Jane Kelsey: Free trade deal may not make sense in these hard times

Photo / Paul Estcourt

Prime Minister John Key recently hurriedly convened a press conference on a weekend to express his "deep disappointment" that US President Obama had indefinitely deferred negotiations on a new free trade deal involving New Zealand. The news that the Obama Administration had put the negotiation of the Trans-Pacific Partnership on ice was actually 10 days old.

In between time, the National Government and Labour Opposition had publicly hailed the signing of a free trade agreement with Asean and celebrated the pending negotiations with India and South Korea. By contrast, the US backtrack was kept very quiet.

The Trans-Pacific Partnership is an extension of the Trans-Pacific Strategic Economic Partnership Agreement (or P4) signed between New Zealand, Singapore, Chile and Brunei Darussalam in 2005. Talks to extend the P4 to cover investment and financial services began in March 2008 and included the US.

The decision to convert this into a comprehensive free trade negotiation was a parting gift from George W. Bush. At Apec last November, Australia and Peru announced they would join the party, with Vietnam as an observer. Banner headlines uncritically trumpeted the news, unlike now.

The careful stage management of announcements on free trade agreements is not new. But the US decision should encourage us to look beyond the simplistic assumptions that the more free trade agreements we sign, the better off we will be, based mainly on some fanciful modelling of the gains to agricultural exporters.

We in New Zealand stand to learn a lot from the debate that is unfolding in the US under the new administration.

There are three substantive factors behind his announcement, and a procedural one.

The procedural issue is the need to appoint a new US Trade Representative, the equivalent of our Trade Minister. Once that person is appointed, he will oversee a review of the US trade policy agenda.

The first substantive reason is party political. President Bush tried to ambush his successor through a last-minute commitment to negotiate last September, knowing that Obama was highly critical of aspects of these agreements.

There is a second, ideological impetus for the deferral, which reflects the tide turning against the neoliberal model of globalisation. Fifty-four members of the House of Representatives, including many senior politicians, sent a letter to the new President dated February 26, 2009.

They voiced their opposition to "more of the same" agreements promoted by earlier administrations. In calling for a halt to numerous free trade negotiations they singled out the Trans-Pacific Partnership.

It would be foolish to dismiss their opposition simply as resurgent protectionism for US agriculture and industry. Their list of concerns about the broad compass of these agreements echoed those expressed by Obama during the election campaign.

They include over-reaching privileges for foreign investors and their right to take governments to international arbitration; service sector privatisation and deregulation; limits on government procurement; and inadequate labour and environmental protections.

A third and pivotal factor is the global economic meltdown precipitated by the reckless liberalisation and deregulation of the financial sector - and which governments are committed to continue through the financial services chapters of free trade agreements.

US politicians who are presiding over massive bailouts of banks, insurers and derivatives traders are predictably opposed to "provisions that contradict global and domestic congressional efforts to reregulate this volatile sector".

As the Public Citizen group told an inter-agency meeting held in Washington recently to hear views on the Trans-Pacific Partnership, "the last thing the United States needs now is any agreement that expands financial services liberalisation and deregulation".

The indefinite postponement of these negotiations reflects a move within the US to rebalance trade and globalisation policies. The rejection of the free market model recognises the urgent need for governments to address a tidal wave of financial and industrial collapses and skyrocketing unemployment, social distress and deepening poverty.

That action cannot be dismissed as "protectionism"; it constitutes responsible government at a time of crisis, irrespective of what free trade rules say.

While the US takes the time to reassess the situation through a public debate that examines the failed neoliberal model that is embedded in these trade agreements, we need to do the same.

* Professor Jane Kelsey of the Law faculty, University of Auckland, writes regularly on trade negotiations.