Groser Tim: Tariff (Malaysia Free Trade Agreement) Amendment Bill — Second Reading In Committee Third Reading 
Groser Tim: Tariff (Malaysia Free Trade Agreement) Amendment Bill — Second Reading In Committee Third Reading 
[Volume:664;Page:12135] 
Hon TIM GROSER (Minister of Trade) 
: 
 I want to answer some of the questions that have been raised particularly by Dr Kennedy Graham. They have also been touched on by Grant Robertson. In doing so I want to issue a consumer welfare warning. Three of us are of course former Ministry of Foreign Affairs and Trade employees. I am speaking on behalf of the centre-right faction of the ministry. There is serious danger of this developing either into a university-style seminar or even worse an internal Ministry of Foreign Affairs and Trade discussion which is what drove me out of the institution in the first place. 
Hon Maryan Street 
: I’m the exception; it is all right. 
Hon TIM GROSER 
: Ms Street is indeed the exception; she has made some very interesting points and I will address some of the substantive points that she and others have made in some comments during the third reading. But I do want to respond now to the direct questions. 
First of all in respect of the distinction between static and dynamic effects of trade agreements—and I remind members of my warning about turning this into an academic seminar—the question was asked as to whether there is any evidence for that and in particular whether there is any evidence that the removal of tariff rates has actually brought some of these benefits. I want to put on the record the fact that I have been for 30 years a deep sceptic close to the point of being an opponent of econometric measurements of the benefits of trade agreements ever since the early phase of the CER negotiations when I was an economic official in Canberra for the New Zealand Government in the 1970s. The then IAC the Industry Assistance Commission which is now the Productivity Commission of Australia estimated that the effects of entering into a free-trade area with New Zealand would be equivalent to 0 point something 1 percent of GDP and therefore was not worth the trouble. 
Of course the problem with these econometric measurements is that they are arithmetical approximations of reality. There is a huge amount of literature about x-efficiency gains and second-ran dynamic effects which no economic model can capture. I have no time for these models whatsoever. For example if we look at any modelling done on the removal of tariffs in the 1980s and import licensing on textiles and clothing we would see a sector that structurally in New Zealand was based upon the import substitution model and that was trying to compete on price with the added advantage of massive frontier protection. No model would have picked up Jeremy Moon for example. No model can ever pick up an operation like Icebreaker. All the models showed at the time the complete destruction of the clothing and textile industry of New Zealand because that was the model on which the existing structures were based. 
It is a matter of record and a matter of obvious sympathy for the people in the 1980s who suffered the consequences of liberalisation because they were moving out of uncompetitive industries but we are now seeing the upside for the first time. We are seeing a company like Icebreaker specialising in design—innovative high-cost high-value products. The argument that we could never export T-shirts to China is factually wrong. We can except that they are at the absolute top end of the market. Mr Moon once told me in Beijing a couple of years ago when I went there with the then Prime Minister Helen Clark for the signing of the China free-trade agreement that it had taken him 6 years to build Icebreaker to a million-dollar revenue—goodness knows how he and his family and employees managed to survive during that period on such a low turnover—and another 5 years to go from $1 million to $100 million. The way he did it of course was to take advantage of the global supply chain. No model could predict that. No model ever will be able to predict that and there is a vast amount of literature to support that theory. Frankly my view in terms of economic theory is that one is better to rely on Economics 101 than on high-class econometric analysis. That is a personal view but it is a very strongly held view and it is a view that I have applied over 30 years of practical experience in this area. 
The second question was on benefits to Malaysia. The question I wrote down—please forgive me if I have slightly mischaracterised it—was: “In the event that the second-order effects were equally beneficial and assuming that the benefits were shared would there be any net economic benefit?”. The answer is that absolutely there would be because trade is not a zero-sum game. This is not a division of spoils of war that we are talking about in respect of Malaysia or any other trade agreements. This is a provision to allow both Malaysian people and New Zealand people who live and work in their respective workforces to raise their productivity raise their real wages increase the trade between the two countries and benefit mutually. 
Given the pressure of time and my strong interest in facilitating the work of this House I will not carry on at great length but I want to address an issue that Dr Graham raised about cultural differences in respect of for example the exemption for liquor firearms and tobacco. I say that I completely agree with Maryan Street and Mr Grant Robertson and implicitly I think with Dr Graham that we should respect cultural differences. Free trade is not a religion—I completely agree with their observations on that. Free trade is a pragmatic means of enhancing the welfare of people in New Zealand and in the countries we trade with. We should and we do respect cultural differences. This has been reflected in almost all trade agreements from GATT 1947 onwards and while I have the privilege of being the Minister under the current Government I have continued to exercise flexibility and respect for other peoples’ cultural differences. 
With regard to wine in particular the issue I think is best handled in the following way. We understand that different societies have different cultural practices on alcohol and I agree with Mr Robertson Ms Street and others who have said that we should continue to do that. On the other hand—and I am sure members would agree; I do not want to caricature their positions in any way—it is very important to protect a billion dollar - plus industry in New Zealand from discrimination in those markets with regard to other exporters of alcohol. I think the balance here—and I suspect that members would be fairly comfortable with this—is to try to ensure that in agreements like this where countries for cultural and social reasons do not want to enter into internationally legally binding trade agreements we secure side understandings that say “In the event that your policy were to change in the event that you grant tariff concessions to other exporters of wine or alcoholic beverages we would expect equivalent treatment.” So it is based on non-discrimination but it still leaves the importing country which will often be an Islamic country in this context the full freedom of action to apply their own standards in terms of their societies. I think that is a perfectly reasonable position and that is the position I have adopted and will continue to try to adopt in the future. 
Just briefly on one of the last questions Dr Graham put as to whether there have been studies of the economic effects of removing tariff protection there have been a truckload of studies done by both previous Governments and many academics and institutions like the New Zealand Institute for Economic Research. Fundamentally they show that we have suffered adjustment effects out of uncompetitive industries. That has been difficult for the families of the people who have been displaced. But equally we have seen a huge growth in exports from industries that never would have arisen had we tried to freeze the structures of industry in place 25 years ago and never made any change.