Jones seems unstoppable (until he has emptied the PGF trough) – but what are the trade policy effects?

Shanes Jones liberal distributions of public money from the Provincial Growth Fund raise issues far beyond he prudence of government trying to pick winners and the potential for favouring political supporters.

There are trade policy implications, too.

Stuff writer Hamish Rutherford drew attention to this last December, when he examined Jones’ justification for why the Government had decided to lend almost $10 million to debt-laden Westland Milk Products.

Rutherford described the PGF as a $1 billion-a-year pot which NZ First won during coalition negotiations, to fill what he believes is a void.

He noted that the public was not allowed to know the terms of the Westland Milk loan, but “it appears the PGF has become a type of bank, willing to lend where commercial banks are reluctant”.

Having canvassed the obvious risks involved in the $10m loan, Rutherford raised the matter of trade policy:   

Trade officials had already warned of the risk that money from the fund will be construed as agricultural subsidies, which could challenge World Trade Organisation rules.

Westland’s loan potentially breaks new ground, with favourable terms granted to a company that has been open about its need for capital.

While Jones insists he has been given no specific warnings about it, it seems a risky loan to make given New Zealand is attempting to negotiate a free trade deal with the European Union.

Risky not only because it could be exploited by interest groups in other countries, but because it is funding a project which would have happened anyway.  

In the upshot, Westland Milk was taken over by a Chinese company, Yili, and the loan was withdrawn.

But European Union concerns remain, according to a report in Newsroom.

Shane Jones’ efforts to boost the regions through the Provincial Growth Fund have caught the eye of the European Union – and trade officials have warned that more scrutiny will follow.

According to Newsroom, the proposal to grant a $10 million loan to the Westland Cooperative against Treasury advice has led to the EU asking whether New Zealand is adhering to its international trade obligations. 

While the loan was ultimately called off after Westland announced plans for its sale to Chinese dairy company Yili, the initial announcement and resulting media coverage clearly raised concerns abroad.

In a formal written question to New Zealand ahead of a Geneva meeting of the World Trade Organisation (WTO) agriculture committee in late February, the EU asked how the country would notify the Westland loan to the WTO.

It also asked for an explanation of the PGF, including how much money was going to agricultural projects and the dairy sector, as well as whether New Zealand was shifting away from its policy of not granting government support to those industries.

Jones has dismissed concerns about whether the PGF may breach WTO requirements.

But in a briefing to ministers ahead of the WTO meeting, according to Newsroom, MFAT’s deputy secretary for trade and economic issues Vangelis Vitalis warned ministers about the “potential implications of scrutiny” from the EU and others.

Vitalis pointed out that New Zealand – as part of the so-called Cairns Group of agricultural exporting nations – had been at the forefront of efforts to secure tighter WTO rules on agricultural subsidies which distorted trade and production.

Hence it was unusual for New Zealand to be questioned about subsidies.

 Newsroom quoted an MFAT official as saying the public airing of the Westland loan in front of all WTO members was likely to lead to “intensified and ongoing scrutiny of the PGF”.  

New Zealand was allowed to spend up to $288 million on distortionary domestic subsidies in what are called “Amber Box payments”.  But the country had historically avoided doing so on the grounds that it would undermine the push to eliminate agricultural subsidies which “severely disadvantaged” Kiwi exporters.

“The benefits to New Zealand’s exporters of securing limits on the extent to which other countries can use such subsidies would far outweigh the value of using New Zealand’s Amber Box entitlement,” Vitalis said.

Newsroom sought MFAT comment for its article and:

An MFAT spokesperson said the ministry was unconcerned by the EU’s interest in the PGF and remained confident in its response.

While the EU appeared satisfied with the answer it received, New Zealand was “fully prepared” to answer any more questions from it or other WTO members in the future.

Whether Jones would remain unconcerned if MFAT said it was concerned is a moot point.

 

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