Free up global trade to create growth and jobs Dominion Post – 15 June 2012

By Stephen Jacobi

Increasing trade and investment is the way to get economies growing again.

G8 Leaders meeting in Chicago recently called for “imperatives to create growth and jobs”. With empty government coffers their scope to find such imperatives is decidedly limited. Much of the global conversation is focused today on austerity on the one hand and increased spending on the other. There is a risk of over-looking that it is business not government that creates sustainable growth and jobs.

Global leaders have an obvious means at their disposal of creating growth. They could move quickly to conclude the World Trade Organisation’s Doha Development Agenda which has been languishing for years. Considerable financial stimulus would be created by concluding Doha and without a drag on government deficits. Given Doha’s protracted delay Leaders would be well advised not wait to find other ways to bring down barriers to trade and investment, to reduce the costs of doing business and optimise the way supply chains today link supply to demand in the global economy.

In difficult times it is perhaps not surprising to hear renewed calls in the United States and Europe to retreat behind borders and to throw up protectionist walls. Such policies are a recipe for global disaster. Protectionism, which was successfully resisted at the height of the financial crisis, penalises the most efficient industries by sheltering the least efficient, restricts the choices available to consumers and raises costs domestically. Rather than turning their backs on decades of successful integration, global leaders should focus instead on how to hasten the pace. Today the world suffers not from too much business, but from not enough.

Increased investment is the key. Jobs are created when businesses take risks and invest their money to make a return. Investment happens when the environment is right, when the rules are clear and there is a degree of certainty about the future. The harder the investment process, the less investment and fewer jobs there will be.

A new study by the OECD “Policy Priorities for International Trade and Jobs” explores the link between trade, job creation and wages. The paper concludes that in virtually all dimensions trade plays an important role in creating better jobs, increasing wages in both rich and poor countries and improving working conditions. To reap the gains of trade however requires attention to policies that complement trade opening. Macro-economic stability, a sound investment environment and support for workers especially in times of transition are all important.

Here in New Zealand parties from across the political spectrum are in agreement with the priority of increasing exports. New Zealand fortunately is in a stronger position than countries in the Northern Hemisphere. Prudent fiscal management, our export-oriented economy, growing integration with Australia and Asia have shielded us from the worst of the global recession.

Yet even in New Zealand there is debate today about the merits of free trade, foreign investment and the role of business in the economy. No-one contests the notion that New Zealanders should have access to world class education, healthcare and infrastructure, but these things have to be paid for – along superannuation at age 65, free to air public TV and increased funding for carers of people with special needs. New Zealand is a small domestic market. We have few competitive sectors of truly international scale. Our efforts to open up new areas of activity like mining and oil are mired in controversy. In the age of the zero budget, where else can the revenue to fund government services come from if not from expanding international business?

Currently New Zealand and eight other partners including the United States are embarked on some ambitious trade negotiations in the form of the Trans Pacific Partnership (TPP). Three other nations, two of them from the G8 – Canada and Japan – are keen to join. TPP aims to create a more level environment for trade and investment, to eliminate barriers to trade and investment and address a range of “new generation” trade-related issues.

The gains from a successful TPP for growth and jobs could be substantial – for New Zealand alone an indicative figure of NZ$2.1 billion economic gains by 2025, or growth of just under 1 percent of TPP. But achieving consensus on a region-wide agreement will not be easy. Some difficult decisions will need to be made by TPP member governments by the time their Leaders meet in Vladivostok for APEC this coming September.

Some of TPP’s proposed provisions are controversial. This week attention has been focused on the extent to which foreign investors might be able to take legal action against TPP member governments in respect of policies which impact negatively on investments. A leaked draft negotiating text indicates that the scope for such action is not as wide as some opponents of TPP suggest. The text also makes clear that governments will not be prevented from regulating in the public interest in the areas of public health, the environment and in New Zealand’s case to respect the Treaty of Waitangi. Investor/state dispute settlement is however important to protect New Zealand’s own offshore investments from the unjustified actions by other governments.

TPP marks an attempt to put in place the sort of vehicle which will deliver the growth and jobs imperative in the Asia Pacific region. To be successful TPP needs to be high quality and fully comprehensive. TPP needs to create an environment where trade and investment across borders are encouraged, welcomed and protected. If TPP can do this, it will send a powerful signal to others around the world, including the G8, about this region’s willingness to do what it takes to ensure business is a driver of sustainable growth and recovery.