An article of faith for free trade advocates is a commitment to the abstract economic theory of comparative advantage, which envisages a world where each country specialises in producing only what it does best, and imports what can be produced more cheaply from elsewhere.

The Minister of Trade Negotiations, Jim Sutton consistently encourages New Zealanders to debate the benefits of free trade. But only debating the benefits can never be a genuine debate. In April 2004 the Ministry of Foreign Affairs and Trade (MFAT) released a document called "A Joint Study Investigating the Benefits of a Closer Economic Partnership (CEP) Agreement between Thailand and New Zealand". Only potential benefits of the deal are considered - there is no discussion of any costs or risks to either New Zealand or Thailand. "A Study of the Benefits of a Free Trade Agreement (FTA) between Malaysia and New Zealand" (March 2005) is of a similar tone.

Just think of the uproar if any other Government department attempted to pull a similar politically motivated swifty. What would happen if the Ministry of Education put out a document that only stated the benefits of removing all public funding from independent schools? Right wingers would scream bias and would understandably have no faith in the results. Why do we put up with Pollyanna nonsense from MFAT and the Minister for Trade Negotiations?

This does not allow an informed public debate, as Christine Dann points out. "It is particularly galling for citizens who contest the free trade hype to be told that we should produce evidence to prove our case, when our taxes are going towards paying ‘experts’ who have skills to do economic Cost Benefit Analyses but who are not directed to do so, or who are told to look only at the private commercial benefits and not at the public economic costs". (Watchdog 106, August 2004, "Milking the Deal". This can be read online at http://www.converge.org.nz/watchdog/06/12.htm).

Sure enough, the minimal discussion of the "Disadvantages of entering into a CEP with Thailand" included in MFAT's National Interest Analysis (NZT-NIA) is shallow and politically loaded. While the NZT-NIA acknowledges the negative impact of the removal of tariffs for the clothing, textile, carpet and footwear (CTCF) industries, MFAT says NZ was going to remove these tariffs anyway, which completely begs the point. While Thailand may currently account for around 1% of NZ CTCF imports, surely a competent NIA would include an estimation of the expected increase of such imports, and the real likelihood of jobs being lost in some of New Zealand's poorest communities (such as Porirua). It’s simply not enough to tell these workers to get other jobs, as their skills may not be transferable to other industries, meaning that they will be forced into even lower paid employment.

According to the "Joint Study on a FTA between China and New Zealand" (CJS), "New Zealand has experienced a transformation of its apparel sector. Production and resources have to a large extent switched from low cost apparel areas to niche, high value apparel sectors…..There are clear complementarities between the Chinese and New Zealand textiles and apparel industries." (CJS, 19/11/04, p35).Yet the figures from Textiles New Zealand, the State-funded agency established to "help" the CFTC industries "adjust" to the Government’s plans for a tariff clean slate, demonstrate MFAT’s assertions in the "Joint Study" are simply not based on facts.

Textiles New Zealand estimates there are 18,000 affected workers in the clothing, textile, footwear and carpet industries, many in smaller provincial centres where there are few other jobs. Most at risk are the 4,800 clothing workers who are still producing lower value goods for the domestic market. Even their employers are well aware their businesses cannot compete with Chinese competition. In the words of Christchurch manufacturer, Lane Walker Rudkin, such "competitors" do not have to pay time and a half, ACC or sick pay, and get help from the Chinese State to run their businesses. (Press, 19/4/04, A10, Nick Venter). Clear competition, not "clear complementarities".

Given there are 8,000 working in the clothing industry in total, this means that 60% of these workers are still producing lower value goods as of April 2004. Clearly a "transformation" only exists in MFAT’s ideologically driven heads. While the "Joint Study" recommends that FTA negotiations should take account of the potential impacts of increased trade liberalisation on New Zealand textile and apparel producers, this is likely to be no more than a Claytons’* concession of "transitional measures may be needed to smooth any adjustment process" (China FTA – Frequently Asked Questions on MFAT Website). * Claytons – taken from a long forgotten advertising campaign. In this case, it means the concession you make when you’re not making a concession. Ed.

Despite the Prime Minister, Helen Clark, stating in 2000 that "We have unilaterally disarmed ourselves on trade but very few others have been so foolish", the Government announced yet more unilateral tariff reductions in September 2003. This ended a six year freeze on unilateral tariff reductions, leading some unionists to lament the loss of the influence of the Alliance on the Government (Red Flag, October 2003). Under Labour’s new plans, tariffs of between 17 to 19%, which largely apply to clothing, footwear and carpet will reduce to 10% by July 2009, with tariff rates on all other goods to reduce to 5% by this date (Government Press Release, 30/9/03, "Decision on Post-2005 Tariffs", Lianne Dalziel, Jim Sutton and Jim Anderton).

Those that advocate for the removal of tariffs argue that consumers will benefit as they will be able to buy cheaper products, yet this assumes importers will always pass these savings onto consumers, instead of retaining greater profits for shareholders. Although it is not often pointed out, the removal of import taxes such as tariffs also leads to a reduction in Government revenue, leaving less money to be spent on Government activities such as customs, health and education. For example, the Government gained $6m from import tariffs on goods coming from Thailand in 2004 (NZT-NIA, p53). This revenue stream will be lost when the recently signed free trade agreement with Thailand comes into full effect. Given that 53% of New Zealand’s clothing and footwear imports come from China, as of 2003, and these industries are the best protected by tariffs, this suggests the loss to the Government from the removal of all remaining tariffs could be significant. Yet this issue is not even discussed in the "Joint Study".

New Zealand Clothing And Footwear Imports By Source In 2003. World Trade Atlas and MFAT Analysis

The proposed agreement with China threatens the long term future of New Zealand manufacturing, and these risks are not limited to just the clothing textile and footwear industries. While the Government heralds the commercial opportunities offered by a deal with China, the Council of Trade Unions (CTU) suggests these opportunities may not be as good as they appear. "Undoubtedly some of those commercial opportunities will see the relocation of New Zealand manufacturing to China. In other words, the process of the FTA will accelerate greater commercial and financial integration between China and New Zealand with the encouragement and assistance of the respective governments. This means that there will be facilitation of opportunities not only for direct Chinese investment in New Zealand, but also the opportunity for New Zealand companies to take advantage of labour conditions in China" (Submission on NZ-China Free Trade Agreement, 9/04).

The large number of "free trade" agreements promoted by the Labour-led Government worries CTU President Ross Wilson. "There is a risk these deals will permanently damage New Zealand’s manufacturing base. There is also (the risk) that the phased elimination of tariffs will expose some sectors, such as whiteware and clothing, to unfair competition" (Press, B5, 2/12/04, "Business keen on Thai deal"). And as we saw above, Lane Walker Rudkin gives a pretty clear picture of what "unfair competition" could look like.

Concern about the real effects of a free trade agreement with China is now emerging from unlikely sources. On the front page of its Website the Canterbury Manufacturers Association (www.cma.org.nz) recently warned that "all was not well with the prospect" of a FTA with China.

"It is not true to say that in the absence of tariffs New Zealand is open to the world, and so FTAs have no downside for New Zealand – the (proposed agreement)... with Hong Kong failed on the basis of rules of origin. It is probable that business people in most of the countries that we have recently negotiated trade deals with, were not aware of our small nation, at the bottom of the Earth, but once on the radar, due to early FTA talks, they found NZ an easy market to flood with goods, due to very low or no tariffs. Meanwhile, NZ exporters are largely faced with lengthy phase-in periods, as far ahead as 2015 and 2020!  In the meantime we are witnessing ballooning merchandise trade deficits with all recent FTA partners, and the trade deficit with (China) just hit NZ$2 billion for the 12 months to May 2005.  Is this a desirable outcome? We think not…

"The yuan peg (to the US dollar), tax rebates for Chinese exporters and others, create a competitive disadvantage for New Zealand manufacturers that will see competitive (all things being equal) companies threatened – this is not hand wringing – this is a fact. It is this loss of effective manufacturing capability due to the changing nature of world trade that is the threat to New Zealand - and that is no reason to say that because the threat is inevitable, we must negotiate a FTA with anyone and everyone (the Chinese, Americans, Europeans and Australians seek to "protect" their economies, so why should we be any different?). This capability has developed over many years, and to see this lost on the altar of quick and dirty FTAs with lower cost countries will, over time, cost New Zealand a place in the First World. Resisting this loss starts by taking off the rose-tinted glasses, which see only the upside in the current rash of trade agreements".

Bruce Goldsworthy of the Employers and Manufacturers Association (EMA) is also sick of the spin. "Shanghai and gung ho seem useful for describing aspects of where we have to got in negotiating the terms of our FTA with China. The Government has known sparks of zealotry in the talks, so keen is it to get the deal finished". Once upon a time shanghai referred to being forced to join a ship’s crew by underhand means, with the word now also used to describe being coerced or tricked into a place or action. While supportive of a deal, the EMA warns this should not be at the price of "shanghaiing" our exporters into a cauldron of high unfounded expectations, disappointment and risk. They say manufacturers need more detail on issues such as "intellectual property, environmental and other standards, along with a host of other non-tariff barriers which need to be overcome, or at least clarified". On this basis Goldsworthy warns the "hip hip hooray" tone of much media commentary on the China deal is simply premature (Business to Business, 6/12/04).

Commenting on bilateral free trade deals in the Independent in 2004 Goldsworthy slammed the "mushroom fertiliser our Government feeds to the New Zealand public through our compliant media". He points out Australia signed a Trade and Economic Framework agreement with China, with an FTA in mind, in May 2002. "So much for the reports gushing locally about New Zealand enjoying a first mover advantage worldwide in signing an FTA with the China powerhouse" (10/3/04, "Getting the low down bilateral on free trade deals’). While those who oppose the free trade agenda might agree with some of Goldsworthy’s conclusions, they are likely to agree for different reasons.

New Zealand’s trade deficit is going from bad to worse. Instead of the $300 million surplus predicted by economists for May 2005, a $25 million deficit was posted, taking New Zealand’s trade deficit for the year to May to over $5 billion (Statistics New Zealand). A trade deficit is caused when the value of our imports exceeds our export receipts.

While declining milk powder exports and rising fuel costs do offer a partial explanation for some of the recent increases to the trade deficit, this fails to tell the wider story. The real culprit is the trade liberalisation policies of successive governments, where the ideologically driven slash continues to be taken to tariffs, and imports continue to balloon as a result. It is indeed an irony that the New Right used to tell us New Zealand had to sell off State assets as it "could not pay its way in the world", when this is exactly the effect of over 20 years of neo-liberal trade policies.

In the first three years of the Singapore New Zealand FTA, New Zealand's exports declined by 37% (NZ$180 million) and the trade deficit with Singapore grew from $24 million to $323 million. (Arena press release, 25/4/05, "The Regional Free Trade Juggernaut"). In the latest provisional figures released by Statistics New Zealand, for the year to May 2005, our trade deficit with Singapore has leapt to $708m, with imports to Singapore totalling $1.111billion (45.6% increase), compared with exports worth $403 million (22.2% increase). It’s worth noting that these export figures include "re-exports", where earlier stages of the manufacturing process may have occurred outside New Zealand, meaning that such exports do not produce as much value for New Zealand as would appear.

Given the Singapore deal significantly added to New Zealand’s mounting trade deficit, it will be very interesting to monitor the effect of the latest FTA with Thailand, which came into force on July 1^st, 2005. For the year ending April 2005 Thai imports into New Zealand rose 26.2% to $741m, perhaps in anticipation of the deal, with $355m worth of goods travelling from New Zealand to Thailand. But at what cost will come Fonterra’s gain? Will the trade deficit with Thailand continue to rise about $386m?

The negative impacts of the Singapore and Thai FTA suggest the New Zealand government, and the mainstream media, should not be so "gung ho" when it comes to the proposed deal with China. Since 1992, New Zealand’s imports from China have exceeded our exports to there. While total exports have increased, the removal of tariffs has caused imports to grow at a much faster rate. The trade deficit with China, for the year to May 2005, is now over $2 billion ($2.015 billion). This represents 40% of New Zealand’s $5 billion deficit.

The current Labour-led (capital-led?) Government and MFAT urgently need to take off the rose tinted glasses and provide the New Zealand people with an accurate analysis of both the benefits and the negatives that may follow from the conclusion of a free trade agreement with China. The Fourth Estate (the media) need to stop competing in the "hype jump" with Government spin doctors, and give a few more column inches to union and industry representatives genuinely concerned about the impact of an FTA on manufacturing and other sectors. The unusual sight of the CMA and the CTU voicing similar concerns should be news in itself!

The principle motivator for a free trade deal with China, along with ideological commitments is perceived gains in agriculture trade (there also might be costs to this sector). In its submission on the proposed FTA with China, the CTU had some especially wise words for the Government. "It is very important in these circumstances that the New Zealand Government does not ‘talk up’ the agriculture gains while ‘talking down’ the manufacturing losses".

Candide, afflicted with the effects of venereal disease, asks Dr Pangloss why he suffers. "It is indispensable in this best of worlds. For if Columbus, when visiting the West Indies, had not caught this disease, which poisons the source of generation, which frequently even hinders generation, and is clearly opposed to the great end of Nature, we should have neither chocolate nor cochineal".

The Australia New Zealand Closer Economic Relations (CER) Trade Agreement (1983)

New Zealand Singapore Closer Economic Partnership (2001)

New Zealand Thailand Closer Economic Partnership (2005)

NZ-China Free Trade Agreement

Association of South East Asian Nations (ASEAN)-Australia/NZ Free Trade Agreement

The quotes from Voltaire, as well as some of the inspiration for their use come from one of my favourite academic articles. In "The Spandrels of San Marco and the Panglossian Paradigm: A Critique of the Adaptationist Programme", Stephen J Gould and Richard C Lewontin criticise reductionist approaches to evolutionary biology that base themselves on the near omnipotence of natural selection in forging organic design and fashioning the best among possible worlds, and "talks down" any constraints or other influences on organic form, function and behaviour. Gould and Lewontin advocate for a pluralistic approach to identifying the agents of evolutionary change, which they argue more accurately represents Charles Darwin’s own method.