Less smiling and more assassinating... please

John Key is typically upbeat about the signing of a free trade agreement with Malaysia and it's hard to begrudge him this achievement. He is such a cheery chap and raining on his parade seems churlish.

But I will anyway.

All three words in the phrase Free Trade Agreement (FTA) sound great, but they are rarely truly free, rarely only about trade and rarely an agreement worth much more than the paper it's written on.

New Zealand should be focusing all its limited diplomatic effort and pressure on a true free trade agreement such as the World Trade Organisation (WTO) one that is stalled in the Doha round. Part of the reason it is stalled is that the world trade and diplomatic communities are distracted doing all these FTAs.

A WTO deal is a multilateral deal that exerts global pressure on the largest economies to abide by a set of global rules. It has been the most effective driver in the amazing growth of world trade in the last decade.

FTAs are often used by the powerful to 'pick off' the weak and negotiate side deals that either entrench existing restrictions for longer or open up markets in an asymmetric way (ie one party opens up more than the other)

Key lauds this deal with Malaysia as another vital 'step change' for the New Zealand economy. He says here that: "If we're going to make a step change in the economy - certainly if we're going to lift exports as a percentage of GDP - the fastest and most effective place to target that growth is Asia."

More on the exports angle in a second, but the devil is always in the detail in these deals. Here's all the detail here in the 127 page agreement.  I invite readers to go through these with a fine tooth comb.

For example here's all the detail in the deal around alcohol imports to Malaysia  including this little line ..."however Malaysia shall, at all times, reserve its rights to the imposition of any tariffs on these products..."

The bigger issue for New Zealand's exporters right now is the high currency and a lack of access to capital for investment. The banks aren't lending, New Zealanders aren't investing in exporting and the currency is killing exporters. It's all very well having markets to export to, but the real problem is being able to produce competitively here.

What is John Key doing to rebalance the economy away from investing in property and towards investing in exporting? Not much if his initial comments on a capital gains tax or a flat tax system are anything to go by.

And what is he doing to reduce the pressure on the New Zealand dollar? His government is about to suck in NZ$40 billion worth of foreign currency over the next five years to fund its deficits, pushing up the New Zealand dollar and interest rates.

If Key was serious about helping exporters he would be freeing up resources and leveling the playing field for exporters to do their thing by slashing those deficits and broadening the tax system to include property.

Grand summits with silly shirts are fun, but they're not as useful to exporters as more investment and a lower currency. I'd like to see the 'smiling assassin' do more of the assassinating (of government budget deficits) and less of the smiling (and waving at summits).

 


Bernard Hickey

 

Pictured: John Key and Malaysian PM Najib Razak.