The Trans-Pacific Partnership could yet be sealed in the next few weeks, and if it is we need to think hard about the cost of signing up... and the cost of staying out

As I write this I am listening to a Canadian journalist being interviewed on Morning Report about the prospects of concluding the TPP. His speculation? That Canada will not let TPP be concluded until after the Canadian election, which has just been announced for October 19, just three months away. Which is another way of saying that the world's biggest ever trade deal could not be concluded until late November or December.

One wonders if the other 11 nations in the TPP negotiations will be so patient. The United States, for instance, may say if the Canadians want such a delay, it might be better if they left the negotiations altogether.

The alternative is that TPP will be concluded within the next month. We will know soon enough.

New Zealand is being held up as one of the nations that prevented the Maui negotiations from concluding the deal. If so, it's a clear demonstration that our negotiators are prepared to go to the wire on behalf of New Zealand in respect of dairy [Ed: corrected] access. It certainly makes it pretty hard, as many on the Left argue, that New Zealand is simply a pushover in the negotiations.

On the same edition of Morning report, the Prime Minister said that he fully expected that New Zealand would finalise a deal that would result in improved diary access, not at the level that New Zealand would like, but at a significant gain. Trade Minister Tim Groser said the gains for New Zealand already negotiated mean that TPP provides a net gain for the New Zealand economy, and he would be able to publicly prove that once the documents are made public.

The TPP has been particularly controversial. Of course there are the usual opponents; those activists, actors, academics, and writers who seem instinctively opposed to all free trade deals, as yet another element of the neo-liberal paradigm. They are the New Zealand’s equivalents of the Syriza Party of Greece. Voters only turn to such parties in extremis, and even then it usually proves to be a costly mistake.

But the opposition to TPP is broader than that. Labour’s left activists have been adamantly opposed, pretty much from day one. The Labour leadership has had to take on some of their concerns, and has set out a number of conditions, albeit rather flexible ones, that TPP will need to meet before Labour can support it.

Those activists also want a commitment that Labour will withdraw from TPP. But Andrew Little will never make such a commitment. Labour is not Syriza, and even Syriza was not prepared to depart the Euro and renege on Greece’s debts.

So what are the calculations for New Zealand in respect of TPP?

For the usual opponents, such calculations seemingly don’t matter. They know what they believe, and that is all that really matters. It matters not a jot to them that they were completely wrong on the China FTA or the other free trade deals New Zealand is party to. By definition they are all bad.

But for most of the rest of us, such calculations do matter. For many of those who are currently uneasy about TPP, as long as it can be demonstrated there is a net gain from TPP, they will go along with it. They mostly trust the government to negotiate as hard as possible, and that the information that will be formally released by government will have sufficient integrity.

John Key, without directly saying so, seemed to indicate that New Zealand will be part of TPP. There is no question of being left out. The goal at the moment is to negotiate the best deal possible. And New Zealand is willing to play hardball in doing so.

That is where the calculation comes in. One of the risks the government is offsetting is that they know for New Zealand to be outside TPP when our major trading partners (China excepted) are all in will almost certainly damage New Zealand’s existing trading position. And of course the other negotiating states know this as well.

In fact this is true of all the TPP negotiating parties. Well, perhaps not Canada so much. The great bulk of their trade is with their NAFTA partners so they would not be so seriously affected if they were not part of TPP.

This is not true for the United States. Better access to Japan is a big prize for them, not to speak of the broader geopolitical objectives they it's trying to achieve. A failure to complete TPP will be a major blow to the United States' position in the Asia-Pacific region. Their partners and allies will loose a significant degree of trust in its ability to lead.

Coming back to the New Zealand calculation. If for instance Australia, Japan, and the United Sates are in TPP, but New Zealand is not, it's likely New Zealand will loose existing market share, especially in Japan and the United States. Australia and the United States will have better access to the Japanese agricultural market. Similarly Australia would have better access to the United Sates market relative to New Zealand.

We could expect the pharmaceutical companies will charge more for medicines being sold in New Zealand, due to our shorter patent period than they would charge the TPP nations with the new longer period that will be in force among them. In effect we would paying the extra cost for pharmaceuticals that rises from the longer TPP patent period, but without the countervailing advantages of TPP.

These are the sorts of calculations that result in Groser being so adamant that New Zealand must be in TPP.

It is not just a question of the gains achieved by being in TPP; it is also the costs that will be incurred if we chose to stay out.

 

Comments (22)

by Rich on August 04, 2015
Rich

New Zealand would finalise a deal that would result in improved diary access

Freudian slip - you mean ministers would get more dates with important US politicians and famous movie execs?

Assuming you meant "dairy" can you explain why the US would buy any of our milk, even given no tariff impediments, while they are pouring their own into manure pits?

by Sam Crawley on August 04, 2015
Sam Crawley

I don't see much added to the debate by this article. It's simply a rehashing of the argument which boils down to "anyone opposed to the TPP is a crazy activist, we are obviously going to get huge benefits if we sign, and be ruined if we don't".

But there's a whole lot more to the anti-TPP sentiment than anti-free trade. From the completely unnecessary (and undemocratic) secrecy, to the many provisions which have very little to do with free trade (copyright, patents, ISDS, etc) to the huge uncertainty around how much (if any) benefit we will get, and the very real risk that we'll be far worse off if we sign.

The China FTA was not multi-lateral, had no provisions which overrode our sovereignty, and was debated and voted on by parliament. The fact that it has (so far) gone well is not reasonable evidence that the TPP will go the same way. Even considering the most optimistic projections, and ignoring all the potential negatives (not all of which can easily have a dollar amount attached to them) the potential benefits to NZ are a fraction of those of the China FTA.

It's become obvious that the main reason we're still in negotiations is fear of what will happen if we pull out, as well as the desire of Groser to claim the glory (which he seems to imagine will be immense). I really don't think those are great reasons given the obvious risks.

by Murray Grimwood on August 04, 2015
Murray Grimwood

It is a debate being held on a sloping deck, about which colour of deckchair is best,

Little, on Morning Report, is below a rock and standing on a hard place. How can you argue that Solid Energy needs support while also arguing for Climate Change addressment?

The Left aren't what Mapp describes; they're just cognitively dissonant in spades. The Right have no alternative but to plunge right on over the cliff, parachutes pawned.The TPPA and other equivalents were the last throw of their dice even as things were folding around them.

It's capitalism that is dying, not ideology. The ideology was merely one form of it which increasingly favoured a favoured few. Physical planetary limits are rendering the division obsolete; funny to watch folk unable to abandon superceded ideas.

Epitaph

by Fentex on August 04, 2015
Fentex

It certainly makes it pretty hard, as many on the Left argue, that New Zealand is simply a pushover in the negotiations.

Danyl at Dimpost made a good joke about playing poker with Tim Grosser. I might suggest someone so easily fooled by a bluff over pennies would be a good opponent too,

I dislike the TPP immensely and especially because a lot of people seem to think a few concessions on dairy and agriculture would make it worthwhile.

There is no acceptable tonnes of access in dairy and agriculture that would make the TPP worthwhile. NZ is not terribly short of markets for what we produce and competing against Canada and the U.S to sell more into TPP markets isn't going to improve the world price for us.

Dairy and agriculture will not make NZ wealthy. It's one of many industries and not one of the ones we need to grow bigger. These are mature industries in NZ and marginal gains in them should not be something we stake our future on.

We need to expand in new markets and we won't do that when they're controlled by IP legislation designed to benefit our competition and where we must compete on equal terms with colossuses.

We should leave the TPP and seek out more useful and direct free trade with similar scaled economies as we did when we first pursued this agreement, before the U.S crashed our party.

I don't hate Investor State Dispute resolution procedures per se, but I am terrified of them with regards to the TPP. A free trade agreement that included well defined resolution processes where there is disagreement over implementation makes sense.

A fairly open ended ability to assault a country on the basis of a wide-ranging agreement over IP regulation is something else again.

And I continue to suspect our negotiators are more concerned with a deal that has them too focused on incremental increases in markets for dairy and agriculture blinding the to the costs of what they would trade for it.

 

by barry on August 04, 2015
barry

You are quite right that it may be better for NZ to part of a bad deal than sitting on the sidelines.  However it would be better to be part of a good deal, like the China FTA seems to be.

It doesn't seem to make sense that having longer patents on medicines will raise their price anywhere.  It seems that NZ could gain in having cheaper medicines and still the shorter patent time if other countries agreed to it and NZ was not a party.

The larger number of countries involved the better but the harder it is to achieve.

One problem I have with the TPPA is the process.  The text is secret apart from leaks which may or may not represent the current text.  However other parties (large multinationals' representatives) have been party to the text and may have contributed to the wording.  I am sure that the NZ negotiators are doing their best but the cards are stacked against them.  We may get some of what we want, but what we give away may not be apparent for some time.

the other problem I have is some of what has been leaked seems to have little to do with trade. It seems to favour privatisation and contracting services out and make it hard for governments to make decisions in its own favour.  This is definitely an ideological stance leading to potentially perverse outcomes.  It seems to agree with the current government's leanings, but will restrict any future "backsliding" after a change.

It would result in a significant reduction in sovereignty.  Australia’s legal difficulty with introducing plain paper cigarette packaging is the obvious example.  It has restrained NZ from following suit.  The provisions in the leaked drafts are significantly more extreme.  e.g. it would stop any future government from putting barriers in place stopping foreigners buying sensitive land.

It doesn't help to start your argument by dismissing opponents as ideologically driven while playing up your own rational approach.  At the end of the day we are part of a big experiment without a control.  Nobody can say for sure that any FTA has been good or bad, even in hindsight. What would have happened without it is unknowable.

In practice there are winners and losers from every decision a government makes.

by onsos on August 05, 2015
onsos

There is a lot of generalisation about the Left in this, but not much substance.

It is convenient to assume that your opponents are ill-informed, or incapable of doing a cost-benefit analysis, but it doesn't help discussion. 

Three major areas of intransigence were identified as obstructing the progress of the TPPA: intellectual property, autos, and agriculture. What's striking is that these are the biggest areas involved in the thing at all. Suggesting that NZ's opposition to completing was a significant factor ignores a basic reality: the major players could not agree on the major issues.

 

by Murray Grimwood on August 05, 2015
Murray Grimwood

Actually, one of the oxymoronic things about this is that a 'Free Trade' agreement needs one sentence; We will have a free trade agreement.

Forgetting for a moment the obvious result - that all wages would trend to the lower common denominator, which in turn would reduce the number who could afford mass-produced items, a self-defeating graph-cross - what we will have is a lengthy list of exemptions.

The biggest of which will be democratic rights to alter/amend.

by Tim Watkin on August 05, 2015
Tim Watkin

Wayne, I agree that we can assume our negotiators would push as hard as possible for NZ. But if, as you say, there's no question of us being left out, then how strong is our bargaining position?

The big questions that remain for me is whether "net gain" is sufficient; it seems somewhat less than we'd been led to expect in previous year. Two, whether being left out really going to hurt. As Rich says, there's little demand for export milk and dairy in the US, so any gains aren't going to be short-term. Would demand really be impacted?

 

by Murray Grimwood on August 05, 2015
Murray Grimwood

Why would you 'assume' that, Tim?

This is blind faith (sorry, neoliberal ideology, silly me) acting here. A 'free market' is actually an arena where the small get overwhelmed by the big.

The only safeguard is rules which protect. Which look to be the big target here.

Labour look like wanting a bob - and it is a bob; too old a philosophy for 10c - each way. All parties - Greens included - avoid mentioning the increasing global scarcity of opportunity which was always going to drive this kind of move.

http://www.theguardian.com/commentisfree/2014/sep/02/limits-to-growth-wa...

That's the backgrounder; I find it fascinating; the avoidance, denial, silence - yet how can you have any meaningful discussion if you choose to ignore the perspective?

by Nick Gibbs on August 05, 2015
Nick Gibbs

An informative and interesting column. I was pleased that the deal was put back and that we didn't sign up to a poor agreement. I feel the chances of a deal recede with each set back, but no deal is better than a bad deal.

I also agree that there are those who simply can't see that holding discussions on trade is a rational thing to do and that trade deals aren't evil simply in and of themselves. Such deals are difficult, especially as a smaller partner in the talks, but the rules hammered out may actually assist us as a smaller nation. 

Coming to Labour; if a poor deal (but not a bad deal) is put on the table then they will be able to appease their base by saying they wouldn't sign it but are bound to honour it in the long run. And surely John Key can't afford to lose the political capital associated with signing a bad deal.

 

by Ross on August 06, 2015
Ross

We could expect the pharmaceutical companies will charge more for medicines being sold in New Zealand, due to our shorter patent period than they would charge the TPP nations with the new longer period that will be in force among them.

I think that is incorrect. The PM has said that medicines and drugs are likely to be more expensive if we join the TPP, but not to worry, it's only taxpayers' money. I have no idea why you think medicines and drugs will be cheaper.

by Wayne Mapp on August 06, 2015
Wayne Mapp

It is certainly true that I have "called out" those on the Left who oppose all free trade agreements, and I will continue to do so. This is the group that Jane Kelsey effectively represents.  

For them everything is viewed through the lenses of whether it is part of the neo-liberal agenda. And I certainly make a political judgement about those who critique the govt policy on that basis. I know they will have a consistent and uniform viewpoint on just about every political issue. They will not be persuadable on any of these issues. They have already made up their mind. In effect they already have an immutable world view. Of course they would say the same about me, and indeed they do.

So National Party politicians spend no time attempting to persuade this group. That is why you will never see Tim Groser debate any trade issue with Jane Kelsey. 

The debate on TPP that the government is concerned about is not centered on that group. It is focused on those people who will actually weigh up both the merits and costs of TPP. Some of whom vote National, some of whom never will.

Both National and Labour governments depend on many, if not most, of their opponents recognising the legitimacy of what they do in government, and that they are acting in the interests of New Zealand, even if they never get their vote.

Coming to the point about the cost of medicine raised by Barry. The pharmaceutical companies will not raise the price of their medicines in TPP countries, in fact they should reduce the price somewhat, because they can recover their costs and make a profit over the longer patent period. This will of course applies only to those countries who have extended the patent period under TPP. But what about those nations who are not part of TPP, who will have a shorter patent period. The pharmaceutical companies will not offer the medicines to them at the same price as they do in countries with longer patent periods. The price will be higher, since they have to recover the cost in a shorter period. That is the basis of why I say staying out of TPP will result in drug costs to Pharmac being potentially higher than at present, or alternatively the annual price will not go down as it is likely to do in the TPP countries with longer patent periods.

And yes, I obviously recognise that TPP covers a lot more than tariffs, but then so does CER and the China FTA.

 

by Murray Grimwood on August 06, 2015
Murray Grimwood

But you have studiously avoided the big picture, as has Tim.

Maybe it's just easier to see the game from the sidelines. Maybe , too, those of us on the sidelines are the only ones with one eye on the clock.

Which reads: Injury Time'.

by onsos on August 06, 2015
onsos

There is no particular reason that pharmaceutical companies will lower prices because of extended patents. Their motive is to maximise their profits, and so they will negotiate the best deal possible. Their business model, having developed drugs, is not about 'recovering costs', it is about extracting the most value possible. There is no incentive to reduce their profitability, just because the profitable period is longer.

Jane Kelsey may be utterly opposed to the TPPA, but that has not stopped her being well-informed and erudite on the subject, moreso than many TPPA boosters and opponents who seem much more tractable. Refusing to debate with her because her opinion will not shift is not helpful; the debate is for the audience's benefit.

That is: Groser and Kelsey will never persuade each other of anything, but if they were to debate, the public would likely come out better informed.

(There are certainly cranks on the left who it is a waste of time having the debate with--not because their opinions are fixed, but because they are ill-informed and hostile.)

by Wayne Mapp on August 06, 2015
Wayne Mapp

The bulk purchasers of drugs, such as Pharmac, major hospitals, etc, will be fully knowledgeable about the extended period of the patents, and will use this to negotiate lower prices. They will have enough negotiating power to get at least some reductions over existing prices. It is seldom that there is a sole supplier of drugs for specific medical categories, though I appreciate that this does occur from time to time.

I agree that Jane is very well informed. She knows more about the detail and theory of free trade than virtually anyone else in New Zealand. Which is why it is so puzzling to me that she is so adamantly opposed to free trade agreements in general. She could use her knowledge to be a constructive critic. Well, I guess she would say she is.

However, given her PhD is about the importance of Gramsci (I have read it cover to cover), it is perhaps not surprising she is an unreconstructed socialist.

by Ross on August 06, 2015
Ross

That is why you will never see Tim Groser debate any trade issue with Jane Kelsey. 

To to be fair when would he have time, what with showcasing his awesome intellect to the world and cleaning out his hotel's minibar...?

by Ross on August 06, 2015
Ross

Wayne,

The PM says the price of drugs and medicines will inevitably rise. What inside info do you have that contradicts this?

http://www.radionz.co.nz/news/political/279879/tpp-key-admits-medicine-costs-will-rise

by Ross on August 06, 2015
Ross

There are various TPPA provisions that could affect Pharmac. 

http://www.sciencedirect.com/science/article/pii/S0168851013002108

 

by Ian Auld on August 06, 2015
Ian Auld

It is great to be able to access some informed debate on the ramifications of the TPPA via Pundit, as the traditional media outlets in New Zealand (save, perhaps RNZ) are doing such a terrible job of keeping us informed. I have yet to make up my mind about the deal. I am someone who generally supports the idea of free trade, but I suspect that with the TPPA, as with all FTAs, the devil will be in the detail. This is why the secrecy around the negotiations is so galling.

It will be interesting if the negotiations do not conclude until after the Canadian general election. There is a fair chance of a new government being elected in Canada, comprised of a coalition between the left leaning Liberal party and leftist New Democrat Party. Given that the governments of all of the major developed economies - USA, Japan, Canada, Australia, NZ, Singapore, Mexico - are currently all center-right / neo-liberal parties, and given that Canada is possibly the country that has the least to lose by walking away from the deal and can therefore play a strong negotiating hand, this could significantly change the negotiating landscape. 

by Ian Auld on August 06, 2015
Ian Auld

On another issue, I thought prices were meant to be set by supply and demand. Patents allow a company to exploit its monopoly on supply to derive higher prices on their product - the rationale being that this will incentivise them to invest in R&D. What incentive do companies have to not utilise the advantage of their pantent for  its full term in order to maximise the return to their shareholders? Also, if there is more than one supplier of a given drug, by definition isn't that drug is no longer under patent? Am I missing something here?

by onsos on August 07, 2015
onsos

Extended patent periods strengthen the hand of pharmaceutical companies, plain and simple. They limit the options available to bulk purchasers. This is the most basic form of economics: the patents restrict supply, with no change in demand. I'm not sure how you could possibly believe that bulk purchasers gain an advantage through this. 

Pharmac currently negotiates on fixed time-frames. In many cases, they have the option of using less effective drugs that have recently come off patent instead of more expensive options that are still under patent, and can negotiate on that basis. Longer patents simply and straightforwardly weaken their ability to negotiate.

Structurally, I find the refusal to debate with a critic who identified as 'very well-informed' odd. The fact that you will never persuade her, or that you can't understand why she does something, changes nothing: if she is producing cogent and effective reasons why we shouldn't sign the TPPA, then the onus is on you to explain what is wrong with them. (Or, to change your view.) Pretending that because she is a socialist her arguments aren't relevant is the worst form of ad hominem.

by Judy on August 07, 2015
Judy

Wayne said: 'It is certainly true that I have "called out" those on the Left who oppose all free trade agreements, and I will continue to do so. This is the group that Jane Kelsey effectively represents.'

I am calling you out Wayne: as Jane Kelsey said in the 7 'sharp' interview with Hosking, that she did NOT oppose trade agreements, Which Were About Trade.  Maybe you did not see it; I had to watch it on utube, because 7 'sharp' is even more ideologically wedded to John Key than you Wayne, and I only watched the interview because finally they had someone on there with some gravitas - Jane Kelsey.

Interestingly, Wayne, those that seek to force through the TPPA also want to control the internet, which presently allows Actual Freedom of Information.

To me Jane Kelsey wants 'open sesame' on the text; it cannot be difficult to do that before it is signed, when the dealing has been done.  Otherwise, Wayne, you and the people you speak for are insulting the New Zealand public that put people like you in government to begin with.  Even your hated Labour opened up the deal to Parliamentary debate before signing the Chinese trade agreement.  As the GCSB keeps telling us, 'if you have nothing to hide, you have nothing to fear, Wayne.

My question would have to be, will John Key have completed his tasks on behalf of America if he can get this deal signed?  Make no mistake, Wayne, the TPPA sell-off was never about trade. It was about reducing the rights of working people to ever receive a living wage and increasing profits - 'Jeez Wayne' surely even you can see that when it is being pushed by the corporates that seek to control and destroy small business in New Zealand. 

I believe the TPP WILL destroy New Zealand small and medium size businesses, the backbone of our country.  You, Wayne, are glorifying a new Precariat for workers and small/medium business owners. 

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