Great Debate: China - What price tag on free trade?

Rod Donald and Phil O'Reilly

The latest encounter in the Business Herald's summer debate series is a clash of pragmatism and idealism.

A free trade deal with China may be worth as much as $400 million a year to New Zealand. The Green Party's commerce spokesman, Rod Donald, and Business New Zealand chief executive Phil O'Reilly argue whether the deal is worth the gains.

Rod:

A free trade deal with China would be in our interests. It should definitely be negotiated with care - things to nail down: anti-dumping rules; a legal framework with workable remedies; protection of intellectual and other property rights; a way of dealing with China's undervalued currency; and importantly, taking account of the impact on New Zealand manufacturing, services and agriculture.

This won't be straightforward - Jim Sutton says it'll take time to conclude a satisfactory deal - but it's worth pursuing.

A big constraint on our wealth is the fact that we're a tiny market, far away from the big consumer markets in the US and Europe.

More access to the largest market on earth would open up huge opportunities for selling more goods and services, making us a richer nation - better, safer jobs, improved healthcare, better education for our kids and the rest. Our negotiations should be purposeful, since Australia, Chile and South Africa - our competitors in meat, wool, dairy, and fruit - are also talking to China.

It would be galling if they gained the wealth instead of us.

Kind regards,
Phil

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Phil:

The Greens are not anti-trade, but we do make a big distinction between fair, safe and sustainable trade and trading relationships that are forced or unfair.

We also believe bilateral deals undermine good international trading rules and that such rules need to accept that fundamental values of human dignity and environmental sustainability take precedence over trade.

China is, therefore, one of the last countries in the world with whom we should be negotiating a preferential trading relationship.

Its human rights abuses are legendary, from its occupation of Tibet to the murder of its own citizens in Tiananmen Square. The working conditions in many Chinese factories are appalling.

Millions of children as young as 10 work 16-hour days, political prisoners are treated like slaves and ordinary adult workers are paid less than the cost of living.

The Chinese regime refuses to ratify core ILO standards, including the abolition of forced labour and the right of workers to organise and bargain collectively.

Even if New Zealand did become wealthy as a result of an FTA with China, and I strongly doubt that we would, how can you morally justify turning a blind eye to modern-day slavery, just to get rich?

Rod

* * *

Rod:

Point taken - it's true our views on human rights differ vastly from China's.

But if we don't trade because of moral concerns, where do we draw the line? Should we stop trading with Thailand because of child sex abuse? Or with Australia because of its treatment of Aborigines? Or with Russia because of its actions in Ukraine?

Some say the US-led war in Iraq is morally wrong; maybe we shouldn't trade with the US and Britain either? We could end up with very few trading partners.

I think it's better to maintain diplomatic relations and trade, using the weight of international opinion to influence countries' behaviour (and, of course, for poor countries, trade improves their citizens' living standards, assisting their fight for better human rights). With China, a key concern is its under-developed legal framework.

Jim Sutton says the FTA negotiations will firmly seek improvements in that area - well, that'll give leverage for improving China's human rights law as well as its law of contract, an example of trade and dialogue gradually improving the environment for everyone.

Remember, we already do millions of dollars of trade annually with China (which benefits New Zealand families directly in terms of lower priced goods and indirectly in terms of a more buoyant economy). Are you saying we should stop?

Phil

* * *

Phil:

You are right that New Zealand does a lot of trade with China. In fact, for the year to September we imported goods worth $3.211 billion from there, resulting in a trade deficit of $1.526 billion with that one country alone.

Until 1989 we had a trade surplus with China. It's no coincidence that as successive New Zealand governments removed tariffs on imports this surplus turned into a deficit that has deteriorated significantly to the disastrous level it is now.

The flood of imports has certainly meant cheaper goods, but at what cost? The increase in imports in the last 15 years represents 48,944 jobs lost from our economy, based on Berl figures.

So, although some people have enjoyed lower priced products, others have no choice but to buy sweatshop imports because their jobs disappeared thanks to those imports.

I'm not saying we should stop trade with China (although we should certainly boycott Myanmar) but I am saying that we shouldn't give China a preferential trade deal that would eliminate our remaining tariffs and destroy up to 20,000 more jobs.

Even highly efficient companies like Fisher & Paykel will struggle to survive, making a mockery of the Labour Government's claim that it supports "elaborately transformed manufacturing". Do you want them to close down, as well as every clothing factory?

Rod

* * *

Rod:

I think you and I see different things when we look at opportunities for New Zealand manufacturers.

Your comments indicate that you think of our domestic market as the key market for New Zealand-made products, whereas I think the world is our market.

The vast majority of our manufacturers are looking forward to competing in international markets rather than trying to protect a small, easily saturated domestic one.

They're succeeding too: over the past five years, exports by "elaborately transformed manufacturers" have grown by a third and employment in manufacturing has also increased, indicating that manufacturing is learning to live in a global market. Of course, we must take account of specific sectors, like clothing, when considering trade agreements.

There's a need for a strategy to support retraining, skills retention in new career pathways and new enterprises in affected areas, and it's essential the Government invest in this as part of its overall strategy.

But we also need to focus our energies on the areas where we can compete best and earn the most.

We're no longer "fortress NZ" - a sound agreement with China would be in our interests as an international trading nation.

Phil

* * *

Phil:

We certainly do see the world differently! I want our economy to be self-reliant and sustainable, not increasingly dependent on imports and foreign capital.

I'm not against exporting but I do want to stop importing all the things we should be making for ourselves.

You dismiss our strategy as "fortress NZ" but how can you defend your export-led free market ideology when it has clearly failed? For nine of the past 10 years New Zealand has had a goods trade deficit, the September year being an all-time record, at $4.083 billion.

Our current account deficit to September was another record, at $8.246 billion, and our net foreign debt has deteriorated to $118.2 billion. An FTA with China would only make our economy more fragile because China refuses to remove its "non-tariff barriers" to fair trade - child exploitation, forced labour, low wages (less than $1/hour), poor working conditions and inadequate environmental standards.

New Zealand manufacturers cannot compete against China domestically or internationally when they must pay their staff a minimum of $9.50 an hour and meet OSH and RMA requirements.

The solution is not to lower our standards or turn a blind eye but to challenge China to treat its people with dignity and respect.

Rod