KEY POINTS:
In straitened economic times, the temptation is always to circle the wagons. Money invested overseas is apt to flee home, and there is increased murmuring about putting national self-interest first. Most dangerously, this involves creating trade barriers to protect local industry and agriculture. It is not, however, a tack that most politicians espouse directly. They know it is generally agreed that the 1929 Wall St Crash morphed into the 1930s Great Depression because of the collapse in global trade sparked by this very protectionism. Yet the weakest and most malleable of them too often seem unable to resist the impulse.
Such is the case in the European Union, which has announced it will revive export subsidies for butter, cheese and milk powder, after ditching them two years ago. The impact of this will be more dairy products for an already-overloaded market because European farmers have no reason to cease production. Far from stabilising the market, as the EU claims, it will depress prices, a situation that bodes ill for this country's dairy farmers, and the economy generally.
At least the EU Agricultural Commissioner, Mariann Fischer Boel, acknowledged the strong whiff of self-interest. "I have spoken to many producers during my travels to different [EU] member states and their anxiety is clear. Now it is time for the European Union to help," she said. But, tellingly, she also tried to excuse the subsidies by saying they would conform with the EU's rights and obligations under the World Trade Organisation. If so, that is only because
there is a big difference between what is in present trade agreements and the actual level of protectionist measures. The failure to conclude the WTO's long-running Doha round means many countries still have plenty of room to move.
Doubtless, other nations that have introduced trade restrictions can use the same lame excuse. China, for example, has brought back tax breaks for exporters, while Russia has raised duties on car imports. This was done even though at recent international forums such countries signalled their awareness of the importance of global trade as a means of stimulating economic activity and declared that protectionism would make the present situation worse.
At the G20 summit in Washington, it was agreed not to introduce any new protectionist policies and to conclude the Doha round. Frank Brenmuhl, of Federated Farmers, therefore, has every right to suggest the EU move "flies in the face of everything they have been suggesting for the past year".
Following the G20 meeting, November's Apec summit in Peru re-emphasised the importance of finalising the Doha round. There, also, an American Trade Representative suggested the world should not fear a more protectionist approach from the Obama Administration. This was encouraging, given Democrat presidents have, traditionally, been more inclined to take that tack. But the European subsidies provide ammunition for the strong farmer lobby in the United States
to press for equal support from Washington. The danger is that the European move could spark a contagion and tit-for-tat reprisals. If so, the major losers would be small trading nations like New Zealand.
Trade Minister Tim Groser has been keen to emphasise "a much bigger picture at stake here". That involves the finalising of the Doha round, and the immense benefits that would provide for this country. Completion of this, however, depends on trade ministers having the fortitude to look beyond national self-interest and concentrate on the wider international benefit.
Already, Doha has proved the most difficult of assignments. Europe's step backwards means it is not getting any easier.
