Sipping from the free-trade Kool-aid

Dr Oliver Hartwich
The National Business Review
30 November, 2018

The Ministry of Foreign Affairs and Trade must have a psychedelic drug in its watercoolers. How else does one explain MFAT’s new consultation on the pipedream of a future free-trade agreement between New Zealand and the UK?

If the Brexit deal with the European Union comes into force, the UK will be locked into an eternal customs union with Brussels and be barred from entering into trade deals. It could not even withdraw from this arrangement without the EU’s approval.

MFAT’s trade experts are undeterred by the nigh impossible prospect of Britain entering into any trade agreement with New Zealand.

On their website, they drily acknowledge: “We are aware that there are still decisions to be made around how the UK moves to a new relationship with the European Union, and this could have implications for UK-New Zealand FTA negotiations.” Talk about understatement – maybe it is just high diplomacy.

Regardless, MFAT is asking for public opinion: “We’re consulting with New Zealanders now because we want to be ready to enter into formal negotiations with the UK as soon as it is in a position to do so.”

Which may be in five, 10 or 100 years but at least we would have died prepared.

Perhaps that is too cynical a way of looking at the matter. But it feels strange for a committed free-marketeer to be overtaken on trade optimism by a government department.

So let’s assume the UK might still free itself from the EU’s stranglehold. Perhaps Theresa May’s deal fails in Parliament and Britain leaves the EU without a deal. Alternatively, the Brits unilaterally and unlawfully quit the customs union. Or maybe the EU eventually lets Britain go. What then?

In the spirit of MFAT’s boundless optimism, let’s dream up the most comprehensive and welfare-enhancing trade agreement between New Zealand and the UK, assuming no special interest group spoils the party.

Ideal trade agreement
The result of such blue-sky thinking would be no common trade deal. Rather, it would be The Ideal Free Trade Agreement. With a big emphasis on "Ideal."

The good thing about TIFTA (quite the awkward acronym) is that it already exists in draft form. It is the brainchild of Conservative European Parliament MP Dan Hannan. With fellow free-trade enthusiasts from 11 UK and US think tanks, Mr Hannan designed a draft agreement between the UK and the US. And, in all modesty, Hannan and Co really named it “The Ideal US-UK Free Trade Agreement.”

What makes this agreement ideal, at least in the eyes of its supporters?

Unlike other trade agreements, TIFTA starts from the premise of complete mutuality. It assumes the two countries involved have enough in common to warrant treating each other’s goods, people, services, standards, regulations and rules as compatible and interchangeable.

If a doctor is qualified to practise in Winchester, she should be permitted to open a practice in Wyoming. If a building material is good enough for York, it should be legal in New York. If a worker may work in England, he should also be allowed to work in New England.

For any economic activity, the UK and the US would form a true common market. Contrary to the EU’s common market, however, there are no elements of political integration involved.

Familiar to Kiwis
What TIFTA suggests for US-UK relations is familiar to us in New Zealand. It is similar to the model Australia and New Zealand have been pursuing for more than three decades under the banner of Closer Economic Relations (CER). Since 1997, the Trans-Tasman Mutual Recognition Arrangement has aligned product markets and occupational standards. The positive welfare effects of these policies are undisputed.

Which brings us back to MFAT’s new consultation exercise. If MFAT is looking for initial inspiration for a trade arrangement with a post-EU customs union Britain, it need not look far. It could realise what the economic integration initiatives with Australia have done for both countries.

Perhaps New Zealand would join forces with the Australians and invite the UK to join our own well-established CER. It would lack no irony since transtasman integration was not least caused by Britain joining the European Economic Community in 1973.

Britain’s abandonment of its old ties caused Australia and New Zealand much pain and forced both to redefine their place in the world, including CER. Welcoming the UK into CER would show that Aussies and Kiwis do not hold grudges.

If MFAT wants to be bolder still, it could embrace Mr Hannan’s TIFTA. In its uncompromising radicalism, TIFTA is even more ambitious than our deep integration with the Australian economy.

But that, one must admit, is a “pie in the sky.” However, as MFAT dares to pipedream of a free-trading Britain, perhaps free-traders should also take a sip from their watercoolers.


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