Posts Tagged ‘trade’
I was a replacement panelist invited by the New Zealand Institute of International Affairs to join a discussion in Wellington on the Iranian nuclear agreement. It was a a pleasant event that addressed the pros and cons of the deal. I was impressed with some of the speakers, particularly Dr. Parsi from Lund University (speaking via Skype). I was less impressed with the Israeli discussant and the statements (not question) by an official from the Iranian embassy who was in the audience. All in all, it was an engaging affair and I encourage the Institute to continue with such public outreach efforts.
I spoke a bit about how the deal can be viewed on two analytic levels: as a First Image (interstate) issue and as a Second Image (domestic sources of foreign policy) matter. I mentioned that a way to conceptualise the agreement is as part of a “nested game” (to use a game theoretic term): the deal is part of a series of interlocked interactions (or “games’) that can be seen much as those iconic Russian dolls are (one inside the other) or as building blocks towards a larger whole. I noted that the core of the agreement was to exchange trade for recognition and security–in other words, Iran gets more trade and recognition of its legitimate interests and stature as a regional power by putting the brakes on its nuclear weapons development program with an eye to cancelling the weapons program altogether should the agreement prove beneficial for all sides. They main lever is another trade-off: dropping of international sanctions against Iran in exchange for a rigorous international (IAEA-managed) inspections regime.
For those who are not familiar with the agreement, it is not a bilateral US-Iran affair although they are the major players in it. Instead, the treaty was negotiated by the P5+ 1 parties and Iran, the P5+1 being the permanent UN Security Council members (the US, UK, France, China and Russia) plus Germany. For those interested in the details of the deal, the official US government position is outlined here (which includes the text of the full Agreement itself). A US translation of the Iranian interpretation can be found here. The fact that the P5 agreed to the deal is remarkable given their history of disagreement and subterfuge on matters of international security.
There was an interesting sidebar about “breakout time” introduced by the Israeli, who waxed hysterical about the apocalyptic implications of the deal. Dr Parsi noted that “breakout” refers to the time needed to enrich uranium to weapons grade, in response to the Israeli claim that the deal gave the Iranians a breakout potential of one year. Prior to the deal, that enrichment breakout threshold was two weeks. The point is that “breakout” time refers to the time needed to begin enriching uranium to weapons grade rather than the time needed to build a bomb.
Dr. Parsi noted that “breaking out” on enrichment is not the same as putting nukes on missiles. I said nothing at the time but here I actually know a bit without being a nuclear scientist ( I studied nuclear strategy under one of the original strategists behind the nuclear bombing of Japan and so-called MAD theory. He grappled with the moral dilemmas involved in front of me and my student cohort at the University of Chicago (home of the Manhattan Project) and later changed his mind with regard to MAD). The notion that Iran can start enriching uranium or reprocessing plutonium to weapons grade in a short period of time and then quickly build a missile launched nuclear warhead is simply mistaken.
From a technical viewpoint beyond the specifics of Iran’s enrichment and reprocessing programs, the problem of weaponising nuclear material is simple. Unlike the multi-ton “dumb” bombs that were dropped on Hiroshima or Nagasaki using concentrated high explosives as triggers focused on the nuclear material, the bulk of testing then and now consists of reducing the nuclear payload to a size that can be carried in the nose cone of an (increasingly small and light) intermediate range or intercontinental missile (IRBM or ICBM). The smaller the size of the delivery vehicle, the better its chances of avoiding surface to air or air to air interception. Given that requirement and the need for accuracy, nuclear payloads share very tight space with guidance systems. All of which is to say that given the weight constraints on a high velocity long range projectile, the “bomb” has to be miniaturised for maximum bang for the buck. Doing so requires downsizing the trigger mechanism from focused high explosives to something else. Laser triggers are one option. There are others. All of them are off limits to the Iranians irrespective of the deal. So not only is the fear of “breakthrough” unfounded and exaggerated for political purposes, but the real concern regarding mounting nukes on missiles is subject to both contractual and non-contractual enforcement.
My general view is that the agreement is worth doing. Other speakers and I commented on the downside, which mostly involves the reaction of Israel and the Sunni Arab oligarchies as well as domestic opponents in Iran and the US. I noted that there are disloyal hardliners in both the US and Iran that have potential veto power over the deal in the future should governments change, and that it was imperative for the soft liners or pragmatists to accrue tangible benefits from the deal in order to resist the sabotage efforts of hardliners who have vested interests in keeping tensions alive between the two countries. I made the point that Iran is more akin to Cuba than North Korea, and can be brought into the community of nations so long as it was recognised as a regional power with legitimate interests.
Speaker’s times were very limited (7 minutes each), so I was unable to fully address what I had intended to say. So let me do so here.
The lifting of sanctions on Iran as part of the quid pro quo at the heart of the deal opens a window of trade opportunity for New Zealand exporters and importers (more so the former than the latter). Coincidentally, Foreign Minster Murray McCully has announced that in a few weeks he will be leading a trade mission over to Iran to discuss those opportunities. This is in advance of the implementation of the accord (which goes into effect at the start of next year) and is, as far as I can tell, the first official Western government led trade mission to Iran in the wake of the signing of the agreement.
But let us be clear on what that mission needs to entail. Although Iran’s human rights record needs to be mentioned, however pro forma by McCully, to his Iranian counterparts, the point that must be emphasised is that New Zealand’s opening of trade relations with Iran is absolutely, explicitly contingent upon Iran adhering to its part of the bargain. Should Iran in any way shape or form renege on the letter or the spirit of the agreement and the inspections regime that it authorises, then McCully needs to make clear that New Zealand will terminate or at least suspend until Iran complies all imports and exports to the Persian giant.
I say this because under McCully and Tim Groser MFAT has turned into the Ministry for Trade with Anyone for Trade’s sake. Human rights and non-proliferation are not part of the Groser/McCully negotiating agenda. But in this instance both need to be and the latter has to be. The profit margins of New Zealand exporters and importers and the tax revenues derived thereof must not and cannot supersede New Zealand’s commitment to upholding the terms of this non-proliferation agreement in the event of violations. Those involve re-imposing sanctions, and the bottom line of private interests must not come before the commitment to non-proliferation, especially given New Zealand’s long held diplomatic stance on the matter.
McCully also needs to explain to New Zealand importers and exporters that any contracts they let in Iran are contingent and externally enforceable. That is, they are contingent on Iranian compliance with the inspections regime and the overall thrust of the Agreement (which is to reduce the prospect of weaponising its nuclear program); and they are subject to outright cancellation or suspension by the New Zealand government under penalty of law in the event Iran reneges or violates its side of the bargain. There are opportunity costs and risks involved, and these need to be outlined to interested parties in advance of the mission.
From announcements so far, it does not appear that the National government is interested in making such demands of the Iranians or its market partners. Instead, it appears that it is opportunistically jumping to the head of the cue of potential trade partners and will let the private sector lead the charge into trading with Iran. That is curious because McCully speaks of “not getting offside” with the P5+1, but the very fact that he mentions the possibility of “getting offside” indicates that he and his MFAT minions are considering the costs and benefits of doing so.
The Iran deal hinges on two things: verification and enforcement. There are instruments in place to verify that Iran is upholding its part of the deal. The sanctions will begin to be lifted on January 1, 2016. But it is enforcement of the terms that is the most uncertain aspect of the Agreement. If New Zealand does not explicitly tie its renewed trade with Iran to the latter’s compliance with the terms and be prepared to halt trade with Iran in the event that it does not comply, then it will begin the slippery slope of undermining the deal. For a Security Council member that depends more on reputation than power for its influence, and which has a past record of leadership on non-proliferation, that is a hypocritical and ultimately vulnerable position to be in.
Media coverage of trade negotiations in the Asia-Pacific have largely overlooked the strategic perspectives underpinning different countries’ approaches to the subject. In this analytic brief I outline some of the issues involved, to include potential problems when different strategic outlooks are juxtaposed.
Jane Kelsey’s latest book on trade, an edited collection titled No Ordinary Deal, was launched last night in Auckland. Other launches will follow in Hamilton, Wellington and Christchurch this week before the road show heads to Australia. As a contributor to the book I attended the launch and enjoyed the speech given by another contributor, Lori Wallach, a trade specialist at the US research institute Public Citizen (founded by Ralph Nader in 1971). Lori, who wrote the chapter on the US domestic agenda and approach to the so-called Trans-Pacific Partnership (TPP) negotiations, noted that the model for the TPP is not the General Agreement on Tarriffs and Trade (GATT) but instead the North American Free Trade Agreement (NAFTA), which essentially is an investor’s guarantee agreement rather than one about free trade per se.
In her chapter and her speech, Lori noted that among many other downsides to the TPP, it would exempt foreign investors from domestic regulations in NZ, and should the investor be made to comply with those regulations by court order, the costs of compliance would be borne by the NZ taxpayers in the form of mandatory compensation. She went on to note how local pharmaceutical regulations and control boards would be circumvented in favour of US drug company standards, and explicated the dumping and market monopolisation efforts of US agri-businesses under this type of trade regime. As a sidebar she noted how NZ dairy exports would not appreciably increase to the US under the agreement, as well as the fact that the recent midterm elections have ridden on a backlash against trade because of presumed US job losses tied to it, which means that the possibility of the US ratifying the TPP in the next two years under the new congressional leadership (even if negotiations are concluded, which itself is unlikely) are improbable at best. Her basic premise was that she would not object to the TPP if it were about free trading of goods and services as per the Ricardian ideal. What she objects to is the use of free market rhetoric to cloak cross-border commercial arrangements that are less than free or fair and which contain pernicious costs for smaller national partners and wage labour-dependent consumers in general.
The bottom line is that the TPP is fraught and the public need to be aware of the very large downside to it. It is not a genuine “free trade” agreement in the proper sense of the term. Instead, it is a US-centric investor’s agreement skewed in favour of large (mostly foreign) corporate interests rather than consumers and local producers. Among other topics, chapters (there are 19 in all) explore the impact of the TPP on indigenous rights, climate change, intellectual property, cultural exchange and, in my contribution, security. They are well worth reading, and often eye-opening.
The book is designed to promote informed debate on the matter by offering a critical counter-point to the received wisdom of the policy elites who attempt to sell it as as “win-win” universal good for all involved. As I have noted previously when writing about asymmetric trade, this is a far cry from the truth and carries with it not only the potential for a loss of economic freedom and sovereign control of strategic assets, but also the very real danger of increasing both physical and emotional insecurity in the smaller partners involved in such agreements. Since insecurity breeds fear (be it fear of job loss, fear of environmental harm, fear of forced dislocation from one’s land or cultural roots, to say nothing of fear of physical harm by direct or indirect means), and freedom from fear is considered to be an inalienable human right, the downside of the TPP needs to contrasted againt the supposed upsides championed by those who stand the most to benefit from the deal, and who constitute an elite and often unaccountable minority among the constituencies involved.
More publisher information on the book and the launches can be found at www.bwb.co.nz. An information sheet on the book is here:
No Ordinary Deal
None of these arguments stacks up. All nine participant countries except Vietnam are heavily liberalised, deregulated and privatised.* They already have many free trade deals between them. Who really believes that US dairy markets will be thrown open to New Zealand, or that China, India and Japan will sign onto a treaty they had no role in designing?
No Ordinary Deal
Above all, No Ordinary Deal unmasks the fallacies of the TPPA and exposes the contradictions of locking our countries even deeper into a neoliberal model of global free markets – when even political leaders admit that this has failed.
*The US, Australia, New Zealand, Brunei Darussalam, Chile, Peru, Singapore and Vietnam. Malaysia joined in October 2010.
Distributor: HarperCollins, PO Box 1, Shortland Street, Auckland
The Contributors: Jane Kelsey, Bryan Gould, Patricia Ranald, Lori Wallach, Todd Tucker, José Aylwin, Paul Buchanan, John Quiggin, Warwick Murray, Edward Challies, David Adamson, Geoff Bertram, Tom Faunce, Ruth Townsend, Susy Frankel, Jock Given, Ted Murphy, Bill Rosenberg, Nan Seuffert.
Tomorrow evening I fly back to Auckland for the beginning of a phased return to NZ. I have some pending obligations and personal commitments in SE Asia so after two months in NZ will be doing a long distance commute between NZ and SG until the middle of next year. But I have made the decision that it is time to permanently return to NZ and find a way to contribute in a non-academic capacity. To that end I am registering a NZ-based political risk, market intelligence and strategic analysis consultancy under the name Buchanan Strategic Advisors, Ltd. As far as I can tell it is the first of its kind in NZ: a consultancy solely dedicated to international and comparative industry and market analysis, political context assessment and security threat evaluation. I will also focus on labour market characteristics, industry-political relations, futures forecasting (both strategic and sector-specific) and ethical and sustainable investment. The firm will have a public outreach component that will provide expert commentary to general and professional audiences as well as the media on matters of contemporary international import. As readers may know, I have long been concerned about the lack of strategic vision, both in its long-term and in-depth dimensions, exhibited by NZ public and private entities when it comes to foreign affairs. This is my way of helping to fill that analytic and policy gap.
It may seem counter-intuitive but I believe that basing the firm in NZ enhances its “brand” because of NZ’s reputation and image as a fair, transparent, honest and autonomous country, We may know that in fact NZ does not quite live up to its image in many respects, but having lived in nine countries I believe that it comes the closest to doing so. Since we operate in an age of telecommunications and rapid transport, I do not see NZ’s size and location as a major disadvantage to providing the intellectual value added services embodied in the firm. To the contrary, I see the firm as an ideal interface between NZ and foreign partners, complementing and reinforcing existing diplomatic and business networks.
I have been fortunate to have a number of Kiwis encourage me in this venture and have some leads on business opportunities. The real test is to see if public and private entities in NZ will pay for such services. I believe that it fills a niche for actors that do not have in-house expertise on specific subjects or whom do not wish to pay the full costs of maintaining a full-time, in-house political risk capability. But I also have offered this type of service for free to several NZ entities, only to have them baulk at continuing receiving my analysis and opinion on a fee-paying basis (this includes some specialised security agencies that clearly lack in-house capabilities in the areas that I am competent to discuss). Thus the real make-or-break issue is whether private firms and public agencies are willing to pay for this type of specialised advice. The next year or so will tell.
In any event, I am thrilled to be heading back home. I get to reclaim my house in the Waitakeres and breathe clean air (the Indonesian smoke haze in SG at the moment is at dangerous levels), feel the nighttime silence of the bush, and reacquaint myself with friends. That will make the pressures of setting up the firm all the more bearable. It may be a challenge after so many years of doing full-time academic work and part-time consulting, but if there is an ideal place in which to undertake a new venture like this, Aotearoa is my choice.
A press release on the establishment of the firm can be found here.
***THIS POST HAS BEEN UPDATED ON APRIL 17 TO ACCOUNT FOR NEW INFORMATION RECEIVED***
Niwa has announced that a contract to upgrade the research vessel RV Tangaroa has been let to a Singaporean company rather than a NZ-based consortium. The EPMU and Labour Party have criticised the move, citing the fact that local jobs were at stake and a chance to up-skill NZ workers was lost. And of course, the flow-on effects of employing NZ workers is obvious, because they will spend their wages a bit on beer but more on nappies, mortgages, rent and DIY projects. All that is true and reason enough to oppose the Niwa deal, but there is much more to the story. That is because the bottom line boils down to what I shall call a dirty money savings. Here is how it works.
The Niwa chief knob, John Morgan, refused to state what the bids were, but other sources have noted that at $9 million the NZ contractor bid was more than double the $4 million Singaporean bid. Sounds like he got his maths right. Mr. Morgan then went on to say that the Singaporean contractor had a lot of experience and 3000 staff dedicated to the task as well as many resources to do the upgrade, which he claimed was a complex operation that involved cutting holes in the hull of the ship in order to install a dynamic positioning system (DPS) that holds the ship steady and precise over an undersea target in variable conditions (how he thinks that 3000 people will work on that one job is another question, as is the complexity of cutting holes in a boat, but I am just quoting from the NZPA article on the decision).
He defended the decision as a cost-savings bonus for the NZ taxpayer, and the Minister for Research, Science and Technology the vainglorious “Dr” Wayne Mapp (Ph.D.s in Law are not usually addressed as Dr.) pontificated that although he was not involved in the decision he supported it because the NZ consortium was not dependent on that contract (presumably that resource-rich Singaporean outfit was) and, quote, “after all we have an FTA with Singapore.” File that one under “another Mapp moronity.”
Here is why the deal is dirty. Unskilled and semi-skilled Singaporean shipyard workers (e.g. stevedores, drivers, loaders, builders and roustabouts) are paid between SG$10-15 dollars per day. Non-engineer skilled workers (divers, torchmen, pipefitters) may earn double or triple that. They are mostly foreign workers on temporary visas (mainly from Bangladesh, mainland China and India) who cannot bring their families with them and who are housed in containers and squalid dormitories with occupancies of 20-50 men per room and one toilet amongst them (women are not allowed on the docks). They are not allowed to independently organise or collectively bargain. They work 12 hour days and suffer extremely high rates of industrial accidents–over 50 workers died in 2009 from injuries received on the job, and dozens if not hundreds more were crippled by accidents. In the vast majority of cases, seriously injured foreign workers who are unable to return to work are left dependent for months on private charity until their claims for compensation are resolved or are deported once they leave hospital (and often repatriated in any event).
Mr. Morgan is reported as saying that the Singaporean bid, at $30/hour (it is not clear if he is speaking of US, NZ or Singaporean dollars), was half the NZ $60/hour labour costs. But whatever the currency, $30/hour would only apply to supervisory and managerial staff who would not be doing the physical labour involved in installing the DPS system (which would be done by the foreign workers mentioned above). That means that his claims of labour costs savings on which the decision partially rested is either a willful misprepresentation of the true Singaporean figures or, worse yet, a sign that Niwa did not undertake due dilligence in ascertaining the veracity of the $30/hour figure. In other words, if the latter is true then Niwa got fleeced by the Singaporean contractor, who then pocketed the difference between its real labour costs and the $30/hour figure. If the former is true, the Mr. Morgan needs to be held to account for his miserepresentation.
There is a bigger picture to consider. Singapore is an authoritarian state in which political party competition and elections are rigged, freedom of speech is restricted and foreign workers are not covered by the same labour laws as Singaporean citizens. Instruments for foreign worker redress, compensation and mediation are virtually non-existent. The Singaporean lifestyle, so admired by John Key and other acolytes of the Singaporean regime, is based on the gross exploitation of these foreign workers who, after all, build the buildings Singaporeans live and work in, provide the food, transport and maid services they are accustomed to, construct their highways and polish their cars, and staff the hundreds of foreign MNCs the use the country as an operational hub. Foreign workers comprise a quarter of Singapore’s nearly 5 million population, so the economic debt owed to them is great.
That is why the decision is about dirty money savings. Forget the job-related issues in NZ. Niwa’s decision is based on its knowingly countenancing the human rights abuse of a vulnerable group of people in a foreign country. It violates ILO standards, it violates NZ labour law, and it violates nominal notions of decency in doing so. Mrs. Morgan and Mapp may argue that Niwa is saving the NZ taxpayer money, and that it is not responsible for the behavior of foreign contractors, but in doing business with the Singaporean firm it could well wind up with blood on its hands. Put succinctly: the money Niwa saves on the deal comes directly from the sweat and blood of these foreign workers.
None of this would matter if NZ was an authoritarian state unconcerned about human rights and fair labour standards. The problem is, NZ spends a lot of time in international fora banging on about exactly such things. However, this appears to be more a case of “do as I say, not as I do” because NZ in recent years has seen fit to cozy up to regimes like those of Singapore, China and a host of Middle Eastern autocracies, in which the very concepts of universal rights and fair labour standards are not only disputed, but rejected out of hand on “cultural difference” grounds. Well, that may be the case because as Lew so nicely put it a while back, “NZ foreign policy is trade,” but NZ does not have to contribute to the perpetuation of exploitation in foreign cultural contexts, especially if its reputation depends on its rhetorical championing of human rights. That is a matter of choice, and the choice in this instance is clear.
There is such a thing a trading fairly and doing business in an ethical way in which the bottom line is not just about money, but about human decency as well. A restrained rate of profit or reduced savings on cost are often a better guarantee of long term investment than short term profit maximisation or miserliness, and an interest in foreign worker conditions can contribute to the betterment of international business practices. But the choice here has been to save costs rather than stand on principle and improve by example. For a country that prides itself on its international status based upon fairness principles, decisions like this one give the lie to the cheap talk in international confabs.
All of which is to say–shame on both of you, Misters Mapp and Morgan. But then again, we would not expect otherwise.
Murray McCully hasn’t so much taken the razor to NZAid as taken the axe to its foundations, in one of the clearest indications so far of the new government’s ideological intentions:
Notice how he leaves out what the mandate was changed from. Good press release-writing. National Radio is more explicit, however:
Now we see the dichotomy I theorised a while ago made plain: from from least harm to greatest good.
Now, in the context of foreign policy I don’t have a categorical problem with this approach, because foreign policy is different to domestic policy where the government bears a direct and explicit responsibility for the wellbeing of the worst-off of its citizens. NZ doesn’t necessarily have that responsibility to the worst-off citizens of its donee nations. While it serves NZ to look after them, fundamentally all foreign policy actions are taken with the home nation’s interests at the fore, not with the foreign nation’s interests. So I’m not going to argue against this change of mandate on the basis that it’s cruel or unjust or unfair on the poor of the Pacific, plenty of people are doing that. I’m going to argue against it on the basis that it’s short-sighted and bad for NZ in the context of our relationships with our Pacific neighbours.
The problem, paradoxically, is that the realignment of NZAid with the trade agenda prioritises immediate NZ commercial interests to the exclusion of other, more strategic goals. Like democracy, sustainable economic development isn’t something you can create by throwing money about. NZ’s aid agenda to provide an economic floor in (parts of) the Pacific has generally had three broad purposes: 1. maintain peace and order; 2. deter the advances of more predatory regional powers*; 3. enable people to develop economic structures on their own terms. Largely the first two have succeeded; the third remains a work in progress. The three points are in ascending strategic order; that is, the longest-term goal is to enable the people of the Pacific to develop their own economies and their own market structures, structures which serve them, rather then serving the interests of foreign entrepreneurs first. The changed NZAid mandate, which to my mind roughly reverses the order of the three priorities on the reasoning that if people have the third then the first and second will follow, seems unwise because I don’t think they will follow. Markets which exploit people’s vulnerability, or which concentrate wealth and power among the usual sorts of tin-pot third-world elites will not result in stability, and will render the disgruntled Pacific vulnerable to the aforementioned depredations. This policy realignment (by McCully’s own admission) will divert aid money from those at the subsistence line into private enterprise, most of which is owned outside the Pacific. It will result in a subclass of client entrepreneurs both here and in the Pacific, those with the connections to sign on early and sew up a section of the nascent market for themselves, with full government favour. The Pacific needs trade strategies for mutual benefit, driven by Pacific people to meet their own needs, not created artificially from outside with a territorial gold rush in mind. If we profit to the detriment of our neighbours, our trade might be healthy, but the wider Pacific situation will not, and we will suffer in other ways.
In this situation, trade wins and everything else loses. This is what I mean by the title: McCully has tacitly declared that nothing other than trade really matters, a return to Muldoon’s famous position on the matter. Although the aid agenda is more closely targeted to the Pacific, the focus on trade signals the beginning of a more arm’s length relationship based on cash rather than regional allegiance. This in tandem with a more realist positioning from the defence review, in which the “benign strategic environment” doctrine of Clark’s government has been discarded with, I think, little evidence. Those changes will result in less development and support work and a more hard-power focused defence strategy, with its eye on a phantom threat, and a consequent cooling of the excellent operational relationship the NZDF has with the Pacific. Of course, such a realignment will be necessary if the aid=trade agenda results in the sort of destabilisation I’ve talked about.
* Clearly, in this context I’m talking about China. I don’t typically ascribe to the Sinophobia so rampant in the West, but in the Pacific case I think it’s justified.