Thursday, October 01, 2009

Remaining tariffs to stay for now

National is replicating Labour's trade policy with this announcement "Import tariffs will remain at their current levels until 2015 at the earliest, Trade Minister Tim Groser and Commerce Minister Simon Power announced today."

Admittedly they are low, a maximum of 10% now (that early agreement to freeze them in the first Labour-Alliance coalition quietly expired with that coalition), and the government has said they are subject to negotiation at a WTO round, or free trade agreements. Apparently 80% of the value of all imports is tariff free (oh the horror say the Greens, I expect), and there is already 100% tariff free trade with Australia and Singapore. Other free trade agreements will see tariff free trade with Thailand, Chile, Brunei, China and the remaining ASEAN countries over the next

This is understandable, it provides a small amount of leverage. After all, without tariffs what does New Zealand have to offer in trade negotiations? Particularly in a world with a US President with precious little interest in trade liberalisation (yes Bush actually was a positive force on free trade compared to Obama).

However, this isn't the point. Much work in the 1980s and 1990s demonstrated that tariffs are a deadweight cost on the economy, by increasing the prices of goods for consumers. There are benefits in abolishing all tariffs on all imports. Tariffs make clothes, carpets, some processed foods, shoes and some other products more expensive than they otherwise would be, to protect a few businesses from real market competition.

While the government may pursue free trade agreements with remaining major trading partners, the likelihood is that the US will go nowhere under Obama, neither will Japan under the new government, whereas the EU and South Korea would shut out agriculture - which frankly is the main point.

Meanwhile, New Zealand could instead be a free trade zone that is an example to the world, rather than retaining a few puny tariffs that simply punish New Zealanders.

It's time to have some courage - and to meet the commitment New Zealand made, as an APEC member economy, to have free and open trade with other APEC nations by 2010.

That would be a start.

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