Friday, 22 January 2016

FREE TRADE


The world before free trade and the Trans Pacific Partnership

The Trans Pacific Partnership (TPP), about to be signed in Auckland by 12 Pacific Rim countries on 4 February, is stirring up thousands of protesters who seem to have had little to protest about since the now conveniently forgotten Y2K false alarm 16 years ago.

The TPP is intended to free up trade and remove tariffs from thousands of products among other things in a 6,000-page document that had its roots in a 2002 meeting between three Pacific leaders including New Zealand. In spite of widespread protests, more countries governments joined the talks and now the deal includes 40% of the world’s trade, making it the largest ever free trade agreement.

Many people have difficulty comprehending just how the deal will work and why it could be for the greater good of the people living in the countries affected. To many people, change of any sort is naturally something to be resisted. The unknown can be daunting. Their understanding is somewhat muddied by the outrageous claims and warning of people on the extreme left of the political spectrum, and people who believe in old world protectionism. There are warnings of mass unemployment, loss of sovereignty, corrupt politicians and selling out to big business. If these claims turn out to be correct, we can expect a mass lay-off of politicians in the 12 TPP countries over the next few years. Strangely, the majority of people in each of the 12 member countries believe that they alone stand to lose while all the other countries gain at their expense.

One person, Ian Brackenbury Channell QSM, a.k.a. The Wizard of New Zealand, is so upset at the pending agreement that he has decided to march from Christchurch to Auckland in protest at the signing, and hopefully to stop it. The Wizard is referred to here as a person, even though he once allowed all his official documents and licences to lapse so that he could be a fictional person. This writer would like to acknowledge that he does in fact occupy a small amount of real space, and that is not fiction.

To really appreciate the workings and advantages of free trade, we should look back to the way the world was before politicians started negotiating for something better. Better still, why don’t we look at New Zealand, now a world leader in free trade, and see how this small nation was once a chaotic land of barriers, borders and self-interest provinces and councils.

So the year is 1870 and New Zealand is divided into ten provinces; Auckland, New Plymouth, Hawkes Bay, Wellington, Nelson, Marlborough, Westland, Canterbury, Otago and Southland. Each province has a Legislative Council and a Cabinet. There is also a Federal Parliament and Upper House in Wellington, the capital. The total population for the ten provinces is considerably less than half a million, and so scarce is the population in some provinces that there is a danger that sheep may have to be drafted to fill public office vacancies.

Enter the Wizard of New Zealand on his walk from Christchurch to Auckland, in 1870, and here is what he may well have encountered along the way.

At the border between Canterbury and Marlborough provinces, the Wizard may have been asked to produce the passport that he didn’t believe in. Being a compulsive talker, he no doubt would have got around that one without too much difficulty, but the customs duty applicable to his wizard’s hat and staff could have been as much as 100% of the estimated value. Estimated, because he didn’t believe in keeping receipts.

NZ Tour Commentary
Entering Wellington Province, he may have also required a visitor permit as well as being called on for the payment of duties, bonds and whatever else they could throw at an unsuspecting wizardly traveller. He would have also had to prove that he had sufficient funds to sustain him on his travels without working and thereby causing unemployment among the local Wellingtonians.

In the 1870’s New Zealand was carved up into what was virtually ten dominions, each with its own laws, taxes and bureaucratic structures, but each was also under the firm control of the Imperial Government on the other side of the world. In short, it was a bit messy. Add to that a hundred or more local county and borough councils, and messy becomes distinctly muddy.

The Wizard would have found that Auckland products could only be sold in other provinces on payment of customs duty and the volume of sales would be subject to a quota system. Down in Westland there was almost enough timber to supply the whole country, but that wouldn’t matter much if a Westland miller was only allowed to sell one tree a year to a customer in Canterbury, and none to Auckland or Wellington, because they wanted to protect their own timber industries.

Skiers taking a skiing holiday in Queenstown (Otago Province) may have been required to part with a bond at the border to prevent a duty-free sale of their skis while in the province. People living in cities would have been obliged to keep a cow, a sheep, a pig or two and some chickens because of the cost of importing them from the countryside. Sharing with their neighbours would have attracted a council tax and a licence. Let’s not get into a discussion about dog control.

But having provinces was not the only handicap for trade and living standards. Local councils were in on the act too. Vegetables grown on the edge of town could only be sold in those towns for fear that growers may be put out of business elsewhere. People born in one town were discouraged from working in other towns, and if they came poking around a neighbourhood they were often told to get back to where they’d come from.

People who had discovered that Tauranga and Nelson had the most sunshine dreamed of retiring there, but local government only wanted them to stay for a maximum of three months a year so that put paid to that idea. In fact, in the 1870’s most people didn’t live long enough or acquire enough wealth to retire. Times were tough.

After years of fierce debate, New Zealand’s provincial system was finally abolished in 1875, and with it many of the ridiculous restrictions that had hindered progress. For New Zealand it was the most important step forward since the founding of the colony in 1840. Similar restrictions in the Australian colonies persisted until Federation in 1901 and all Australia became one market for the first time. New Zealand was invited to become a state of Australia in 1901, but protectionism stopped that. From that point onward New Zealand became Australia’s poor cousin.

However, in recent years with the signing of two Australia-New Zealand trade agreements, New Zealand has done a lot of catching up and now the two countries are close to equal in economic terms, and closer as economic partners than ever before.

But the situation in New Zealand in 1870 was typical of most of the world at that time; short-sighted thinking, closed markets, closed labour markets; a permit, a licence, a tax for everything. It was a world where people were expected to prosper by being restricted.

The opponents of the TPP, as they scream their heads off, don’t seem to understand they have three choices; back to the 1870’s, the present situation frozen for evermore, or progress to a new level of prosperity, international co-operation and understanding.