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Free Trade and Mercantilist Fallacies

Import News from the Importers Institute 5 October 2001

Free Trade and Mercantilist Fallacies

The Ministry of Foreign Affairs and Trade consulted the Importers Institute and other business groups on the proposed free trade agreement between New Zealand and Hong Kong.

This gives the lie to claims of official secrecy from people like Ms Jane Kelsey, an anti-trade activist employed by Auckland University. It appears that Ms Kelsey and fellow 'anti-globalists', like the Green Party, are not so much interested in being consulted, as in opposing trade as an act of fundamental faith.

Although we welcome the Ministry's openness, we confess that we were somewhat bemused about to need for consultations. Hong Kong is considerably wealthier than New Zealand and has higher labour costs. The usual call for protection against 'sweatshop' imports would have been even more nonsensical in this instance. We would have thought that freeing up trade between the two countries was self-evidently in the national interest.

It transpired that some clothing and footwear makers would like to be excluded from the proposed free trade agreement. This is, in our view, a further step in the marginalisation of those already small and increasingly irrelevant industries.

We were puzzled as to why officials would waste time entertaining pleas for protection. A survey on globalisation published in a recent issue of the Economist (www.economist.com) sheds some light on possible reasons:

"The multilateral approach to trade liberalisation, pursued first through the GATT and now through the WTO, does have a horrible flaw. It espouses the idea that lowering trade barriers is a concession you make to your trading partners; a sacrifice for which you require compensation, or "reciprocity", in the jargon. This mercantilist view of trade - exports are good, imports are bad - is an economic fallacy. Politically - and this is to endorse a point made by sceptics - it serves to enthrone producer interests, neglecting all others. Trade agreements go forward when exporters on all sides tell their governments that they see something in it for them; the interests of importers (that is, workers and consumers at large) are implicitly regarded as politically insignificant.

"This has a further consequence. Most governments insist that the grubby details of trade negotiations be kept secret; this is their idea, not the WTO's. At the end of any round of trade talks, a triumphant breakthrough backed by all sides can be announced. In the meantime, as you might expect, governments prefer to keep their negotiators' craven submission to corporate interests under wraps."

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