The error would have been apparent to anybody who checked the original government statement, ‘Trade agreements key to removing import tariffs’
Tariffs have been reduced to 5 per cent or 10 per cent where they have not been eliminated entirely, and whereas they had been fixed until June 2011, they are now to be maintained at those levels until 2015 unless they are reduced by Doha (which is unlikely) or by FTAs. There is no retreat from Bogor, nor any major change of policy.
Ministers responded to advice from officials engaged in negotiating free trade or closer economic partnership agreements that they would be handicapped if they had no ability to offer concessional tariff reductions. Because of the reductions already made in New Zealand tariffs, only trivial costs to consumer welfare would be incurred. That conclusion was supported by an NZIER study, but there was vigorous debate among economists about whether any cost was worth sustaining to provide negotiating coin.
The argument accepted by the government is a little surprising. Most informed observers think that trade negotiators want to reach agreement, even if only for a quiet life, and are constrained not by a need to achieve more than they concede but by what can be ‘sold’ to their domestic constituencies. Furthermore, tariffs are now less important than economic integration through investment and services agreements and agreements on the application of behind the border regulations. However, sometimes we have to play silly games because of the demands of other players – trade negotiations have been conducted on the basis of reciprocity for 75 years since the US Reciprocal Trade Act of 1934 despite the inconsistency of reciprocity with economic understanding of trade.
The Bogor Goals are not at issue. It is a pity that their formulation in 1993 was not followed by development of a practical expression for ‘free trade and investment’, and by a plan for the gap between the 2010 target for developed economies and 2020 for developing economies. The UK in the mid-nineteenth century was as close to a free trade economy as the world has seen and it retained some tariffs. The US legal requirement for reciprocity was always a problem for the US to adopt free trade 10 years before China. An APEC stocktake shows that the achievement since 1993 has been substantial but simplistic journalism will easily find evidence of failure.
The New Zealand government may have created some problems for itself in giving succour to protectionist elements in trade unions and business. Furthermore, the New Zealand move will be added to the list of inconsistencies between anti-protectionist declarations and specific actions, a list headed by US ‘buy American’ clauses and including most G20 economies. It will be impossible to counter that by simple logic. But the government is right that it has done no more that create some ‘playdough’ for the political game of negotiations, an act which is virtually harmless in terms of loss of consumer welfare for New Zealand or elsewhere.
Earth Times created a non-story.