The Elephant in the Room

Free trade is a fine ideal but comes at the cost of compromised sovereignty.


Listener: 13 February, 2014.


Keywords: Globalisation & Trade;


Once free trade agreements (FTAs) were about reducing tariffs on imports. But it wasn’t long before it became necessary to deal with other means of favouring domestic production: import controls, technical regulations, procurement policies …


The variety of ways to effect backdoor protection seems unlimited. Too few customs officers can mean a consignment spending days at the border (and then being rejected because its documentation is not quite right).


What about investment, which is a kind of importing and exporting with time lags? And if goods are to be included, how about services? What about intellectual property? How about people, especially as trade and investment requires travel? Value-chain exporting raises fresh complications.


Step by step the scope of FTAs has been extended. Are they being taken too far? I cannot see how limiting Pharmac, our drug-buying agency, is anything to do with the notion of free trade. Yet that is being demanded in the Trans-Pacific Partnership (TPP) negotiations between New Zealand, the US and 10 other countries.


Big Pharma seems to be using the FTA to pursue political objectives, today’s equivalent of gunboat diplomacy. (Perhaps the worst example was the peace agreement after the 19th-century Opium Wars that required the losing Chinese to abandon restrictions on the use of British opium so they could be sold the narcotics.)


Leaving aside bullying, there are practical problems. What about the imposition of labour and environmental standards, which can be used to protect domestic industry? How do you pursue such social objectives neutrally? The Canadians and French – and Maori – are particularly concerned about protecting their culture.


Another complaint in regard to the TPP is that the negotiations are secret. Is that not the way of most negotiations? I am told, however, that some countries in the TPP talks disclose more about what is going on than New Zealand does. We should be up with the most open.


The New Zealand Parliament has a procedure by which any treaty (not just an FTA) is scrutinised before being ratified by the Government. That may not be true elsewhere.

One of the difficulties of negotiating with the US is that Congress can go through the TPP agreement and delete anything it doesn’t like. The US President is trying to circumvent that with a “trade promotion authority”, which would allow Congress to accept or reject the agreement but prevent it from making amendments. No one is optimistic that Barack Obama will obtain that authority soon.


Whether our parliamentary procedures are robust enough may be disputed, but at least we should recognise they exist. (This Government may not be sure it has the votes to ratify any TPP deal; neither may the next Government. You can see why bipartisanship is so important to the negotiations.)


The deeper issue is that FTAs (and treaties generally) compromise domestic sovereignty – the power of a nation to do what it likes within its own borders. Compromise is not so much an FTA consequence as the price of international trade itself. In the course of trading with another country (or your neighbour, for that matter), you lose part of your ability to live an independent life. Yet there are benefits from the specialisation that trading facilitates, so some compromise is inevitable.


It is a bit like a marriage, but without the romance. The ideal is that each partner gives up some independence for a net result that leaves each better off.


International trade has been crucial in New Zealand’s development since Europeans arrived. It has always compromised our sovereignty, but generally, New Zealand has benefited from trade. Where would we be had Britain not given open access to our pastoral exports in the 19th century? Where would we be today without the China FTA?


The sovereignty issue is the elephant in the room. Although compromising sovereignty drives FTA critics and leaves the rest of us uneasy, we do not discuss it. Without addressing the issue, the public debate does not sound entirely rational – but that is not unusual in New Zealand politics.