Clinton, for pointing this out.
Ian Ewen-Street & Margaret O'Brien