• Are We Willing to Pay any Price?

    No one doubts the benefits of extending our trade opportunities – but many are alarmed at a dangerous naivety in what passes for our trade policy. That policy reflects our unfortunate dependence on a single commodity; our anxiety to maximise our one trading advantage by currying favour with powerful trading partners has led us into some treacherous waters.

    We have, for example, rapidly built up a Chinese market for our dairy produce with the result that – without any assurance that that market will remain open to us – we are now virtually economic prisoners, forced to meet almost any Chinese demand in order to retain a market that has become our life blood.

    We have chosen, for example, to avert our gaze from the obvious effects of Chinese intervention in the Auckland property market for fear of offending Chinese opinion. More importantly, we have apparently not recognised that the Chinese interest goes beyond merely buying our products in a normal trading relationship, but extends to obtaining control of the productive capacity itself.

    Dairy farms themselves, processing plants, manufacturing capacity, expertise of various sorts are now owned by Chinese operators; their production increasingly by-passes New Zealand economic entities and suppliers and is marketed by Chinese companies directly to the Chinese consumer.

    There are of course many instances of Chinese capital being deployed across the globe in pursuit of assets and capacity. This is not a cause for criticism – the Chinese are entitled like anyone else to pursue their own interests. It is simply a statement of fact.

    We, however, seem unaware of what is happening. It is no accident that this direct supply to the Chinese market has accompanied a fall in the proportion of New Zealand dairy production handled by Fonterra. While the proportion of our dairy production under Chinese control is still quite small, there can be little doubt that it will grow. Low dairy prices will force the sale of a number of farms to foreign owners. As the Chinese increasingly control their own sources of supply, their reduced requirements for dairy produce on international markets will inevitably mean downward pressure on prices.

    Nor is it just the ownership of the physical product that has passed into foreign and often Chinese hands. The decision to allow non-farmer ownership of “units” (or, in other words, shares) in Fonterra has meant that we must now face the prospect of a significant part of the income stream from our most important industry to pass into private and often foreign hands.

    Our anxiety to improve the markets for our dairy produce has led us into another potentially dangerous relationship. Free access for those products into the US market has long been touted as the “holy grail” of trade policy. So keen are we to achieve this that we are apparently ready – in a so-called free trade agreement – to give up significant benefits, such as Pharmac’s role in achieving the relatively low prices we pay for pharmaceuticals, and to accept severe limitations on other aspects of our ability to organise the way our markets operate.

    Even more importantly, we will concede a large part of our powers of self-government by allowing foreign corporations to sue our government in specially constituted tribunals, and to force that government to change its policies and legislation – a power not, of course, enjoyed by domestic companies.

    The irony is that these sacrifices are most unlikely to achieve much of what we want. The US (and, more generally, the North American) dairy industry is too powerful and too protectionist to throw open its market to competition from efficient producers overseas; and they have yet to reveal their hand and to bring their political influence to bear on the negotiations we are still pursuing. We have, it seems, spent months making concessions in the hope that the US will at some point deign to offer a deal on dairy produce, with little evidence that such an outcome is at all likely.

    In instances like these, we over-estimate our ability to hold our own against the interests of much more powerful economies and over-state the degree of trust we can repose in them as economic partners. The Greeks have shown the price that can be paid for getting into bed with more powerful (and often more ruthless) economies.

    Perhaps the most recent instance of what we are prepared to give up for the sake of a free trade deal is the $11 million paid to a Saudi businessman in the hope that he would use his influence to swing such a deal for us with the Gulf States. There can have been no other reason for such a payment. John Key duly turned up, ready to sign the deal, but departed empty-handed.   We appear to have traded away our corruption-free record and reputation for the sake of a payback that didn’t materialise. “Naivety” doesn’t really cover it, does it.

    Bryan Gould

    11 June 2015


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