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Prue Hyman: Free-trade negotiations driven by myth of Third Way

New Zealand Herald, Auckland

7 January 2005

Prue Hyman: Free-trade negotiations driven by myth of Third Way

The Prime Minister says New Zealand is well down the track in negotiations with Chile and Singapore on a three-way free trade and investment agreement.

This would extend the existing New Zealand-Singapore pact, and is one of many such agreements on both Chile’s and New Zealand’s agendas.

Why don’t I join Helen Clark and most economists who support the free-trade mantra generally and bilateral-regional pacts in particular, especially when the multilateral talks through the World Trade Organisation are faltering?

Conventional wisdom says that free trade and investment will enable capital, labour and natural resources to be exploited most efficiently and generate further economic growth, a win-win situation for both capital and labour.

Yet the reality for many workers is low wages, job insecurity and unsafe working conditions, with transnational corporations pitting workers in one country against those in another in a potential race to the bottom.

The theory of the global free market pretends it has no gender, culture or politics. But the feminisation of poverty is a common feature of this economic paradigm.
Around the world, women, indigenous peoples, and other community leaders are challenging the perverse development agenda and its assertion that ever-increasing exports will automatically lead to better living standards and less poverty.

They include Chileans. Environmentalist Sara Larrain asked during the 1999 WTO ministerial meeting: "Why is it that people from the North think exports benefit us? They are wrecking our environment and increasing inequality."

The three-way pact with Chile and Singapore would be no different, yet the Government has shied away from examining its social and economic implications.

New Zealand’s official paper on the proposed agreement was shallow, and consultations on it cosmetic. It ignored the fact that in the first three years of the Singapore-New Zealand free-trade pact, New Zealand’s exports declined by 37 per cent ($180 million) and the trade deficit with Singapore grew from $24 million to $323 million.

The Government concedes the three-way pact would not really be about trade in goods. Chile and New Zealand are small players on the world stage, with similar open economies, climates and seasons. Both have low tariffs. We compete in major primary exports and trade between us is small.

Instead, the Government says the pact would offer strategic benefits: all three countries can position themselves as platforms for foreign firms and investors to gain access to their wider regions by offering guarantees of favourable treatment.

It is hardly surprising that Chilean grassroots organisations are nervous about more New Zealand investment. Carter Holt Harvey and Fletcher Challenge invested heavily in Chilean forestry in 1985, attracted by low labour costs and minimal workplace protection under the repressive Pinochet regime. Although both firms, now foreign-controlled, have pulled out of Chile, the sector’s poor record on wages and health and safety continues.

Chile’s farmers are particularly nervous. A high proportion (about 80 per cent) run subsistence and small to medium-scale operations. Unlike New Zealand farmers, whose collective ownership of Fonterra ensures benefits from value added along the production chain, most Chilean farmers’ benefits end at the farm gate where raw milk is collected. A few dominant transnational agribusinesses can dictate the prices of both raw materials and final prices.

Fonterra holds a 57 per cent controlling interest in Chile’s largest dairy company, Soprole, which imports most of New Zealand’s dairy products into Chile. Chilean farmers are concerned their market may be flooded by cheaper New Zealand imports, and that Fonterra’s dominance will increase through a proposed joint venture with Nestle.

From the New Zealand perspective, services and investment clauses are the major concern. They involve commitments that would pre-empt policy options for future governments.

The unprecedented proposal to adopt a "negative list" approach means all services except those explicitly listed would be covered by free-trade rules and locked open for control by foreign transnationals. No convincing justification has been given.

The proposed pact is also likely to entrench the open season for foreign investors being proposed under the Overseas Investment Bill.

The main rationale is political, not economic. Both New Zealand and Chile have an ideologically driven commitment to a radical free trade and investment agenda. Each has adopted neo-liberal policies since the early 1980s. Both are governed by social democratic governments that espouse the "Third Way" myth that neo-liberal-style globalisation can be given a social face.

Experience tells us otherwise. Chile’s market revolution produced the fastest economic growth in Latin America, but the gains have not spread down. In New Zealand, growth was more sporadic, while poverty and inequality grew. Those who lost most were the already marginalised, especially Maori and Mapuche in Chile.

Significant resistance from landowners in Chile’s south has slowed the negotiations. The tricky question of agriculture has not been addressed and the negative service list remains sensitive. Hence, agreement by April seems unlikely.

This means there is still time to demand answers, conduct research and engage in debates that should have happened before this process began.

* Prue Hyman was formerly an associate professor of economics and women’s studies at Victoria University. She is responding to Prime Minister Helen Clark, who said the Government placed a high priority on such free-trade agreements because of their economic benefit and potential for building stronger links of many kinds.