Towards a liberal aviation regime: David Greig compares New Zealand's external aviation approach with trade policy.

• Author: Greig, Davig

International aviation and trade have been essential to New Zealand's development, but the policy frameworks started out quite differently: restrictive for aviation, liberal for trade. There was a strong economic case for a liberal approach to both, but it was a long time coming. This article deals mainly with aviation policy but compares it with the evolution of trade policy.

New Zealand traded internationally from the beginnings of European settlement, importing manufactured goods and exporting agricultural products. The main destination was Britain, on privileged terms, and New Zealand gave preferential entry for British products. Refrigerated shipping from the late 1870s was a breakthrough, allowing the export of butter and meat. Exports suffered during the Great Depression of the 1930s and New Zealand reacted with import restrictions, initially to protect the balance of payments but then as an instrument of industrial policy that continued for 50 years.

Although international transport depended entirely on ships for many decades, aviation within New Zealand caught on earlier than in many countries because we are two islands, and because our low population density does not suit long distance passenger rail services. Commercial aviation within New Zealand picked up from the 1930s, and aerial topdressing from the 1940s. The RNZAF had a large number of small planes in the Second World War: 641 in 1941, most for training but over 100 for combat.

Our overseas aviation connections developed more slowly as planes with enough range, even for the shorter international flights (Australia, Pacific islands), started emerging only in the late 1930s. Initially they were flying boats that flew at a leisurely pace.

Post-war framework

The Second World War stimulated aircraft design which provided the basis for international commercial aviation. An international aviation conference was held in 1944 in Chicago to set a post-war framework within which countries would negotiate bilateral agreements providing access for each other's airlines. The United States wanted free enterprise; Britain, Australia and New Zealand, the latter two with Labour governments, wanted a single international organisation to control and run everything. The outcome was private airlines in the United States and state owned international airlines elsewhere, safety and related regulation through the International Civil Aviation Organisation (which has proved to be robust), and airfare regulation through the International Air Transport Association, an association of airlines which functioned as a government backed cartel in its earlier decades (which broke down from the 1980s).

The Chicago conference decided that access to overseas destinations would be closed by default, and opened only by negotiation, rather than the other way around. It seems almost farcical these days but back then it made sense given that the conference occurred during the war. Nationalism prevailed. The Americans, for example, were anxious to prevent Nazi emigrants from dominating aviation in South America. British Empire/Commonwealth countries, including New Zealand, were anxious to prevent American domination. With hindsight this also had a farcical element, resisting aviation services provided by a Pacific country and wartime ally.

The mindset was mercantilist--protecting the airlines rather than the users (as we did with trade restrictions, supporting local producers rather than consumers). New Zealand was still wedded to Britain, with negative consequences for our aviation links:

* pressure to stay within joint venture Commonwealth airlines (Tasman Empire Airways Ltd from 1940, British Commonwealth Pacific Airlines in the 1950s);

* pressure to buy less suitable British aircraft, including use of their flying boats instead of more efficient and longer range land-based American DC4s and DC6s; (1)

* resistance to participation by US airlines despite their being best equipped to serve long Pacific routes.

Trade framework

A more enlightened framework emerged for international trade three years later in the 1947 General Agreement on Tariffs and Trade (now covered by the World Trade Organisation), based on comparative advantage--each country concentrating on what it did best. Instead of the nationalistic underpinnings of the aviation agreement, the GATT grew out of a determination not to repeat the beggar-thyneighbour nationalism and protection that grew out of the 1930s Great Depression and added to its economic damage.

The GATT's intellectual underpinnings go back to the British economist David Ricardo in 1817, (2) who showed that trade protection (import restrictions and customs tariffs) has the effect of a tax. The leading players behind the GATT were the United States and the United Kingdom. New Zealand was one of the main small-country supporters, (3) along with the Netherlands, Denmark and Czechoslovakia--but not Australia, whose trade minister ('Black Jack' McEwan) was a protectionist.

The GATT aimed, successfully, to boost economic recovery after the Depression and the Second World War through eliminating or reducing quotas, tariffs and export subsidies. It provided a framework for a series of eight international negotiations (for example, the Kennedy, Tokyo and Uruguay Rounds) that each agreed on additional liberalisation--it being easier for a country to reduce its own barriers if other countries did likewise. The GATT's 'Most Favoured Nation' clause required reductions in protection to apply to all members. There are exceptions, but most international trade is now relatively free.

In practice, however, New Zealand neither received the full export advantages intended by the GATT, nor did it fully 'play ball' on the import side. Other countries maintained quota and other restrictions on New Zealand agricultural exports, and New Zealand continued with import licensing and high tariffs until the mid-1980s.

Trade agreements

From the late 1960s trade between Australia and New Zealand was covered by NAFTA, the New Zealand Australia Free Trade Agreement which was more restrictive than free and not consistent with the spirit of the GATT. There was an undignified annual haggle over what each country was allowed to export to the other.

The more enlightened politicians, notably Doug Anthony in Australia and Hugh Templeton in New Zealand, succeeded...