Author: Gary Hawke, Victoria University of Wellington
Trade policy was not prominent in the recent New Zealand general election. But it is among the first issues to confront the new Ardern government — a coalition between the centre-left Labour Party and populist or maverick New Zealand First Party with support from outside the cabinet by the left-wing Green Party.
Prime Minister Jacinda Ardern’s challenges are likely to be a little different from what she expected when Labour was in opposition. When faced with executive responsibility, politicians find unexpected conflicts among their policy proposals, and her government will have to sort out these conflicts after the proposals have been taken as ‘promises’ by various interest groups.
Both Labour and New Zealand First conformed to conventional statements about the importance of exports to New Zealand’s economy during the election, and Labour itself has a positive history with trade. It was the Labour Government of 1999–2008 that completed New Zealand’s free trade agreement with China and pursued the early stages of the Trans-Pacific Partnership (TPP). Some vocal supporters of the Labour Party were opposed to trade agreements (and to the TPP in particular) but it would have been reasonable to expect a Labour-led government to offer those supporters little while pursuing what has been a bipartisan approach to trade policy.
But for this Labour government, the challenge of fulfilling its promises while staying bipartisan was intensified. During the campaign, Labour committed itself to preventing foreigners from buying existing New Zealand houses. The joint factors of high house prices, homelessness and inequality in the form of young New Zealanders being unable to enter the property market was a significant issue in the election — especially in Auckland. A ban on foreign buyers could never be a major contribution to the real policy issue of housing affordability, but it was a specific ‘promise’ and noncompliance could readily be monitored by the electorate.
Unfortunately for the government, the simple implementation of its commitment is incompatible with some existing free trade agreements and with the provisions of the TPP. Officials quickly enlightened ministers that their hopes of ‘renegotiation’ were forlorn and indeed they could simply have read the foreign media. A Japanese trade official was unusually blunt: ‘if exceptions are made for New Zealand alone, the whole thing will fall apart’.
The government was rescued by some clever but dubious redefinition. The TPP provisions included an exception for overseas investment in ‘sensitive’ assets, and the government has proposed declaring all existing houses to be ‘sensitive’. This strategy may not withstand challenge: the concept of ‘sensitivity’ implies the sort of selectivity that is difficult to reconcile with the stock of all existing houses. Furthermore, while the stratagem may also evade provisions in New Zealand’s free trade agreements with China and South Korea, it does not in the case of Singapore. The Singaporean government may yet turn a blind eye for what is probably a fig leaf of limited duration.
New Zealand’s Minister for Trade David Parker has conceded that the government has retreated from its initial talk of a ‘ban’ and that its measures would have little effect on prices. He claimed in counterpoint that the ban reflects a New Zealand ‘value’ that homes are to be lived in and are not to be a commodity in international trade. He will eventually realise that some existing homes are bought by international buyers exactly to be lived in and that some houses are owned by New Zealand landlords who do not live in them.
The government has another issue which it has yet to resolve. In campaigning it committed itself to opposing TPP provisions for investor–state disputes settlements (ISDS). Prime Minster Ardern said after the election that she and her government would do their ‘utmost’ to get ISDS language revised or eliminated. She also said that New Zealand will oppose ISDS clauses in any future trade agreement. Putting those promises together, it seemed reasonable to conclude that the new government places a higher priority on getting the TPP than on getting rid of ISDS, and so it proved.
Australia and New Zealand manage their free trade agreement without any dispute settlement mechanism because each trusts the legal system of the other. It was easy to include an exclusion from ISDS for trans-Tasman issues in the TPP. The government will probably try to find another party that is prepared to make the same agreement as Australia so that it can claim to have improved the TPP from what it inherited.
There is one further peculiarity in New Zealand’s trade policy. In the agreement between Labour and New Zealand First, there is an explicit commitment to pursue a trade agreement with the Eurasian Economic Union. New Zealand is likely to find itself isolated not only at the TPP meeting on the sideline of APEC but at the APEC summit itself, since Russia has had no success persuading other APEC members that the Eurasian Economic Union should rank with the Latin American Pacific Alliance trade bloc as a useful partner. More importantly, the European Union minced no words in saying that such a departure from international responses to Russia’s actions in Ukraine would complicate New Zealand’s trade relations with the EU.
Ardern has declared that Labour, New Zealand First and the Greens are united on raising exports and support the TPP’s endeavours in that regard. That is likely to be a better guide to New Zealand trade policy than campaign-trail promises or subsequent weak attempts to fulfil them. We may hope that the season for fig leaves is short, for even fig leaves have a price.
Gary Hawke is a Senior Fellow at the New Zealand Institute for Economic Research and Emeritus Professor at the Victoria University of Wellington.
