Over-egging the pudding

Yesterday it was one of our leading political journalists suggesting of the proposed agreement between the EU and New Zealand

But a free trade deal with Europe has the potential to be transformative for the entire country, with the potential to grow this little rock-star economy even further.

And today on Stuff we find Business New Zealand’s chief executive Kirk Hope, suggesting that such a deal would be the “holy grail” (this is in fact the headline in the hard copy version), and ending by asking

Could now be NZ’s long-awaited hour?

That scale of benefits is about as well-grounded in fact, and unlikely, as the creative literature around the grail itself.

It would be one thing if a genuine free-trade agreement were in prospect –  although even then the scale of the possible would scarcely be transformative for New Zealand –  but Kirk Hope, and everyone else from the Minister on down, knows it isn’t.

But he seems determined to keep up the spin

Such deals are central to NZ’s prosperity

Well, no.  There are, probably, some modest economic benefits that have flowed from some of deals done over recent decades, but not even MFAT would claim for the China-New Zealand deal the scale of benefits Kirk Hope wants to claim (the entire increase in New Zealand exports since then).   Such assertions are nonsensical, without foundation, and arguably worse than that.   People discredit the worthy, indeed noble, cause of free trade with such over-egged claims.

And ‘central to our prosperity” in a country that has experienced barely any productivity growth for five years, and where overall exports and imports as a share of GDP have been shrinking?

Then there is the questionable, not entirely straightforward, representation of New Zealand’s trade with the EU countries.

New Zealand is well known as an agricultural producer, but we are more than just that – our services trade to the EU made up 41 per cent of our total exports in 2017.  These ranged from the education and training industry to financial and insurance services, alongside professional services such as engineering and architectural consultancies.

Well, yes, no doubt.  But as I pointed out yesterday by far the largest component of New Zealand services exports to the EU (or the euro-area) is in the form of Europeans taking holidays in New Zealand.  Export education also ranks quite high on the list.  Neither is likely to be affected at all by any EU-New Zealand deal.

Canada and the EU reached an agreement a few years ago (the Comprehensive Economic and Trade Agreement), still not fully in force because of obstacles in the ratification process.  I had a quick look round to see what the estimates were of the gains to Canada.

I found a study by the Canadian Parliamentary Budget Office. It won’t be the last word by any means, but equally it wasn’t just done by a couple of backroom opponents of the deal.  This is some of what the study says of that deal

  • CETA will lead to some gains for Canada, but they will be modest.
  • Canada and the European Union have different tariff levels going into the agreement. Canada’s tariffs are higher on average (weighted). Canadian and European exporters both faced tariffs greater than 10 per cent on almost 500 products (Harmonised System, 6-digit level).
  • Canada will gain in terms of increased economic output (almost $8 billion, or 0.4 per cent of GDP, over the long term) and investment (0.6 per cent of GDP), even though the trade balance deteriorates. Greater specialisation and increased production efficiency lead to net economic gains.
  • The diversion of trade to the EU will reduce Canada’s exports to the United States by more than a billion 2015 dollars over the long term. To the rest of the world, by another third of a billion dollars.

The predicted gain (in the quantifiable areas) to GDP is 0.4 per cent (not very different from the 0.5 per cent estimate –  from an EU study –  bandied around in talk of a New Zealand deal), for a country that is reducing its tariffs by more than the EU will be.  That wouldn’t be the case in a New Zealand deal –  and recall that tariffs mostly hurt the citizens of the country that imposes them.  It is also good to see, amid all the talk of possible increased EU-NZ trade, estimates of the extent of trade diversion: one of key risks/costs of such preferential agreements.

None of this is to suggest that the Canada deal is bad for Canadians (or Europeans for that matter), just that if there are gains, they are small.  It is most unlikely to be any different for a New Zealand-EU agreement.    And whatever the trade effects, reaching behind respective borders to constrain the freedom of governments to regulate, or not, is pernicious, chipping away at the flexibility of elected governments.  That might be part of the raison d’etre of the EU hierarchy, but it isn’t supposed to be the New Zealand way.

Perhaps the clue to this over-egged, utterly unconvincing, piece is in the final paragraph.

To pull off an FTA with the EU would be an outstanding achievement for this still-new Government.

Anyone can do a deal, the question (as yet unknown) is the character and quality of any deal.  But from the tone of that final comment, one might deduce that Hope’s column is more about trying to curry favour with the new government –   business and the government being offside on various other issues –  than it is about serious analysis.  Stuff should probably have charged him for the sycophancy: advertising space rather than the business op-ed pages would have been a better positioning for it.

(What was going to have been today’s more substantive post will be along later.)

9 thoughts on “Over-egging the pudding

  1. Dreamtime

    (a) Why would an EU student come to NZ expressly for a NZ University degree
    and
    (b) No mention of the EU Common Agricultural Policy obstacles which will never be removed

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    • Heard yesterday of a very bright UK student who is studying in Wellington because of its expertise in earthquakes – probably post graduate. There may be other specific academic areas where NZ has an advantage.
      Then there would be the children of immigrants such as my oldest daughter who arrived aged 18 and started a uni course (note fees as per foreign student until the family achieved permanent residency).

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  2. A progressive and inclusive agreement will bring benefits to exporters and consumers, while maintaining standards Kiwis care about
    ……….
    I’ve always maintained internationalist left and real estate right are in bed together.

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    • Not sure why real estate is always being picked on. Real estate is the end result of poor earnings from primary production with massive subsidies and misallocated resources going into Primary industries and engineered recessions by the RBNZ. This resulted in John Key pushing the Tourism and International student export GDP to a massive $15 billion to supplement the Farmers that pay little or no taxes but expect free rural roads, free irrigation, free medical, free screening and customs checks at the airport(we must of one of the most state of the art technology fruit airport screening in the world), free disease control, free culling.

      The by product of course is increased immigration largely attributed to servicing the tourism and international student market. This government will continue with this agenda as the alternative is a recession and no tax budget to do anything.

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  3. Geatgreatstuff, as a retired farmer with some knowledge of the rural economy including the dairy industry i suggest that it may be worth your while doing some research on the sector before making comments that have no basis in fact.

    Liked by 1 person

  4. Another column helpfully putting things in their proper perspective. I was unable to read past two sentences of the Hope column because of an allergy to sycophancy.

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    • i made it to the end, though had to take time out a couple of times to recover my composure. It was an appalling piece of rubbish. There were several appalling errors.

      How Hope is CEO of Business NZ is beyond my comprehension. in fact I wonder if it is a progressive front organisation (sarcasm) given the nonsense peddled in that column.

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