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McLay, Hon Jim --- "New Zealand's Free Trade Agreement with China in context: Demonstrating leadership in a globalised world" [2009] NZYbkNZJur 2; (2008-9) 11-12 Yearbook of New Zealand Jurisprudence 1

Last Updated: 25 April 2015

New Zealand’s Free Trade Agreement with China in Context:

Demonstrating Leadership in a Globalised World

Hon Jim McLay CNZM QSO*

I. IntroductIon: PuttIng the FtA Into context

There are many ways to put New Zealand’s Free Trade Agreement with China into context; one might be to contrast the signing of the Closer Economic Relationship Agreement (CER) with Australia in March 1983 with that of the China FTA almost 25 years later, in April 2008. The ceremonies — if the first could even be so described — could not have been more different. CER which is still regarded as the world’s ‘cleanest’ free trade agreement — was not exactly signed in secrecy, but it might as well have been. Neither country attended and the ‘signing’ was done by video link. Signing was delayed because Australia’s incoming Labor Government wanted to review CER’s terms before agreeing to them. Prime Minister Muldoon, only a convert to CER,¹ was worried about the economic and political implications of a deal strongly opposed by New Zealand manufacturers and not seen to advantage by exporters.

Twenty-five years later, the China deal was ushered in with great ceremony. The then Prime Minister, Helen Clark, attended the Beijing signing, as did her Chinese counterpart, Wen Jiabao, whose presence signified the importance of the agreement, and 150 business and local government representatives bore witness. The media gave justifiable publicity, and speculated widely

— often wildly — on its prospects. How is it that, over twenty-five years, New Zealand has come from (at best) qualified to full support for free trade to a situation where, today, all our major political parties support free trade.²

We have, of course, always advocated open borders for agriculture;³ but our manufacturers were deeply suspicious of anything more. Indeed, National

* I express my appreciation to Tom Groser MP and Hon Hugh Templeton, who provided valuable input and original thinking to this address. Wherever possible, I have tried to attribute those sources; but, any errors or omissions — and, above all, the views expressed

— remain my personal responsibility.

1 This conversion was largely achieved through the efforts of Hugh Templeton.

2 On the political Left, that’s due, in no small part, to the efforts of Mike Moore in the 80s and 90s.

3 Tim Groser MP, to the writer, in May 2008. Groser advises he never had to convert Prime

Minister Muldoon to that particular cause; he was always a believer.

Party folklore had it that, just before the 1972 election, manufacturers put notes into pay packets warning that National was freeing up imports, and that would cost jobs — so, it was understandable that older MPs regarded free trade with apprehension.

CER has been a great success because it was the first step in opening up the New Zealand economy. However it has also been a disappointment: first, because many companies still think primarily of a New Zealand market, not a combined CER market; and second, because, in addition to the political reluctance in New Zealand⁴, its logical progression, a Single Economic Market, is not a big enough issue for any Australian politician to ‘champion’. That disappointing situation contrasts with both NAFTA and CER, which had enthusiastic champions such as Jack McEwen and Jack Marshall championing of NAFTA, and the championing of CER by Brian Talboys, Hugh Templeton, and Doug Anthony.

II. Why Should countrIeS trAde together?

Trade should be one of the best guarantees of peace — common sense dictates countries should not bomb their markets, and largely that is true. Woodrow Wilson saw ‘equality of trade conditions among all the nations’ as one of his Fourteen Points⁵ embodying the idea that countries that traded with one another wouldn’t fight one another. There is some experience to the contrary: the pre-1914 trade between Britain and Germany being a case in point, but Europe’s strong, largely trade-based peace since 1945 suggests that was an exception that proves the rule. Moreover, since 1945, there’s been plenty of

4 Hon Hugh Templeton clearly rues the lost opportunity. In a note to the writer (June 2008):

‘A major failure of New Zealand (and Australian) governments has been in not carrying CER through to a Single Market by 1995-2000 ... both countries needed, as globalisation proceeded, to maximise [their] strength, and to combine and cooperate in negotiating with ASEAN, Asia, the Americas, Europe ... cooperation in my view was essential in the food

— eg dairy, meat, horticultural (think Tasmania) — wood and fibre, minerals, energy ... and water (that problem was already obvious) ... Doug Anthony did push the case for a Common Market ... [in] a major speech he made in 1987.... [he was] very strong on the value of a combined Australasia ... he knew how it helped in negotiation with say Japan ... they looked on us as a region ... I suspect so do the Chinese and Indians ... it was so obvious

... even Time magazine [14 September 1992] ran a cover story “Let No Man Put Asunder”

... we should be pursuing an Economic Union now in Anzac ... and South Pacific interests

... in relating to the four great entities you specify ... America Europe China and India. By failing to join with Australia, New Zealand’s investment in growth, specially in energy and in productivity, has remained lower than it might have been, and our workforce has begun to move to the bigger centres at an alarming rate.’

5 US President Woodrow Wilson, President Woodrow Wilson’s Fourteen Points, Address to joint session of the US Congress, 8 January 1918, available at <http://avalon.law.yale. edu/20th_century/wilson14.asp> accessed 14 December 2009.

evidence that ‘[market] economies that engage in trade grow rich together, not at each other’s expense ... As each country grows more prosperous, it becomes a bigger market for another’s exports, helping it, in turn to advance

... Trade is a positive sum game.⁶

A. Why New Zealand?

For New Zealand, grabbing the opportunity to negotiate an FTA with China should have been a ‘no-brainer’ — after all, China is our third-largest trading partner (after Australia and the US). China already had FTAs with developing economies;⁷ but why, of all countries, did it choose New Zealand for its first developed country agreement? Maybe it is because, in 2004, we were the first to acknowledge China as a market economy; possibly because New Zealand is a small country with no ‘threatening’ trade patterns; probably because we are an open market. Nevertheless, we are, in every way, irrelevant to China’s export drive. Above all, however, for China, the central issue is food; this was just one small step towards food security — and so, it was negotiating with a significant, successful and unsubsidised food exporter. China is so intent on achieving food security it is even considering buying farm-land in other countries.⁸ The latter is probably the wrong strategy because, as Tim Groser has observed, land is only the ‘hardware’ of food security — the real key is productivity itself. China’s growing population requires food, water and arable land and (like India, another FTA target for New Zealand) it is short on all three whereas food still accounts for 60 per cent of all New Zealand’s exports.⁹

All-in-all, this situation provides New Zealand with very strong future prospects; and that is despite the fact that, twenty-five years ago, some politicians saw ‘agriculture [as] ... a sunset industry ... instead, information

6 Editorial, The Economist; 13 November 1993.

7 For example, with Jordan and Pakistan.

8 Jamil Anderlini, ‘China Eyes Overseas Land in Food Push’, the Financial Times, 8 May

2008. Under a proposal drafted by its Ministry of Agriculture, the Chinese government plans to encourage companies to buy farmland abroad, particularly in Africa and South America, to help guarantee food security. This plan faces several obstacles, including legal barriers to foreign ownership of farmland, and possible export bans. For example, Argentina has banned beef exports, Egypt and India have stopped shipments of rice, Kazakhstan has prohibited wheat exports, Russia has imposed a 40% export duty on shipments, and Pakistan a 35% duty and Cambodia, Malaysia, Philippines, Sri Lanka, and Vietnam — even China itself

— have imposed export controls or rationing to ease the current food crisis.

9 Dairy, meat, horticulture and seafood contribute about 60% of our exports and employ one

in five workers.

technology, biotechnology and the creative and performing arts were regarded as the great hopes for the economy ... agriculture lacked the silver screen factor.’¹⁰

As Mark Twain said of his own, premature obituary, reports of food’s demise were ‘greatly exaggerated’. To take full advantage of this situation, New Zealand must increase its exports, and, to achieve that increase, it needs higher productivity. The requirement of increased productivity begs the question of whether we are not already productive, most particularly in agriculture. New Zealanders work more hours than Canadians, Australians, Americans, and all Europeans, but we are less productive; and the difference comes down to a lack of productive investment. For the whole of this decade, we have had weak labour productivity growth. Since 2000, it has averaged just 1.1 per cent. By comparison, Australia’s higher ratio of capital to labour delivers faster labour productivity growth.

Globally, agriculture uses 70 per cent of all fresh, available water.¹¹ New Zealand ‘exports water’. Water is one of our most valuable resources, but it is difficult to acquire and heavy to transport and, above all, it is not managed well as New Zealand did little more than carry forward the ‘first-come-first- served’ water right provisions of the old Water and Soil Conservation Act when the Resource Management Act was passed in 1991. The Ministry for the Environment has urged introduction of tradable water rights to ensure efficient resource allocation. In May 2008, the Green Party proposed a water resource levy but it stopped short of proposing tradable rights. By comparison, New Zealand’s fishery resource is managed under Individual Transfer Quotas (ITQs), bitterly resisted when first introduced, but now recognised as International Best Practice. Arguably then, if fish swim in it, it is probably in need of more efficient allocation.

Overall, however, there is a clear message. Other countries need our food and taking account of ‘our science capabilities, entrepreneurial excellence in agriculture and hopefully better management of our abundant water supplies’, we have what former trade negotiator Tim Groser has described as ‘a fantastic future’.¹²

10 Professor Jacqueline Rowarth, The Price of Milk, Alumni and Friends; issue 24; April 2008

Massey University.

11 It is over 80% in the US.

12 Tim Groser MP, NZ — Food Basket for East Asia?; May 2008.

III. nZ—chInA FtA: A SPrIngboArd For other FtAS?

The New Zealand-China Free Trade Agreement was not just a significant relationship milestone; it was also, as Helen Clark said, ‘the most important event in the 2008 trade calendar.’ It is a potential springboard for deals with Japan, Korea and India, as well as ASEAN. It opens up other possible deals, maybe in the Gulf. The FTA might prompt others to accelerate their negotiations with New Zealand and it may mean we have stolen a march on others, such as Australia, whose previously parallel negotiations with China had stalled some time ago. One of the advantages of FTAs with China and, possibly Japan and Korea, would be access to those markets should they ever follow the EU model of a customs union or single economic market.Following the China agreement, the former Prime Minister received indications that Japan would consider something similar. However, although the ‘promise’ was ambiguous, and came from a weakened Japanese Prime Minister who may not have been able to deliver, it was still important. Japan is New Zealand’s third largest market, and many of our exports there presently face tariff and other barriers but since Japan is only 39 per cent self-sufficient, its real issue is food security.

Our trade gains from the China FTA are currently estimated at $350 million, with a further $100 million in tariff savings; but as CER shows, potential returns are much higher. The China FTA has its shortcomings. It will take more than a decade for significant sectors such as dairy and forestry to achieve free trade; and enforcing contracts will not always be easy — but even that situation is ‘slowly changing for the better’.¹³ Overall, however, it’s ‘phase- to-zero’ for nearly all products over time; basically, within ten years, China’s market will be fully open to New Zealand. We will eliminate all tariffs on Chinese goods by 2016 and China will remove tariffs on 96 per cent of our goods. The end of 2008 saw the end of duty on nearly one third of our exports. As Helen Clark said, ‘It is in all our interests that China is involved in rules- based multilateralism ... the commitment China has made to New Zealand, and in its World Trade Organisation accession agreement, shows that it is serious about that too.’¹⁴

A. Policy continuity

Policy continuity is one of the keys to a successful, long-term, treaty-based trade relationship. New Zealand has that continuity with trade policy unanimity among the major parties and China gives every similar indication.

13 James, above n.

14 Rt Hon Helen Clark Prime Minister, Address at New Zealand Labour Party Congress, Wellington 12 April 2008. Emphasis added.

B. The economic context

There are a few slightly worrying signs. In 2008, China’s inflation was expected to increase, and, just as the agreement was signed, Chinese exports and investment were both softening. However there will be many such cycles over the life of such agreements, in both countries, and these should not be a deterrent.Moreover, there is reason to expect China’s strong growth to continue well beyond the Olympics — it is estimated that, from 2007 to 2010, the Games will continue to feed its 12 per cent plus annual growth, creating

745,000 more jobs; and it’s spending $US 40 billion on Olympic-related infrastructure, making Beijing almost unrecognisable.¹⁵ China’s current five- year plan will see $US 420 billion invested in new infrastructure. A couple of other startling figures indicate China’s potential such as the purchase of

44 million cellphones in the first six months of 2008 and the building of 500 coal-fired plants in the next decade. Only the most anti-trade and insular could ignore that potential.

IV. Why Free trAde?

Historically, free trade was one of the great public policy debates and was certainly so in Britain in the mid-to-late1800s. Governments were once protectionist, but gradually stopped trying to protect against economic forces from outside their borders. Rather, the move away from protectionism was more than just a change of policy because, in today’s globalised world, Governments are simply less able to provide such protection. Moreover, changes in domestic societies — in ideas, interests or national policies

— have both resulted from and been driven by international changes such as globalisation, as well as development of new institutions (such as the WTO and its GATT predecessor), changes in the relative power of different countries.

A. Free trade in the context of domestic politics

Domestic politics are also key to a successful FTA and to trade policies in general, as can be seen with NAFTA and, more so, with CER. We saw political opposition to the Chinese agreement, albeit only from small parties accounting for only 13.1 per cent of the 2005 party vote,¹⁶ which argued either on human rights grounds or on the concern that China’s lower wage and labour standards would make it difficult for our firms to compete. However, because New Zealand’s tariffs on other countries’ goods are already low, trade diversion

15 China’s Post-Olympic Economic Swoon? Forecast by Jonathan Anderson of UBS.

BusinessWeek; 6 August 2007, forecast by Jonathan Anderson of UBS.

16 The Green (5.3% party vote in 2005 election), New Zealand First (5.7%) and the Māori

(2.1%) parties voted against legislation ratifying the agreement in May 2008.

will be limited and adjustment will be minimal compared with the time when import licensing was removed and tariffs were reduced. While substantial public support for the FTA was clear, opinion polls suggested just under one third of New Zealanders were opposed to the deal.¹⁷ This figure is consistent with other countries where antagonism to FTAs can be even more pronounced. Such deals are currently a hot political issue in the United States where,

‘NAFTA and Mexican immigrants are the culprits of first resort of laid-off Midwest workers ... .’¹⁸ In April 2007, President Bush submitted a Colombia Trade Promotion Agreement (not even a Free Trade Agreement) to Congress for approval under the ‘fast-track’ authority — and the Democrat-controlled House of Representatives immediately suspended the 90-day approval time frame, an unprecedented departure from the statutory requirements for trade agreements and we can expect more of the same.

V. the FtA In the context oF globAlISAtIon

The term globalisation means different things to different people; but for convenience in this context, it might simply (but narrowly) be described as ‘international economic integration’. Globalisation is not, of course, the only force at work in the world; there are many important contemporary, social, political or economic challenges: inequality, economic growth, employment, job creation, development, democracy, culture, environment and innovation.

Is globalisation just another of these issues or is it also an external force that influences those issues? I incline to the latter view. There is concern that globalisation might weaken governments, making it difficult to maintain welfare, labour or environmental policies, or other fiscal or redistributive measures; but ‘strong evidence for [such claims] has so far proved to be hard to come by.’¹⁹ Indeed, there is still a strong view that globalisation is beneficial for long-term economic growth, and the debate on globalisation raises further questions such as whether it is irreversible In the face of globalised communication and travel, I would suggest that it is only reversible at the margins. In response to questions relating to the effects on wages, inequality, social safety nets, production and innovation, such effects must surely be beneficial, if one accepts that globalisation promotes trade, and trade begets

17 New Zealand Herald DigiPoll, 12 May 2008. The Poll showed 49.1% support and 32.7% opposition to the FTA. Methodology: Interviews of 769 New Zealand eligible voters, conducted between 5 and 26 April 2008 with a margin of error of 3.6%.

18 Albert N Milliron, Chief Political Correspondent, Politisite Political Projections: Pennsylvania is Key; Iron Mill Interactive Media, Inc; 21 April 2008.

19 Mark Thirlwell, Second Thoughts on Globalisation, Lowy Institute for International Policy;

2007.

economic growth. According to Mark Thirwell, national institutions dealing with tax systems or commercial regulation can cope with globalization.²⁰ As to whether globalisation affects relations between developed and developing countries, the answer must surely be that it does so favourably if they are trading together. The question may also be asked as to whether free trade is the same as or is different from capital mobility and whether one can be supported but not the other. The answer to both questions is ‘yes’ — but a combination of both free trade and capital mobility is better. There is the further question whether attitudes towards free trade and capital flows depend on the economic interests of those taking those positions. This question must, almost certainly, be answered in the positive — arguably, there is no reason as to why positive attitudes should not prevail. There is a final question relating to the influence of globalisation on democracy. I would suggest that the influence is positive, particularly as successful economies tend also to be democracies.

Nevertheless, the question remains to be asked; has the globalisation tide started to ebb? The Wall Street Journal recently observed that we should, ‘Say adios to the flat world of multilateralism and deregulation ... Natural barriers have risen as states increase control over resources, boost protectionism

— even seek borders on the World Wide Web ... [and that we should] expect increased resistance to immigration and more difficulty reaching global environmental accords.’²¹ However that change is all at the margin, and does not herald a return to full-blown protectionism; the globalisation genie is well and truly out of the bottle. We are past the time of uncritical acceptance of globalisation; but we are also well past the point where it can be significantly reversed. Indeed, ‘many of the forces driving globalisation are likely to persist and so counterbalance any change in policy direction.’²²

There are certain facts that cannot be ignored. First: One third of the world’s people have ‘been brought into the global goods and services trading system and that has created competitors for the previously dominant rich countries.’²³

Secondly, ‘Developed economies are increasingly trading with developing economies’²⁴ which increases their prosperity. Thirdly, ‘the big economic story of the last twenty-five years has been the lifting of hundreds of millions of people from the US$1 dollar a day bracket to the $2 a day income bracket.’²⁵

In short, while globalisation might not have seen ‘the triumph of western

20 Ibid.

21 A New Turn: Global Ties Fray as Governments Reassert Roles, Wall Street Journal, 29

April 2008.

22 Thirlwell, above n 19 .

23 Colin James, Hugo Group CEOP Conference, April 2008.

24 Ibid.

25 Groser, above n 12.

capitalism’²⁶ it has genuinely benefited lesser economies, to the point where there are no longer one or two globally dominant players — there are now at least four, the US, China, India and the EU.

Globalisation does have its risks. A recent Ernst & Young survey observed that, as companies become more and more global, compliance becomes a greater challenge, forcing them to manage diverse regulations in different markets:

‘... managing regulations in ten jurisdictions is one thing ... what happens when a firm has significant markets in 30-40 countries at varying levels of development and with very different regulatory traditions ...?’²⁷

V. bIlAterAl FtAS In the context oF

MultIlAterAl trAde AgreeMentS

In April 2008, an eloquent plea for progressing the Doha Round from the Secretary General of the OECD fell on predictably deaf ears.²⁸ As politicians know, it takes a crisis — a real crisis — to drive reform; highlighted by the urging from UN Secretary-General Ban Ki-moon in June 2008 for immediate suspension of price controls and other agricultural trade restrictions to bring down soaring food prices. Speaking at the special FAO food crisis summit, he pressed for easing of farm taxes, export bans and import tariffs to help millions

26 James, above n 23.

27 Ernst & Young; Strategic Business Risk: 2008: the top ten risks for global business’, 2007, p 10, available at <www.ey.com/Publication/vwLUAssets/Strategic_business_risk:_2008_-

_the_top_ten_risks_for_business/$FILE/EY_Strategic_Business_Risk_2008.pdf> accessed

15 December 2009.

28 According to Angel Gurria, Secretary General of the OECD:

Amid the hand wringing [about weakening economies and soaring food prices], an important and immediate step ... to help would be to agree on a new multi-lateral trade deal.

Freeing up trade in goods and services can give the world economy a powerful boost in terms of increased innovation and productivity ... a 50% reduction in tariffs and other trade-distorting support in agriculture and manufactured goods alone would generate global welfare gains estimated at annual $44 billion.

Developing countries in particular stand to gain GDP per capita growth of 2% from full liberalization of tariffs.

... [But] curbs on farm outputs and exports are exacerbating the current food crisis. Agreement on the Doha Round now, he said, ... would bring large and widespread economic gains. In today’s gloomy environment, this is no longer the unnecessary luxury some may have mistakenly considered it to be. It’s a matter of real urgency. Free markets benefit consumers. They create more competition, lowering prices. Protectionist, tariff barriers hurt consumers by artificially inflating prices.

Angel Gurria, Trade Agreement Needed Now, New York Times, 25 April 2008, available at

<www.nytimes.com/2008/04/25/opinion/25iht-edgurria.1.12346512.html?_r=1> accessed

15 December 2009.

of poor cope with the highest food prices in thirty years; and for phasing out stupid (my word, not his) subsidies for food-based bio-fuels that encourage farmers to grow crops for energy rather than food.

This view is good news for New Zealand. Our unsubsidised dairy farmers pay, on average, $40,000 a year in tariffs, sheep farmers pay about $20,000. Such moves would bring down food costs, benefiting the world’s poorest and allowing third world farmers to produce at worthwhile prices to sell into open, competitive markets. It has also been pointed out, however, that the UN can only suggest such moves, which have long been urged by the World Bank and others to relieve high food prices and shortages; so it was somewhat surprising that, in opening the FAO summit, Italian President Giorgio Napolitano should claim that, ‘World public opinion has been taken by surprise by the explosion of a rapid chain of events affecting food followed by the rapid, dramatic rise in the price of foodstuffs.’²⁹

VII. the MorAl dIMenSIon oF Free trAde

What about the domestic policies of those with whom we trade, particularly labour rules, environmental regulation or human rights? Should we refuse to trade with those who do not meet our standards? New Zealand is a truly mercantile nation — heavily dependent on trade with many countries. If we started making those judgments, they would never end. But, is there a point at which trade is unacceptable? Obviously, with UN or Commonwealth sanctions, it is easy to decide. In the absence of such measures, are there circumstances in which New Zealand should ‘draw a line in the sand’ or should we take the view that trade relationships should not be judgmental and that they might even facilitate improvements in the conditions complained of?

When Helen Clark went to Beijing, her approach was cautious, simply urging Prime Minister Wen to hold talks with Tibet’s Dalai Lama. By contrast, in the same week, when Australian Prime Minister Rudd addressed students at Peking University, speaking in fluent Mandarin, he referred to Tibet’s ‘significant human rights problems’.³⁰ Understandably, China reacted adversely, but his comments did not jeopardise his visit. Indeed, he went home with agreements

29 Address by His Excellency Giorgio Napolitano, President of the Republic of Italy, High- Level Conference on World Food Security: the Challenges of Climate Change and Bioenergy, Rome, 3-5 June 2008, available at <www.fao.org/foodclimate/conference/statements/day1- am/en/> accessed 16 December 2009.

30 Hon Kevin Rudd MP, A conversation with China’s youth on the future, Peking University, April 2008, available at <http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/

0I4Q6/upload_binary/0i4q62.pdf;fileType%3Dapplication%2F.pdf> accessed 15 December

2009.

on climate change and a revival of stalled Australia-China trade negotiations. It has been said that the ‘key to Rudd’s early success [had] been his sophisticated understanding of Beijing’s ‘red lines’ in relation to the Olympic Games and the Tibet issue.’³¹ Rudd made his criticisms as a Zhengyou (true friend) of China; and he also reaffirmed Australia’s recognition of Chinese sovereignty over Tibet and stated his opposition to boycotting the Beijing Olympics. China relies on Australian energy and resources, which might give Rudd an unfair advantage over his Western counterparts; but it is suggested that others, ‘would still do well to examine his approach in greater depth: [as] he may have uncovered a viable “third way” between coddling and confronting China’s Olympic sensibilities.’³²

Australia and New Zealand have found different ways of placing these issues on the diplomatic table. Without criticising New Zealand’s choices, I personally prefer the former’s more nuanced approach. Above all, the message to New Zealand’s partners must be that we will trade with you, but when we do, we will bring our values with us and we will not be reluctant to table them in an appropriate manner; just as we seek to understand your issues, we ask that you understand ours. The best way of addressing differences is through relationships (including trade) and through open and frank dialogue and understanding, not through boycotts and megaphone diplomacy. However, New Zealand’s partners must also understand that our consumers are free to form their own views, as they may already be doing on food and product safety. In the future, New Zealanders may even take a dim view of designer labels produced in less-than-ideal conditions and may be likely to express these preferences through their buying patterns. Consumer choices may well influence future policy but that influence can only happen if we first facilitate trade.

Can New Zealand insist that external rules, such as labour standards, be incorporated into FTAs or future WTO agreements? That approach is attractive. On the face of it, as some would argue, it makes sense to call for improved standards in countries known for poor conditions. However, in that event, the WTO, a forum for multi-lateral trade deregulation, would soon become an international labour and environmental regulator — and nothing would more quickly destroy the cause of international trade and global economic development. Moreover, such insistence would be seen, in many countries at best, as no more than thinly-veiled protectionism imposed by those who fear job losses to lower-cost countries and denying such countries one of

31 Brendan Taylor, Australia’s Turn with the Torch: An Illuminating Episode, Strategic and Defence Studies Centre: Australian National University, May 2008, available at <http://csis . org/files/media/csis/pubs/pac0825b.pdf> accessed 15 December 2009.

32 Taylor, ibid.

their few competitive advantages, that of a low cost structure. At its worst, such insistence could be characterised as yet another example of prosperous, western-style hegemony.

In the aftermath of the 1999 Seattle WTO débâcle, a Brazilian Minister correctly said that, ‘developing nations [stood] absurdly accused, by new and old protectionists alike, of taking advantage of the doubtful benefit of being poor.’³³ The best way to help poor countries — particularly, to improve their environmental and labour standards — is to give them free and open access to the markets of the rich. The easiest way to damage poor countries is to impose standards that they cannot possibly meet. Singapore is a prime example. Forty years ago, it was one of Asia’s poorest countries, with low environmental and labour standards. Today, Singapore is richer per capita than New Zealand with higher standards, all of which resulted from economic growth.

Many countries with which we trade have, by our measures, poor labour, environmental and other records. A leading head-hunter has observed of the Gulf States, which are increasingly significant as trade partners and a possibility for a future FTA, ‘A lot of people feel uncomfortable with the poverty ... if you like civil rights and opera, then you are coming to the wrong place.’³⁴ The Gulf States admit hundreds of thousands of South Asian labourers. They have poor records of non-payment of wages and bad living conditions and low-income expatriates are not allowed to bring in their families. However, trade was the basis for sustained pressure from groups such as Human Rights Watch, which led Dubai to agree to improve conditions for migrants, although enforcement remains an issue. Such improvement would probably have been possible without a trade relationship. The record shows that engagement offers better prospects for progress on such matters than boycotts and isolation. New Zealand has a proud human rights record, domestically and internationally, but it is best pursued separately from trade.

A. Understanding different approaches.

What if a trading partner is not compliant with an international accord, such as Kyoto? There will be those at the extremes of, for example, the climate change debate who would advocate trade restrictions on countries that do not adhere to their view of the world. Even when we, as New Zealanders, ‘take our values

33 WTO MINISTERIAL CONFERENCE Third Session, Brazil, Statement by H E Mr. Luiz Felipe Lampreia Minister of Foreign Relations, 1 December 1999, WT/MIN(99)/ST/5, available at <www.wto.org/english/thewto_e/minist_e/min99_e/english/state_e/d5243e. pdf> accessed 15 December 2009.

34 Simeon Kerr, Boom in Gulf boosts quality of workforce, Financial Times, 29 April 2008, available at <www.ft.com/cms/s/0/d2baed50-14c3-11dd-a741-0000779fd2ac,dwp_ uuid=24c62b4c-11c6-11dd-9b49-0000779fd2ac.html> accessed 15 December 2009.

with us’ as we do these deals, we also need to understand and accommodate the different approaches — cultural, political and economic — of other countries and cultures. Continuing with the example of climate change, one of the themes at the 2007 Sydney APEC meeting was the Asian view that, ‘while Europeans and Anglo-Saxons might like the notion of defined commitments and monitoring processes, Asian preferences are different’³⁵ — that Asia ‘will act on climate change but will not accept Kyoto-type commitments’³⁶ and that

‘the climate change debate needs some Asian pragmatism.’³⁷ Such countries

‘are likely to approach the issue on the basis that human activity is changing the atmosphere undesirably’, but with more ‘skepticism about ‘tipping point’ arguments which are used to generate a sense of urgency ... [and a view that] difficulties which require new thought ... are not helped by vehement assertion’.³⁸ How should New Zealand react to such an approach? I would suggest that, with understanding, we might even learn something.

VIII. concluSIon

As will be clear, I support free trade and all it brings; and so, despite some niggles, I applaud those responsible for this deal. It enhances our ongoing moves to an open, competitive economy; exporters will benefit from better access to a large, rapidly growing market; investment and business links will strengthen; and it has attractive most-favoured-nation provisions and liberal investment and immigration arrangements. Like CER, it is clean and relatively comprehensive, which enhances its wider strategic value. The quality of this agreement suggests that China might be willing to assume some leadership in international trade negotiations — very welcome in times of protectionist pressure and when the Doha Round is faltering. Furthermore, domestically, removal of most tariffs and other trade barriers should improve our resource allocation, thus contributing to economic growth, and will lower prices to our consumers.

Above all, this agreement is founded on observable truths that trade is a positive sum game; that countries that trade together grow rich together, not at each other’s expense; that trade is key to prosperity; that free markets benefit consumers by creating competition and lower prices; and that free trade is in the interests of both countries. That is the case for the China FTA, as it was for others, including CER — as well as North America’s NAFTA,

35 Gary Hawke, Internationalisation and the Future of the School of Government, 4(1) Policy Quarterly, 2008, p 5, available at <http://ips.ac.nz/publications/files/17a92d0e8ea.pdf> accessed 15 December 2009.

36 B Desker, (2007) ‘ASEAN: act on climate change’, RSIS Commentaries 109/2007.

37 Hawke, above n 35, p 6.

38 Ibid, p 7.

the WTO, even the European Union. In the longer term, we must still focus on multilateral trade negotiations such as Doha; but pursuit of bilateral or regional free trade agreements will continue to be of great value, particularly now that tariffs are low and the costs of trade diversion are small. To those nay-sayers who oppose free trade, one can only point to the benefits of such deals (not least, 25 years of CER), and ask, ‘on what principle is it that, when we see nothing but improvement behind us we are to expect nothing but deterioration before us?’³⁹

When I took over from Sir Robert Muldoon as National Party leader, I said CER might stand as his greatest achievement; and, with Trans-Tasman trade having grown at an annual average of nine per cent since 1983 (greater than our combined GDP growth rates), that has proven to be an accurate assessment. It is one of the ironies of politics that Helen Clark left the political scene having achieved free trade agreements with Thailand,⁴⁰ Singapore,⁴¹ Chile, Brunei and China,⁴² and having laid the ground for potential deals with ASEAN, Korea, Japan, and India amongst others, thus ensuring that trade liberalisation may also be her greatest legacy.

39 Thomas Babington Macaulay, ‘Southey’s Colloquies on Society (January 1830), Critical and Historical Essays Contributed to the Edinburgh Review’, Vol 1, (189), pp 215-265, at

265-266.

40 The New Zealand-Thailand Closer Economic Partnership Agreement came into force from

1 July 2005.

41 The New Zealand Singapore Closer Economic Partnership Agreement came into force on

1 January 2001.

42 The Trans Pacific Strategic Economic Partnership Agreement with Singapore, Chile and

Brunei Darussalam was concluded on 3 June 2005.