Charting the Course to True Free Trade

Commentary, Trade, Frontier Centre

Not many New Zealanders might have realised, until reading the Weekend Herald, how important a role their country is playing in talks to liberalise international trade.

New Zealand was the initiator of a free trade agreement with Singapore in 2001 that grew with the admission of Chile and Brunei to become known as the Trans Pacific Partnership.

The "TPP" is a model free trade agreement, as far as it goes. It is open to any country interested in genuine free trade, but it is not going to be compromised by cosmetic deals for the sake of acquiring some bigger states.

A further seven Pacific rim nations – the United States, Canada, Mexico, Peru, Malaysia and Vietnam – are negotiating to join. Japan is also contemplating it, though its interest has prompted New Zealand, the designated chief administrator of negotiations, to stress that this free trade exercise is not just for appearances.

Inevitably, the inclusion of the United States has come to dominate negotiations. If the world's richest economy is going to agree to remove agricultural trade barriers for the likes of New Zealand, it appears to want more security for US investment in other countries.

This might mean foreign investors could take governments to an international tribunal and be awarded compensation for government acts that damage them.

An investment regime would be a natural extension of the TPP, but it strikes some critics as a threat to national sovereignty. It is not, though our Trade Negotiations Minister, Tim Groser, took an oddly different view when interviewed for the Weekend Herald. "Of course trade negotiations involve concessions over the sovereign rights of countries to do things," he said. New Zealand had suffered from the "excessive sovereignty" of countries that subsidised or protected their farmers. "The whole point of international law is to put limits around countries' sovereignty …"

Someone in Mr Groser's position can be forgiven for exaggerating the force of trade agreements. Whatever may be agreed, it will rest always on the voluntary adherence of sovereign members. If a future New Zealand government was to dishonour an investment code agreed under the TPP, there is nothing the other signatories could do about it. New Zealand would pay a price in its diminished attraction for investors but its sovereignty would not be at risk.

Fears of an investment regime are being propagated widely. Even a group of state legislators in the US last week expressed concern to President Obama's Trade Representative, Ron Kirk.

International tribunals normally hear disputes between governments and this proposal would let investors sue governments directly. But investors already have that right in domestic courts and it is hard to see that an international court would be more "chilling" for governments.

Those not in the habit of confiscating property or destroying wealth without compensation would have no reason to fear investors' rights, and those with such inclinations would probably not be deterred. The best trade negotiators can do is strike a fair deal in good faith between nations that can be trusted.

Not many nations promote free trade for its inherent economic benefits. Too many still treat it as a concession to be bargained. By making common cause with true free traders, New Zealand seems to be getting somewhere.

Mr Groser, a trade negotiator long before he became the minister, is aiming for a "gold standard" extension of the TPP but, crucially, he is prepared to accept failure.

"We don't need a second-rate agreement with anyone," he says.

New Zealanders will hold him to that.