Thursday 16 April 2020

If a tree falls in the forest, can it be exported?

Forestry Minister Shane Jones has been arguing for export controls on logs. That seems a terrible idea, with risks beyond forestry. A snippet from my column in Newsroom this week (ungated):
BusinessDesk last week reported that Jones is considering levies on log exports to fund some kind of “re-setting” of local industry, or a variety of regulations to ensure domestic lumber processors have their needs met before logs are exported.

The story noted how local lumber processors are struggling to compete with processors elsewhere when international prices for logs are high. Jones viewed protections were necessary to ensure a viable domestic log processing sector in New Zealand.

But it’s worth explicitly stating what that means. Jones, as Minister, would effectively be setting a price cap on logs, restricting exports whenever international demand is high. This would be a transfer of money from timber farms, which would otherwise profit from higher prices, to sawmills.

It would also mean a substantial shift in New Zealand trade policy. If another country banned the export of raw materials to New Zealand to subsidise its own processors, New Zealand’s processors might see that as basis for a complaint about unfair trade practices. New Zealand’s trade negotiators can boast about New Zealand’s clean record in following trade rules. If Jones has his way, those negotiators will have New Zealand’s trade restrictions in lumber thrown at them any time they object to trade practices which disadvantage Kiwi companies.

So it is misguided on pragmatic grounds that it will disadvantage New Zealand as the world leans toward greater protectionism – New Zealand has more to lose than most from a weakened rule-based international trading system. Wellington should be working to support that system rather than help tear it down.
Do read the whole thing, including the linked pieces by Trevor Tombe and Andrew Coyne on fallacies around value-added. We heard some of those fallacies again this morning from Marama Davidson in Committee. 

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