Caught on the rocks

The Trans Pacific Partnership (TPP) gets caught on American rocks

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Last Friday (12 June) was a bad day for proponents of the twelve-country Trans Pacific Partnership. To the surprise of many, the American House of Representatives has thwarted, at least temporarily, President Obama’s request for fast-track authority. Without that authority, other countries will not put forward their bottom line positions.

The irony is that the House has in theory offered Obama exactly the fast-track authority that he needs. However, the differences between the House and Senate versions of legislation are such that in reality he has been defeated.

The importance of fast-track authority is that the American Congress would then only be able to accept or reject the TPP without amendment. Without that agreement, ratification becomes unmanageable.

The issues that are causing so much controversy for the TPP in the USA have both similarities and differences to the TPP issues that divide New Zealanders. In both countries, big business is supportive. However, whereas in the USA there is widespread community concern about blue collar jobs, here in NZ the concern is about the power the big American corporates will be able to exert.

There could still be more twists and turns over the next few weeks before the US House and Senate take their summer recess, but time is running out. With the next presidential election only 17 months away, the likelihood is that the TPP will go to the back burner.

Perhaps that delay will be a good thing. Until now, most New Zealanders have had only a vague notion of what the TPP is about. But if negotiations do continue to move forward, emotions will surely rise. In that case, there is a real risk that the TPP will come to divide New Zealanders in a way we have not seen since the Vietnam War and Springbok apartheid issues of a previous generation.

The TPP is different to any other trade partnership New Zealand has been involved in. This deal is not just about free trade. It is also about geopolitics.

From an American perspective, the TPP is all about outmuscling China in the Pacific. The Americans want to bring as many Pacific Rim countries as possible under American influence.

President Obama has been explicit in recent days about this. On 12 June he said: “These kinds of agreements make sure that the global economy’s rules aren’t written by countries like China; they’re written by the United States of America”.

President Obama’s statement goes right to the core of why New Zealand needs to think hard about the TPP. The rules are being written by the Americans to benefit America. The Obama administration has also been explicit that it is about ensuring that American insurance companies, American financial companies, American pharmaceutical companies, and American ideas on intellectual property rights, all rule across as much of the world as possible. Linked to this, is that American corporations would be able to sue national governments who don’t play by these rules.

With most trade agreements, the benefits to New Zealand have been obvious in advance, and the results have delivered on the promise. CER with Australia and the China Free Trade Agreement have both been outstanding successes in advancing the New Zealand economy. It is not by chance that they are our two biggest trading partners. The benefits from ASEAN have been slower to come through, but they will continue to flow for many years. The recent free trade agreement with Korea is also likely to give considerable benefits. And historically, the Uruguay Round Agreement under GATT also brought many benefits to New Zealand in freeing-up international markets.

But this proposed TPP agreement is something quite different. Our leaders have made some very general statements about the expected benefits, but the specifics are far from clear. And on the other side of the coin, there are widespread concerns about the amount of national sovereignty that we might be conceding.

It is all very well for Prime Minister Key to argue that Pharmac is not up for negotiation. In terms of anything specific, Pharmac will indeed probably get minimal if any mention. The devil will be in the detail of general rules which the United States can then use for subsequent leverage in relation to the dismantling of Pharmac. And those rules are secret.

There are sound pragmatic reasons why negotiations have to be conducted in secret. It would be impossible for twelve countries to negotiate with every negotiating step laid out in public. But what we do need is an absolute agreement from Prime Minister Key that all will be available for public scrutiny before the agreement is signed, and that there will be no secret side agreements.

There are six countries within the TPP with whom New Zealand already has free-trade agreements. Most of these come under the ASEAN umbrella. That leaves three additional TPP countries of importance to New Zealand. These are the USA, Japan and Canada. The other two of somewhat lesser importance are Mexico and Peru.

When the TPP was first touted back in 2005, our then Labour Government told us that it would bring big benefits from dairy access to the USA. Back then, this might have been a prospect, but the USA is now very competitive on international markets, and is itself a global exporter. Regardless of any free trade agreement, we won’t be exporting much dairy to the USA.

More recently, Trade Minister Groser has been having a crack at Canada for its regulated dairy industry. He described their dairy industry as belonging in the former Soviet Union. This remarkable statement received considerable international press and did not go down well in Canada.

If Canada does join the TPP, then over time it will surely have to dismantle its dairy industry regulations. However, the notion that NZ will benefit from this is greatly flawed.
Currently, Canada produces about 8 billion litres of milk per annum of which nearly all is consumed within the country. Take off the production shackles, and Canada could soon produce 20 billion litres, with much of that going to exports.  In any case, it will be the Americans who will ship fresh milk across the border while the new Canadian industry gets itself organised, rather than New Zealand sending milk powder across the sea.

One of the big problems for New Zealand in our approach to the TPP is that our negotiators have got locked into a mind-set that has become irrelevant. Our bureaucrats and their political masters have failed to keep up with the reality that the dairy world has changed. Neither the US nor Canada is going to be an important destination for our milk.

Of course trade does already flow freely between New Zealand and the USA for most of our agricultural products. America is our biggest market for beef, which incurs minimal tariffs of 4.4 c per kg. Lamb enters duty free. Wine incurs modest tariffs but the real issues for New Zealand wine in the USA are brand recognition and internal logistics. Kiwifruit incurs an 8.5% tariff.

If the TPP does find its way out of the American rocks, then our Government will have to do a lot more to explain and define the benefits. And New Zealand’s citizens will want to see the fine print.

At least the Government knows where it stands. In contrast, Labour is not quite sure how to position itself. For the Greens, and their new co-leader James Shaw, this is the perfect issue on which to rally the troops.

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