Brian Easton says there is a strong case to be made that the Ministry of Foreign Affairs and Trade is the government agency that has contributed the most to New Zealand’s economic growth

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

New Zealand is a tiny economy in international terms and its economic prosperity is dependent upon specialisation, for it cannot make everything.

Rather, New Zealand’s exports earn foreign exchange to pay for imports which it cannot make or which are inefficient for the country to make. (I’ll write about import substitution in a later column; borrowing just delays the day when exporting has to pay for the imports.) Exporting is not easy; the world economy is not too friendly to tiny economies located on its margins.

The Ministry of Foreign Affairs and Trade (MFAT) is a key government agency, alongside New Zealand Trade and Enterprise (NZTE), that supports exporters facing that hostility.

The support may seem trivial. Diplomats, with their colleagues from NZTE, may be helping a fledgling business enter a market. Less trivially, exporters may need some diplomatic heft to unlock a problem. I once met a Paris-based diplomat who was getting the French to agree that southern-hemisphere Hoki was equivalent to northern-hemisphere fish not subject to tariffs. When the French agreed, the classification applied to all Hoki which entered the European Union – a big win for our fishing industry.

Sometimes the result may be revolutionary. The 2015 WTO Nairobi Package limited countries dumping (selling below cost of production) agricultural exports into third markets. Dumping, which restricts our markets and reduces prices, had been a curse to dairy exporters for seven decades. It was a New Zealand diplomat who chaired the deciding committee.

The development of international trade and related agreements – deals which give New Zealand more volume access and better prices – has been MFAT’s great achievement and resulted in more profitable exporting which has fed back into New Zealand economic prosperity.

The most recent case is the Free Trade Agreement (FTA) with India. A few years back, New Zealand sold 95% of the sheepmeats which India imported. Australia’s FTA gave them better access. Today, New Zealand’s share of the market is squeezed to 9%. Expect a recovery from the FTA.

It is true that there were only minor concessions in the FTA from India for dairy exports – same as the Australians. The Indians have been obdurate in protecting their complicated dairy industry – it is not just farmers but the corporations supplying the growing urban centres. 

The important part of the FTA for dairy may be that India is now committed to giving the same dairy deal to New Zealand as it gives to anyone else. They have yet to do a trade deal with the US, which, because of its size, may get greater dairy access. We will share it.

Trade agreements come to the public’s attention at their signing, with ministers featuring in the photos. Off camera are exhausted diplomats who may have spent decades setting the intricate deal up. Politicians may make the key decisions; they would have decided to treat unrestricted dairy access to India as a lost cause, but their decision would have been based on officials’ advice.

The overemphasis on the role of politicians is nicely illustrated by the negotiations when Britain was entering the European Economic Community (EEC) in 1972. I first read about them in a book by an academic, which focused on the role of former NZ Prime Minister Jack Marshall, who was the country’s Minister of Overseas Trade during the EEC negotiation period.

Recently, diplomats who were involved at that time have retired and published autobiographies – they say for their families – which describe their roles in the negotiations. They do not diminish Marshall but illustrate just how complicated the negotiations were and how vital the role of the officials around him was.

The Indian FTA is just the most recent of 17 deals which cover about 70% of our exports. The big omission is one with the US, although given America’s current behaviour – not to mention how badly the Australians did with their US FTA – it is probably not high on our agenda. Better they join one of our multinational (plurilateral) agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of 12 nations.

Rather, as well as picking up deals with smaller countries* the main efforts are upgrading existing free trade agreements – none of them are perfect – and creating new rules on emerging issues such as the digital and green economies. Hardly anybody noticed, for instance, the Agreement on Trade in Essential Supplies with Singapore.

It is yet to be ratified, but its spirit ensured that during the Straits of Hormuz crisis we got a fair share of petroleum products. Another important activity is enforcing the agreements. We have been wrangling with Canada, whose dairy policies have not been keeping to the spirit and letter of the CPTPP.

Behind these ‘business as usual’ negotiations loom the larger issues of the world trading order with its rules-based foundation. The most obvious rule breaker is the US, but other large economies will also ignore the rules when it suits them.

Where the world trade economy is going is unclear, but plurilateral trade deals with groups of nations may have an important role, especially if they are open. That is, other nations are welcome to join (as Britain did in joining the CPTPP). They are an institutional framework in which medium-sized nations can take a bigger, more cooperative, and rules-based approach.

New Zealand, which is not medium-sized, is keenly aware of Canadian Prime Minister Mark Carney’s remark that middle powers need to act together ‘because if we're not at the table, we're on the menu’. Getting to the table is not always easy. For a small nation, it involves a lot of hard grind and considerable ingenuity.

For example, during an important negotiation on agricultural policy, New Zealand had been left out; its minister would have had to ‘sit outside in the waiting room’. (The committee is the one which led to the Nairobi agreement.)

This committee has been chaired for yonks by an NZ diplomat, one consequence of which is we send some of our best diplomats to Geneva – no political appointments; thank you! The chair explained he could not possibly attend the meeting without his minister in the committee room. Voila! The minister was sneaked in.

No matter how successful MFAT and NZTE are (including other government agencies; MFAT officials frequently mention that they work with Customs, MBIE, MPI, Treasury...), they are only creators of opportunities for earning foreign exchange. The actual earners will be the private sector. Will they take the opportunities? The answer involves both individuals and the whole economy.

Historically, the task of earning foreign exchange was left to the farm sector – the rest of us just got on with spending it. That no longer applies. Farming is constrained by its land and water resource base. Increasingly, exporting is a whole-of-economy exercise. More sectors are involved, including the service sector. You will not be surprised that MFAT is negotiating deals involving the service sector.

* There are ongoing negotiations with Colombia, Mauritius, Morocco, South Africa, Sri Lanka and Turkey, plus plans for Argentina, Brazil, Bangladesh, the European Free Trade Association (Iceland, Liechtenstein and Norway), Nigeria, Switzerland and Uruguay.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.