Joe Hendren

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Monday, April 30, 2007

Free trade policies lead manufacturing out to dryer: Assessing the NZ-Thai free trade deal

Kiwi whitewear manufacturer Fisher and Paykel announced on Friday it was moving production of washing machines and dryers to Thailand. This seems like a good time to ask the question - was the free trade agreement with Thailand really such a good idea?

Well, that's one question that the Ministry of Foreign Affairs and Trade will never ask, as they have a documented history of only considering the "benefits" of such trade deals - la-la-la. (see my article here)

The so called Closer Economic Partnership Agreement between New Zealand and Thailand came into force on the 1st of July 2005.

Fisher and Paykel chief executive John Bongard said free-trade agreements with countries such as India, China and Thailand being sought by the Government were unhelpful to the manufacturing sector. "I guess the loss of the CER duty preference into Australia early next year was kind of the straw that broke the camel's back," Mr Bongard said.

I took a look at the NZ-Thai free trade agreement. Prior to its signing, washing machines and dryers made in Thailand attracted a 7% tariff when imported into New Zealand. This dropped to 5.5% once the agreement was signed in 2005, with the tariff to be completely phased out by 2010. I have no doubt this also influenced the decision of F&P to move to Thailand - as the NZ-Thai trade agreement allows the company to profit from cheap labour and then import their machines back into NZ at little cost.

New Zealand currently has a trade deficit of $560m with Thailand(1), meaning that we import far more from Thailand than NZ exports to that country. This deficit has improved of late - but the overall pattern since the negotiation of the Thai deal has been a ballooning of imports into New Zealand with a significantly smaller increase in NZ exports to Thailand.

At the time of the signing of the Thai deal in 2004, CTU President Ross Wilson expressed concern at the large number of "free trade" agreements promoted by the Labour-led Government. "There is a risk these deals will permanently damage New Zealand’s manufacturing base. There is also (the risk) that the phased elimination of tariffs will expose some sectors, such as whiteware and clothing, to unfair competition" (Press, B5, 2/12/04, "Business keen on Thai deal")

Now the whitewear is off to Thailand.

For Helen Clark to claim such closures are the "way of the world" is just an excuse to hide the fact the neo liberal free trade policies of her Government are killing off New Zealand's manufacturing base. A similar argument was advocated by Roger Douglas, as in TINA (there is no alternative).

While Helen Clark stated in 2000 "We have unilaterally disarmed ourselves on trade but very few others have been so foolish", for the last six and a half years in government Helen Clark and Co have continued to do exactly that. Labour's economic/trade policies has changed very little from the time of the Forth Labour Government, despite the efforts of some Labour activists to exaggerate the differences between the two governments (2). Clark and Co are now promoting the 'Jeremy Moon' model, where products are designed in New Zealand and made offshore - but how long is it before the design team is off overseas too? Neither is it an answer to focus purely on services - as this ignores the fact the local manufacture of merchandise creates greater demand for the service sector.

Sleepyhead managing director Graeme Turner has called for more Government help for exporters rather than leaving them to the vagaries of the currency. Well the way I see it this is due to Roger Douglas's removal of all exchange controls and the continued support of both major parties to the highly economically reductionist Reserve Bank Act. I get the strong impression the Turners would prefer to stay here.

The end of Kiwi made Fisher and Paykel washing machines is just the latest example of how the pursuit of neo-liberal "free" trade policies undermines the aims of the left for sustainable economic and industry development. It is also environmentally irresponsible, as bulky heavy washing machines are not the kinds of products the world wants transported long distance if it is reasonably practical to make them locally(3).

(1) Figures from Statistics New Zealand, Overseas Merchandise Trade, year ending March 2007
(2) Sure its a good thing Labour have halted the widespread sale of state assets, but what I am talking about here is the continued agressive attitude to 'trade liberalisation' and overall legislative structure of the economy (eg Reserve Bank Act, Fiscal Responsibility Act etc) which Labour have failed to change into something more recognisably social democratic. Labour are attempting to use a relatively low tax neo-liberal economy to create money for greater social spending, but this will become a self defeating project as soon as the economy retracts - just watch them retrench!
(3) Moving a heavy washing machine around a flat is difficult enough, as I can recently attest. And the amount of packing that came with my new machine suggests washing machines are brittle things to transport.

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At 5:02 pm, Blogger Rich said...

Wouldn't it be better to have well paid, secure jobs designing and marketing washing machines (etc) than protected, poorly-paid jobs actually assembling them? If NZ stays in commodity manufacturing it'll always be in competition with low-wage countries.

I'm not convinced by the ecological argument either. Are all the raw materials used by F&P mined here? If not they are being shipped in from overseas - and they are heavier than the finished goods. Also, a large plant making goods for the global market is going to be more energy efficient than a comparatively tiny one that just services NZ.

At 9:46 am, Blogger Joe Hendren said...

thanks Rich - am awaiting some information from a friend before I respond to your comment.

At 10:18 pm, Blogger Joe Hendren said...

thats just it - I don't think the jobs designing and marketing washing machines will be as secure as people are making out.

Secondly it it simply not a choice for a highly skilled factory worker to take on a desk job. The workers at Feltex were actually quite well paid, and the quality of their work was renoun around the world. Now with the closure of the last woven plant they had nowhere to use their skills and most have had to take low skill work on significantly lower pay. I know one is now working as a gardener for example, and he one capable guy.

Quite frankly I see this as a total waste and bad for New Zealand as we are loosing our manufacturing skill base, that once gone, we will never get back. This is a real worry for businesses like Sleepyhead, but both major parties are so caught up with a free trade ideology that it is the 'way of the world' they are doing little to deal with real issues like this.

At 1:58 pm, Blogger Rich said...

Fair point. But if there is a reasonably sized, economically viable design and marketing industry, then while individual businesses may not be as secure as working for a big employer, there should be a choice of work and a reasonable confidence that most employees can stay in a secure job.

The computer industry is much like that - I got made redundant from my last job but didn't lose a day - and that seems to be most peoples experience (I agree that it's a woory though).

And people do make career switches. The Java developer on my team is a former jet engine fitter. I think the government could do a lot more in terms of paying for training and education to help people to do that, but it's silly to try and say that everyone who starts off life as a factory worker has to be able to stay that way for ever.


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