Of Mountains and Trade Agreements

by | Feb 3, 2016 | Trade Working Blog

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The TPP mountain is worth climbing argues Stephen Jacobi.

Even Sir Edmund Hillary was afraid of heights. Like everyone, he said. Knowing the risks, he took sensible precautions. The same is true of the Trans Pacific Partnership (TPP), the signing of which New Zealand will be hosting on 4 February. After years of sometimes painful negotiation it is good to get to this point. Once the signing is over attention can turn to the much more important ratification process – that’s where MPs, with input from the public, will assess whether the effort has been worth it and whether the checks and balances in the agreement mean that any risks arising from TPP have been successfully mitigated.

It’s important to remember that TPP cannot legally enter into force until this ratification process is complete and until the required number of ratifications by TPP members is achieved. In New Zealand the process includes the publication of a national interest analysis, consideration of the text by the Select Committee, public submissions and passage of implementing legislation which requires three readings, further Select Committee consideration and a vote by Parliament. The vote on the implementing legislation is important because without this the Government cannot ratify the agreement.

It is risky of course to try to summarise all that might be contained within 6000 pages of legal text. At this stage it is possible to highlight at least three ways in which TPP can provide opportunities and any potential risks have been addressed.

First, New Zealand negotiators have worked hard to ensure that New Zealand’s trading interests are covered. While the outcome on dairy products was not as comprehensive as many would have liked, the dairy industry is still likely to be a big winner as the barriers affecting its products in Japan, the United States, Canada and Mexico are the biggest. Other sectors will also benefit from tariff elimination – beef, kiwifruit, other horticulture, wine, seafood, wood and manufactured products including medical devices and agricultural technology. These are tangible gains that will over time improve the competitiveness of our exports, reduce costs and open up new markets. We know from the experience of other agreements such as those with Australia and China the impact this can have on our economy especially in terms of jobs. The World Bank is forecasting increased exports of around 10 percent by 2030 and an additional 3 percent on GDP. There are few other policy measures that can deliver these sorts of net gains.

Second, New Zealand negotiators have endeavoured to preserve the Government’s continuing right to regulate on important matters like public health (including in relation to tobacco), the environment, the Treaty of Waitangi and the purchase of farm land – even while agreeing to provide minimum standards of treatment for foreign investors. This is possibly the area of TPP with most risk, but investor state dispute settlement is more complex than simply “suing for loss of profits” as is often claimed. All New Zealand’s recent FTAs have included the provision whereby foreign investors can seek compensation where their treatment has been less than the standards agreed and where this amounts to expropriation of the investor’s assets. High hurdles are established for initiating such cases and there are safeguards within the agreement which make it highly unlikely New Zealand would be successfully challenged.

Third, New Zealand negotiators have sought to preserve as far as is possible existing policy settings related to intellectual property, another area of concern to many stakeholders. The upshot is that the only major change needing to be made is in relation to the copyright term which will move from 50 to 70 years after the death of the author. This means it will cost more to use copyright works: for example, playing recordings in pubs and ‘music on hold’ will require the payment of royalties for an extra 20 years. Despite this, for most New Zealanders the effect will be hardly noticeable at all. The Government has estimated over the very long term a cost of an additional $55 million spread across the economy as a whole.

Other changes in the area of copyright are limited in effect. In other areas such as patents for software, patents and data protection for medicines, the role of Pharmac and use of the Internet there is no major change under TPP. It is hard to see how the cost of medicines will increase but the Government is clearly on record as saying there will be no cost increases for individual kiwis.

Once TPP is signed, the issue before the country will be whether New Zealand should proceed to ratify or not. The deciding point for our elected representatives will be whether the trade benefits outweigh those potential policy risks. Those opposing TPP will need to be able to explain why their concerns are of such overwhelming impact that the trade benefits should be set aside. They will also need to explain how New Zealand’s export interests are to be otherwise secured if our major competitors ratify the agreement and New Zealand does not. The World Bank study also makes clear that those outside TPP are likely to be adversely affected, which explains why others are already lining up to join.

TPP is not the Armageddon some claim it to be. According to the Government a substantive outcome worth $2.7 billion to the economy has been secured with only marginal change to current policy. The Government’s decision to ratify comes only after a Parliamentary process where the costs and benefits can be properly assessed. That said, no-one climbs a mountain without taking sensible precautions. New Zealand’s negotiators – who initiated the TPP enterprise in the first place – did not come down in the last shower. They have skilfully ensured that the agreement reflects our interests and contains the right checks and balances which can ensure a significant boost to New Zealand’s economy.

Originally published in Idealog.

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