Gains from trade deal years away

THE ‘‘free trade agreement’’ with South Korea is of course not a free trade agreement. It is what the Nobel Prize-winning economist Joseph Stiglitz calls a managed trade agreement, and the immediate benefits are modest: an estimated $65 million saving on import duties in the first year. Nobody can claim that $65m is a huge sum.

Instead, the Government tends to sell the deal on its supposed long-term benefits – a reduction in Korean import duties over a number of years – and a somewhat negative present-day one. The free-trade agreement, Government ministers say, has prevented New Zealand being squeezed out of the South Korean market altogether.

Agriculture was the big sticking point for the deal, talks for which have been going on for five years and has clearly been extremely difficult. In this there are certain parallels with Japan, which may or may not be part of the Trans-Pacific Partnership Agreement still under discussion. Korean farmers are noisy and influential and fought hard to stay behind their huge wall of protectionism.

So now some of New Zealand’s agricultural exports will face a diminishing wall of tariffs, but the fall of the walls is slow. Tariffs on kiwifruit will be phased out in six years, but on beef – an especially sensitive area – the wall will take 15 years to come down. When Australia forged a ‘‘free trade agreement’’ with the United States with similarly long phase-out periods, some Kiwi commentators crowed that the Aussies had been done over.

And the really politically sensitive area of frozen deer velvet, which makes up 75 per cent of our total velvet exports to South Korea, has been left out of the agreement altogether. Needless to say, the deer industry is not as impressed with the deal as those in industries which did better.

As with all such deals, there are winners and losers, and the winners are the ones with the most political clout.

So while the politicians and some of the interests groups crow victory, outsiders should take a cooler look. Of course reductions in tariffs are good for our exports, but let’s be sensible about the size of the victory. And the fact is that South Korea has already done ‘‘free trade deals’’ with other countries while our trade was in decline. In that sense we are just catching up.

The critics say we should be cautious until we see the details of the deal, and they are right. We don’t know what sacrifices may have been made in our name till we see the fine print. Here there is a mounting international concern about the settlement mechanisms for unhappy investors. Big Tobacco’s court actions against Australia over plain packaging are just the most spectacular example of the possible fishhooks in ‘‘free trade agreements’’.

There is increasing criticism of the tribunals set up to decide these disputes. In countries with independent judiciaries, why can’t such disputes be settled in the ordinary courts rather than in special tribunals weighted towards commercial interests? As Stiglitz says, corporate interests are one thing, but the public interest is another.