It looks like it will be a good week for New Zealand exporters. Our trade negotiators are in Geneva completing a new trade deal… with Tonga. They have been successful in setting the terms of Tonga’s entry to the World Trade Organisation, requiring Tonga to adopt provisions that go far beyond most current members of the WTO, and take on obligations that even the US, EU and NZ haven’t accepted, such as opening up their health care and education sectors to foreign companies.
The cost? For NZ, ten years of time of government trade negotiators, time that could have been spent tackling the deeply unfair trade policies of the major agriculture traders, such as the US, EU and Japan. But for the people of Tonga, the costs are huge.
First is the loss of government income. Most of Tonga’s revenue has come from tariffs, but they have agreed to drastically drop the rates and agree never to put them up again. At the same time the government has introduced a form of GST. The result is that more of the tax burden has been loaded on the increasing numbers of poor people in Tonga. And small businesses in Tonga lose out to foreign companies that are able to import at lower prices. Unemployment is likely to rise.
Second is the cost of compliance. Tonga has taken on obligations to change over thirty laws and put in place new administration and reporting systems. These are primarily for the benefit of foreign companies, giving them the right to challenge Tonga’s laws that may not be to their advantage. Tonga pays the bills. In other countries, these annual compliance costs are more than countries spend on development projects.
Thirdly, Tonga will lose the right to undertake a range of policies to promote the development of its economy. The rich countries are telling Tonga that liberalisation is good for them, but much of the evidence suggests otherwise. In the real world, small countries like Tonga are at a huge disadvantage, with poor infrastructure, huge transport costs and long distances to their markets. If Tonga is to develop new businesses to process their fish or agriculture, they will need government help for an initial period, until they are able to compete on world markets. Successful East Asian countries, like Malaysia and South Korea supported their domestic economy during their development. They opened up to international trade only when they were able to compete. But small and vulnerable economies like Tonga are being asked to throw open their borders at a very early stage in their development. This risks trapping Tonga in a low wage, raw materials exporting future.
Fourthly, Tonga would lose control over its essential services. They would lock themselves into an agreement that allowed foreign companies access to hospitals, schools and broadcasting. Tonga is being asked to sign up 26 service sectors as a price for entry to the WTO. Fiji, an existing WTO member, has only signed up to one sector. Tonga is getting a bad deal.
There are other problems; Tonga loses its ability to regulate foreign companies, including the fly-by-night operators that have stolen millions from Tonga and other Pacific countries. Tonga will also remove its current controls on foreign exchange remittances, essential if they want to guard against a crisis. Perhaps most importantly, Tonga and other Pacific countries have started negotiating a trade deal with the EU, as a price for receiving aid, and have just agreed to start negotiations with Australia and New Zealand. If it signs up to the WTO this week, Tonga will have given away all of its bargaining chips for those negotiations.
But the worst aspect of this deal is what it says about good governance. When the deal is signed by Tonga’s monarchy it will be binding on all future governments. Most of the commitments are effectively irreversible. At a time of constitutional change in Tonga, this means that any more democratic government in future will have had much of their economic policy already decided for them. This is a denial of important democratic rights.
Even so, the New Zealand government has not required that there be any consultations with Tonga’s people. After ten years of secret negotiations, Oxfam received a leaked copy of the deal, analysed it and held meetings in Tonga. Over the past three weeks, Tongan churches, women’s organisations, small business owners and others have started to mobilise. There have been TV news stories, articles, meetings with civil servants and even street marches about the deal.
But requests to the New Zealand and Tongan governments to delay the agreement have fallen on deaf ears. This week, the deal is likely to be completed. Behind the notion of a Pacific partnership are the hard realities. Good governance is something that doesn’t apply when our commercial interests are at stake. And there are no friends when it comes to trade negotiations.