Milking the deal

Foreign Control Watchdog 106 | August 2004

Milking The Deal

Headlong Into A Free Trade Agreement With Thailand

Christine Dann

On October 21st 2003 a photo of New Zealand Prime Minister Helen Clark and Thai Prime Minister Thaksin Shinawatra shaking hands and smiling broadly appeared in the Christchurch Press. The headline was "Thais offer trade deal surprise". Meeting with Thaksin ahead of the 2003 Asia Pacific Economic Cooperation (APEC) Leaders Summit, Clark was reported as saying that "...Mr Thaksin had been as ’keen as mustard’ to sign a free trade agreement (FTA) with New Zealand, surprising New Zealand trade officials who did not think a second Asian FTA was even on the discussion table" (Press, 21/10/03).

This was certainly the impression which the Green Party Co-Leader Rod Donald had gained from his questions to Trade Negotiations Minister Jim Sutton about the likelihood of an FTA with Thailand, which he began asking in 2001. They had all come back with a "nothing much happening on either side" response.

What changed so suddenly towards the end of 2003? On Thailand’s side, the Thaksin government had made a decision to pursue bilateral agreements as a priority, had already signed one with China, was negotiating several others (including the one with Australia, which it signed at the beginning of July 2004), and was planning for still more (including the one with the USA, which it started negotiating at the end of June 2004). On New Zealand’s side, there was also some pushing going on - from big business. On October 22nd 2003 the Press ran another article on the Thai FTA, headed "Fonterra butter in free trade sandwich". David King reported that:

"Fonterra has emerged as a prime mover behind the push for a free trade agreement with Thailand. Former chief executive Craig Norgate wrote to the Government earlier this year pushing for a deal, which is now on the cards...Fonterra’s co-ordinator of trade strategy Fiona Cooper said the deal was ’good news’ for New Zealand’s biggest exporter...Thailand was a top-10 market for the country, she said. Ms Cooper said Mr Norgate wrote to the Government registering Fonterra’s significant trade interests in Thailand and ’asking them to get on with it’. ’I don’t know whether there’s any cause and effect there (with getting the deal),’ she said" (Press, 22/10/03).

Fonterra certainly has a powerful friend in Government in the form of the farmer (or should that be agri-businessman?) Trade Negotiations Minister, Jim Sutton, who said to the Dairy Farmers of New Zealand conference in June 2003 - "International trade issues are vital for people in our primary production sector. Our biggest exports are dairy products, meat products, and forestry products. More than 90% of all dairy products produced here in New Zealand are exported, 90% of all lamb, and 80% of all beef, is exported".

Creative Accounting

Mr Sutton went on to say that Government was doing its best for these and other export interests by allocating more than $73 million over four years in the 2003 Budget to fund a range of initiatives to enhance New Zealand’s trade performance. The 2003 Budget also allocated a further $14.2 million over four years (and $3.2 million a year thereafter) to support the World Trade Organisation (WTO) and other free trade negotiations.

He then went on to extol the benefits to agricultural commodity exporters allegedly achieved by the Uruguay Round (UR) of multilateral trade negotiations, conducted under the General Agreement on Tariffs and Trade between 1986 and 1994. According to a Ministry of Agriculture and Forestry/Ministry of Foreign Affairs and Trade (MAF/MFAT) study released in September 2003 ("An Assessment of the Gains to New Zealand of the Uruguay Round of Trade Negotiations")’’... the overall estimate of UR gains is in excess of NZ$9 billion, most from the agricultural sector’’. It was further estimated that increased imports in 2002 directly resulted in the employment of 2,700 persons, and that the "ripple" effect throughout the economy increased this to 17,600 more jobs for 2002, over and above what there would have been without the UR.

But wait a minute - it should be noted that none of the gains claimed by this study are based on the examination of factual historical data, such as the accounts and wage books of the companies which increased their exports as a result of better market access. They are all estimates based on limited models, which in turn are based on assumptions about what the effects of certain changes in access will be. How reasonable such assumptions are can only be tested by the examination of historical series of data - something, which was not done in this the MAF/MFAT study, and is generally only done by economic historians, not economists. So all the facts are far from in.

While not questioning that increased access certainly makes some companies better off, that is not the issue for a trade agreement negotiated with public money and supposedly for the public interest. We can only know whether there has been a net public benefit if we have access to the hard data which shows that, for example, when company X increased its income it also increased the amount of tax it paid in New Zealand, and the number of jobs it created.

It is not wise to assume, as the models do, that this will automatically happen. In today’s world of global finance, with corporations which are free to move to wherever they are offered low tax, low wages, low regulation and/or government subsidy incentives to set up business, it may well be the exception rather than the norm. Further, it is surely disingenuous at best, and deceptive at worst, to apply the models to only one side of the equation. The same models that claim money coming in and jobs going up with increasing exports can and do model the opposite effect for increasing imports. For example, the BERL economic consultants’ group calculated that for each $1 million worth of goods imported into New Zealand to take the place of goods which were formerly made here, the implications are:

- Job losses 15.7 jobs
- Increased welfare payments $159,496
- Reduced taxation revenue $118,137
- Reduced spending power $259,348

And if we do know one thing for a fact about New Zealand and trade liberalisation, it is that increasing exports has also led to increasing imports - so much so that New Zealand has been in trade deficit for eight of the past ten years.

All Winners, No Losers? Yeah, Right

This is the sceptical context in which we must view "A Joint Study Investigating the Benefits of a Closer Economic Partnership (CEP) Agreement between Thailand and New Zealand", prepared by the Ministry of Commerce, Thailand, and the Ministry of Foreign Affairs and Trade, New Zealand, and released in April 2004 (this can be downloaded from the MFAT site at www.mfat.govt.nz, or a hard copy requested). Only potential benefits are considered - there is no consideration of potential costs whatsoever. This is a bit like saying that there is no downside to a mountain - it flies in the face of reality.

The CEP study is largely devoted to providing a description of the current state of Thai-NZ trade in goods and services, and the investment situation, and to outlining current restrictions on trade and investment (e.g. tariffs, investment laws). It also considers infrastructural barriers to liberalised trade, such as customs procedures, sanitary and phytosanitary measures and competition policy. As a joint document, it is pretty bland, and focuses on identifying where there is a mutual interest in increasing trade, and not on possible points of conflict.

The information bulletin on the CEP negotiations issued by MFAT after the first round of negotiations in June 2004 is somewhat more informative in this regard. The first point of interest to note is that the "New Zealand objectives for a CEP with Thailand" consists of six items, the first four of which are entirely commercial, and the last two political (increasing trade liberalisation regionally and globally). Although the joint study and the information bulletin make reference to labour and environmental standards and sustainable development, and although submissions to MFAT on the CEP by the NZ Council of Trade Unions, the Council for International Development, the Green Party and the Royal Forest and Bird Protection Society, for example, all urged that these matters be taken far more seriously than they currently are in trade negotiations, they are not included in the objectives, even in a weak form.

The counter argument to this is to say that it is not appropriate to consider or deal with such objectives within the context of a trade agreement, which is a relatively limited commercial instrument. There is some merit in this argument. It would be especially persuasive, if it were being advanced within a context where international labour standards (such as the International Labour Organisation conventions) and multilateral environmental agreements (such as the Convention on Biodiversity) were monitored and enforced by international mechanisms with the force with which breaches of the WTO rules can be and are dealt with by the WTO disputes tribunals. Further, where there was international consensus that multi and bilateral trade agreements must not conflict with or lead to the subversion of international agreements for the protection of environmental sustainability and human rights, and that trade must always be conducted within a framework of implementing these higher goals.

Neither of these conditions applies in today’s world, and may not apply for some time, if ever. But they ought to be applied if these vital goals are ever to be reached, and one way of making this happen would be to make explicit reference to them in the preamble of trade agreements. For example, a clause which says that the facilitation of trade must be subservient to the implementation, monitoring and enforcement of international agreements on human rights, labour standards and environmental protection, and parties to the trade agreement are not bound to facilitate trade where to do so would allow or encourage a breach of any of these international agreements.

Sadly, we can expect many more gross abuses before global priorities are reordered so as to put the care and protection of the many people and our wonderful planet before the accumulation of obscene profits by the few. In the meantime, we can only continue to contest every move in the wrong direction vigorously, including the Thai-NZ CEP. What do we need to be concerned about with this agreement?

Particular Concerns - Clause By Clause

There are provisions in some existing bilaterals that are particularly iniquitous, which we should strive to keep out of any of New Zealand’s bilateral agreements. The most prominent example is a provision allowing for corporations of one state to sue governments of another state where they consider that actions of that government amount to expropriation of their investments. Chapter 11 of the North American Free Trade Agreement (NAFTA) contains this provision, and it was under this provision that the Canadian government was forced to pay millions in public money to the Ethyl Corporation when it restricted the use of a petrol additive produced by the corporation on health and performance grounds.

In New Zealand’s existing CEP (with Singapore), under Clause 34 Investment Disputes, legal disputes between an "investor of one Party" and "the other Party" which can not be resolved amicably through negotiations may be submitted for conciliation or arbitration to the International Centre for Settlement of Investment Disputes (ICSID) provided that the other party does not withhold its consent. In plain English, this means that if a Singaporean or New Zealand company wants to take the New Zealand or Singaporean government to the ICSID (a tribunal which meets in secret in New York and hears only commercial arguments), then the Singaporean or New Zealand government has to consent to this happening.

In this regard, it is worth studying the free trade agreement between Australia and Thailand signed at the beginning of July 2004. It contains a substantial chapter on the promotion and protection of investments (available at http://www.dfat.gov.au/trade/negotiations/aust-thai/tafta_chapter_9.html), which includes extensive provisions for compensation of investors from one Party who may suffer losses as the result of the action of the other Party, and for the right of investors of one Party to initiate legal proceedings against the other Party. This could serve as a model for the NZ-Thai CEP, and would be a bad one.

Other specific provisions in bilaterals where sovereign rights (and public money) may be thrown away include the details in the following clauses. All these particular issues need to be monitored very carefully as the Thai-NZ CEP negotiations progress.

- Trade in Services (which may go beyond New Zealand’s already generous commitments under the WTO’s General Agreement on Trade in Services GATS );
- Investment (where opportunities for foreign corporations to increase ownership and control of the New Zealand economy may be extended beyond the existing lax provisions);
- Competition Policy (which may extend the opportunities for foreign corporations to gain control over public services at the national and local levels);
- Intellectual Property (which may give corporations rights beyond the WTO’s Trade Related Intellectual Property Rights TRIPS agreement to privatise public domain knowledge; and
- Government Procurement (which may reduce the right and ability of central and local government to engage in active economic development strategies by favouring national and local suppliers of goods and services).

Specific Concerns - Issue By Issue

While it is necessary to keep a close eye on particular clauses because of the potential for extra harm if the bilateral goes beyond existing WTO provisions, it is also worth looking at the bigger picture of the New Zealand and Thai economies and societies. What will be the likely social, economic and environmental impacts of more trade under liberalised conditions between the two countries?

Neither the NZ nor the Thai government has any intention of doing a total economy (as opposed to a purely commercial) cost-benefit analysis (CBA). This is of course a very difficult exercise, but unless it is done the public is right to view the claimed economic benefits from the CEP with extreme scepticism. If it can not be done for the whole economy (as there are too many variables) it could at least be done for the ones where impacts might be reasonably anticipated e.g. increased employment in the dairy sector and increased unemployment in certain other manufacturing sectors.

It is particularly galling for citizens who contest the free trade hype to be told that we should produce evidence to prove our case, when our taxes are going towards paying "experts" who have skills to do economic CBAs but who are not directed to do so, or who are told to look only at the private commercial benefits and not at the public economic costs.

The same goes for social and environmental impact studies. Neither government intends to produce such studies, although in a bilateral agreement situation it should be much easier to study specific impacts than in a multilateral context. In the absence of any government will to do such studies, then, concerned citizens and their organisations can only to their best to make informed and educated guesses as to how what the real likely benefits and costs will be, economically, socially and environmentally, and how they will be distributed. With regard to the Thai-NZ CEP, the following issues of are of major concern.

Labour Impacts - What Price A Cheap Job?

New Zealand is a very low tariff economy, with residual tariffs only on a few manufacturing sectors. The Thai economy, on the other hand, is high tariff. A Thai-NZ CEP will remove NZ tariffs on Thai goods in the remaining tariff areas - such as appliances and clothing where Thailand is a very strong manufacturer and exporter. On Thailand’s side it will lower, and/or phase out, tariffs on primary products (e.g. dairy, timber) where NZ is a strong producer and exporter.

Thai dairy farmers are especially concerned that their (currently economically and environmentally sustainable) livelihoods are under threat from the CEP, and are seeking at the very least a long, slow phase-out of dairy tariffs. Other Thai farmers are already feeling the squeeze from the Thailand-China free trade agreement signed last year, and will not be keen to face further pressure. It is of course conceivable that New Zealanders working in the dairy industry in particular stand to gain as a result of the CEP, either in the form of greater returns to Fonterra’s "supplier shareholders", or in the form of more jobs in dairy processing. Two caveats must be applied to this optimistic scenario, however.

The first is the increased concentration of dairy farm ownership in New Zealand, as dairying becomes more and more mechanised and industrialised in the drive for "economic efficiency". So any higher returns may go to less and less people. The second is that dairy processing is also highly industrialised and automated, and is not a high employment area. Both these matters require further investigation before we can conclude that there is a net benefit from higher returns.

We must also look at possible negative impacts on other sectors of the labour market. New Zealanders working in the textiles, clothing and footwear sector, and in light manufacturing, are vulnerable to losing their jobs if what they are making can be replaced by cheap imports. Their conditions of work may also be under threat if their employer tries to compete with the impossibly low labour standards of a place like Thailand.

Most New Zealand employers are not trying this strategy, but are still adamant that they face unfair competition when the minimum wage rate in Thailand is only $6:20 for an (eight hour) day, and even this is not widely or well enforced. Nor is the law against child labour, with the result that 1.2 million Thai children aged 6-14 are not in school, and around half a million 13-14 year olds are in (illegal and generally underpaid) paid employment. Further, there are some two million migrant workers in Thailand, many of them there illegally, who are vulnerable to exploitation. A bad situation is made even worse by Thailand’s official lack of support for unions - it has not ratified ILO Conventions 87 and 98, which cover the rights to organise and to bargain collectively in the workplace. Union organising in the workplaces of most concern - the sweatshops producing for export - is especially difficult, and there are many stories of the abuse of workers and their rights, including physical abuse (see http://www.thailabour.org for some of these stories, and news of ongoing struggles).

By making free trade agreements with countries with these sort of labour conditions, New Zealand is (a) at the very least sanctioning, and perhaps even encouraging, the continuation of such exploitation, and (b) de-skilling and displacing the New Zealand workforce to a dangerous extent, which will become apparent when the environmental limitations on trade liberalisation start to bite (see Environmental Impacts, below).

The free trade zealots tell us that the upside to this is that the displaced workers will move to other, better paid jobs making something which can be exported more "economically". This is of course true only in theory. Studies of the actual impacts (such as "Will new trade gains make us rich? An assessment of the prospective gains from new trade agreements" by Dean Baker and Mark Weisbrot (2001) - available at http://www.cepr.net/will_new_trade_gains_make_us_ric.htm) shows that workers seldom step straight out of a job in one sector of the economy into a job in another sector, and that even if they do succeed in finding a permanent fulltime job at the same or better pay rates eventually (which is not guaranteed or even likely in the absence of positive assistance to do so) there is a period of unemployment which is a considerable drain on both their personal wealth and health, and on the public wealth and health in countries like New Zealand which operate public welfare systems. In the USA, estimates of the shrinkage in wages as a result of two decades of trade liberalisation range from 1.6 - 2.4% net reduction in hourly wages for 75% of the workforce assuming a low impact of trade on wage inequality, to 9.4 - 10.1% assuming a high impact.

Before the New Zealand government tries to inflict further trade liberalisation on this country, it should have the ethical and intellectual fortitude to study what effects such policies are already having here. Since it is unlikely that they are any different from the USA, the NZ government also needs to stop pretending (and trying to fool the public) that the market will make automatic corrections, or provide what we need for the transition, in any meaningful way. While there may be sound reasons for moving from one type of economic activity to another, there are always costs involved, and to pretend they don’t exist is stupid, while to pass them on to the people who can least afford to pay is immoral.

Environmental Impacts - Dirty Dairying, Energy Conflicts & Facing Facts On Oil

Given that Fonterra is the main exporter behind the "New Zealand" push for free trade with Thailand, environmental alarm bells start jangling immediately. New Zealand may have already reached or even exceeded its ecologically sustainable limits when it comes to dairy farming. In the traditional high rainfall dairying provinces such as Waikato and Taranaki, stream, well and water table pollution is a major concern and urgently requires expensive remedial action as the threats to human health and the lives of other species increases. The countryside also doesn’t look as good, and it’s not that safe to play in - especially if you want to go swimming or fishing.

In low rainfall provinces like Canterbury, where dairy conversions have been proceeding apace in the past ten years as receipts from dairy exports rise, the pollution impacts are already being felt and are leading to conflict between and among farmers and recreational users. Canterbury may also have reached - or exceeded - the limits of its underground water resources. In June 2004, Environment Canterbury (ECan) declined a water resource application by an $18 million/3,000 cow dairy conversion project. The ECan director of regulation stated that the latest information indicates that in many parts of Canterbury groundwater is over-allocated or near its limit (Press, 30/6/04).

New Zealand primary production is highly industrialised, and can have just as many adverse environmental effects as "smokestack" forms of industry. The "clean and green" slogan is more myth than reality, and we are seeing the impacts of perpetuating this myth in the drive to greater global market access for dairy products.

In Thailand, which has been an agricultural nation for much longer than New Zealand, there has been a similarly relentless push to industralise and concentrate agriculture, environmentally and economically, and those employed on or from the land has dropped from three quarters to one half of the population in the past 30 years. In Thailand this represents not only a loss of sustainable livelihood but also a loss of sustaining social connections and deep cultural identity. These losses are not being made up by employment in urban sweatshops and (marginalised) participation in urban consumerist society.

The environmental impacts of the shift are also huge, both in cities and in the countryside. Toxic waste and working conditions are major issues affecting urban blue collar workers, who are still waiting (and pushing) for the Institute for Health and Safety in the Workplace they were promised in 1997. The Thai Prime Minister has personally intervened four times in the past three years to ensure that major energy projects, which were environmentally, socially and economically unsound for various reasons (depriving farmers and fisherfolk of their land and water rights, causing ill-health, depleting and destroying natural resources), have gone ahead.

In addition to environmental impacts specific to each country, there is the impact of both using and depleting fossil fuels to engage in unnecessary trade. Only the most hardened neo-liberals now persist in the fantasy that the climate change effects we are already seeing in the world (more severe storms and winds, shifts in rain patterns, unusually severe floods, more frequent and severe droughts) are not, in large part, due to the changes to the atmosphere caused by emitting carbon dioxide from burning fossil fuels.

Whenever we use fossil fuels to produce or move something which didn’t need to be produced in the first place, or could have been produced closer to the consumer, we bang another nail in the climate change coffin that is closing around us. Further, whether "peak oil" is next year or 30 years hence (the most optimistic scenario), every litre of fuel we use to shift something unnecessary now is a litre we won’t have to shift something necessary later.

Looking at what could be regarded as "necessary" trade between Thailand and New Zealand, it is hard to see how a people (the Thais) who have thrived on a diverse, nutritious, low-fat, non-dairy and delicious cuisine for millennia have suddenly developed a "need" for NZ milk powder as a feed stock for a luxury food processing industry. Similarly, it is hard to see why innovative and skilful Kiwis suddenly "need" to stop making appliances for themselves and send the work to Asian sweatshops. Exactly whose "needs" is this unnecessary exchange of goods meeting? Certainly not our basic human need to conserve non-renewable resources and use them wisely.

Back To Basic Values

Trade is an essential and often pleasurable way of meeting needs and wants for things, which we cannot produce, or produce easily, at home. Such trade is to be encouraged, provided it can be conducted in an environmentally sustainable way. Also provided that the production of trade goods is conducted in environmentally sustainable and socially just ways. Meeting the needs of the many must always come before satisfying the greed of a few.

Unfortunately, this is not the policy which the current Labour-led government is pursuing in its trade negotiations. It is a very long time since the Labour Party was committed to strengthening the New Zealand economy and society in any real sense. This would include aiming for, and encouraging and supporting, a rich diversity of economic enterprises meeting our basic needs from locally sourced materials and skills, and providing employment at a decent wage rate for all.

Instead, its economic policies (and those of the National Party) have encouraged an increasing dependence on the export of relatively unprocessed primary commodities, and the import of processed manufactured goods. The production and export of the primary commodities is dependent on oil - a finite resource which may have already reached its peak levels of production, and will certainly become more and more expensive. The Minister of Finance and his economic advisers in Treasury are in total denial about this fact - on the day on which oil hit $US42 a barrel Dr Cullen presented a Budget which was based on the assumption that oil would cost $US19 a barrel for the "foreseeable future".

The environmental damage from unnecessary oil-dependent trading is already occurring, and it will get worse until and unless there is a shift to reality-based economic thinking at the levels of national and global decision-making. The harm to humans is also severe, and likely to intensify, as the cost of labour is driven below what is necessary to meet the basic needs of an individual and his or her dependents for adequate nutrition, shelter, education, health care and participation in community. Already millions of Thais are below this poverty line - and tens of thousands of New Zealanders.

It is iniquitous that a so-called "Labour" government is turning a blind eye to the way in which the trade agreements it signs up to are perpetuating, not challenging, the exploitation of labour and the growing gap between rich and poor both nationally and globally. A party, which was founded on the basic value of fairness, is now promoting a spurious "freedom" - for Big Business.

As the New Zealand Prime Minister makes common cause with the billionaire Thai PM, movements are afoot in Thailand and New Zealand to increase grassroots communication and co-operation between those who want a fair deal, not a "free" one, for both countries, and the rest of the world. Come and hear what it’s like to work in a Thai sweatshop making clothes for export, and how Thai experts analyse the damage that trade liberalisation is doing to their country and people, and the world.

In September, two Thai speakers are touring New Zealand in opposition to the proposed Thai-New Zealand Closer Economic Partnership. For details of the tour, contact: Fair World Links, Box 13 367, Wellington 6004, e-mail: links@actrix.co.nz Ed.