The US senate has given trade promotion authority to the President. What next? Will the TPP agreement be acceptable, and to whom? 

Unfortunately trade negotiations are riddled with acronyms. I have listed the ones used here at the end of the article.

 

The US Senate has finally passed the Trade Promotion Authority (TPA). This is necessary because the US constitution places responsibility for trade matters (such as Free Trade Agreements; FTAs) with the legislative branch of its government. However it does not have the capacity to negotiate international deals. Instead the deals are made by the executive branch (headed by the President) and approved by Congress. The danger is that Congress could amend the deal after it was settled. No sane trade partner would agree to a ‘final’ deal in which they had made concessions, only to have it changed by the US Congress. The effect of the TPA is that the US Congress binds itself not amend the trade deal when it is presented to it. It either accepts it or rejects it as a whole.

 

That the Senate has agreed to give the President this authority is not the end of the matter. The House (the lower parliamentary chamber of Congress) has to give it too. It is generally thought that a TPA from the House will be even more difficult to obtain.

 

But even if they both give the TPA there can be no certainty that Congress will accept the final deal. Practically that means that while the US executive is negotiating with its trading partners it is also negotiating with members of Congress and the pressure groups that influence them in an attempt to ensure that the final deal will be acceptable to the legislative branch of government. Thus far no FTA has been rejected. (A similar domestic process goes on in all democracies.)

 

The TPA applies to both the Trans Pacific Partnership (TPP) of 12 countries (including New Zealand) as well as the US and the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union which is also currently under negotiation. (Note that the EU has  also to get a strong consensus from its 28 member states.) Here I focus on the TPP.

 

There are three groups of reasons for the US interest in the TPP. One, is it is seen as an integral part of the US Pacific strategy which aims to contain the Chinese economy. This cannot be said too aggressively, so exactly what it means is unclear. My view is that although Japan joined the other 11 members in the TPP late, the US cannot resist a deal with Japan. That does not mean it will be a bad deal for New Zealand because any access the US gets into the Japanese market should apply to the other 10 members too, and while rice liberalisation is not high among our priorities, there should be some (limited?) gains for dairy and meat. What it does mean, though, is the deal is going to be biased towards US and Japanese preoccupations, and that things important to us (and to the other 9) are likely to be downgraded.

 

The second group of reasons for the TPP is to remove the artificial barriers to trade in goods and services. A common US economist comment is that tariffs are now so low that these hardly matter. Generally true, but not quite. The restrictions on agricultural goods remain high. It would be of immense benefit to New Zealand to have them substantially lowered, although I am not too optimistic.

 

Even if the low tariffs come down there will be some jobs lost. Pressure from groups who will suffer as a result seems to have been a major factor in the reluctance of some US Senators to agree to a TPA. No doubt the US Government will be doing its best to minimise that impact but it can’t avoid it altogether. (For instance, the Japanese are keen to get better access for their cars to the US market – presumably at the cost of US car worker jobs. In return they will give better food access – at the cost of Japanese farm jobs.)

 

The third group of reasons might be classified as the needs of the globalised economy. As the world economy becomes more integrated there is a need for supra-national arrangements. Greens want better international coordination of environmental policies, affluent workers want common international standards for working conditions. But the big ones in these negotiations are Investor State Dispute Settlement (ISDS) procedures and Intellectual Property (IP) standards.

 

I have no difficulty with the need for such supra-national arrangements, although space precludes my detailing the arguments. However it is not at all obvious that the best way to obtain them is via free trade agreements among groups of countries. The US became frustrated with multilateral attempts to address the issues and turned to FTAs to progress them. But imagine a world in which there are different ISDS and IP regimes in the TPP and TTIP agreements, not to mention a multitude of others. It would hardly be a global arrangement.

 

There is considerable unease in the US about including ISDS and IP provisions in the FTAs, although I did not get the impression they were prominent when the TPA bill was passed. They may become more important when Congress has to agree to the final deal. The concern about the possible deal results in some strange bedfellows. Both the US right and left are uneasy about the sovereignty implications of the ISDS; one cry is that it will give foreign (i.e. non-US) corporations rights which domestic (i.e US) corporations will not have. An IP regime which might be good for the pharmaceutical industry (if not for patients) may be detrimental to innovation in the IT industry.

 

It is all a bit messy especially if you are New Zealand. Sure, we punch above our weight (every country says that) but it is a small punch compared to those in the Japanese-US negotiations. Fonterra and our meat companies, among other exporters, will be very keen for any improvement in access that can be obtained, but New Zealand as a whole may have to trade improvements in access for less than perfect ISDS and IP regimes.

 

Not far from the TPP are the TTIP negotiations which may turn up different outcomes. My expectation is that the EU with its members sensitive to sovereignty issues will probably end up with a saner ISDS regime than the TPPA will by itself. I am less sure about their IP deal – there are some big European pharmaceutical companies.

 

Perhaps the best New Zealand can hope for is that there will be sufficient unease in the US Congress for the ISDS and IP chapters to be parked until the TTIP settles its regimes. Perhaps this is a thin hope; perhaps the best thing you can do is make sure your friends and relatives in the US approach their Congress representatives with your concerns and theirs.

 

 

ACRONYMS

EU: European Union

FTA: Free Trade Agreement

ISDS: Investor State Dispute (Resolution) Systems

IP: Intellectual Property (includes copyright and patents)

TPA: Trade Promotion Authority

TPP: Trans Pacific Partnership of 12 members including NZ.

TPPA: TPP Agreement (used by some to distinguish the final agreement from the negotiation)

TTIP: Transatlantic Trade and Investment Partnership (between EU and US)

US: United States of America

Comments (6)

by Fentex on June 01, 2015
Fentex

A similar domestic process goes on in all democracies

Really? I do not see any such process occurring here. Surely if our negotiators were trying to obtain parliamentary support our parliamentarians would be shown copies of the suggested agreements?

 The restrictions on agricultural goods remain high. It would be of immense benefit to New Zealand to have them substantially lowered, although I am not too optimistic.

What is likely to be required of NZ is our not liberalising of anything for we are already very liberal but instead an adoption of increased restrictions to align with U.S expectations on the promise of what - some small promise of agricultural concessions that we cannot be certain will proceed quickly and promptly?

In return for intellectual property and service, in particular financial services, regulation that bind us to others standards and expectation more restrictive than our own?

Any such deal would be worthless to New Zealand. And completely irrational if argued the benefit is in other supra-national arrangements in the global economies interest.

That argument is that the  supra-national arrangements are in our interest and not one that has anything to with a free trade agreement and should stand and be agreed to on their own.

The TPP appears to be very much not in NZ's interests - and the admitted fact the U.S hopes to use it as part of a internal policy to constrain China shouldn't be welcome by a country happily exploiting an actual free trade agreement with China.

by John Allen on June 01, 2015
John Allen

There will be only one 'sort' of TPPA: one that suits national US commercial interests above all else.

Recall that the TPPA has its roots in the Pacific Three Closer Economic Partnership (P3) launched by Helen Clark around 2002.  The P3 (NZ, Chile and Singapore) was a real FTA that became the P4 when Brunei joined in 2005.  It was not until the US joined and took over the lead role in 2008, that different strategic interests made this an anything-but-a-free trade agreement.  Those national interests are centred on the US's economic strategy now being more services-focused and less manufacturing-focused.  Hence the loss of US-based manufacturing jobs will be more than offset by the gains of extending IP exclusivity plus the financial protections given under ISDS clauses for US companies that take their manufacturing off-shore.  It is significant that ISDS gives international companies more remedies than domestic ones, when it comes to State interference in their operations.

The ISDS provisions, which are already a part of NAFTA and other FTAs, are important to protect their off-shore manufacturing facilities and their global markets from interventions based on changes of law to protect society (e.g. new cigarette packaging laws in Australia under the US-AUS FTA) and to protect environments (e.g. Billion vs Canada).

NZ will accede to US demands in these 2 areas (IP and ISDS) because Groser so desperately wants an 'FTA' for our agricultural exports that matches what Australia gained so many years ago.  And that will be to our net cost.

I shall watch with interest how our government respond to the ISDS provisions when seeking to protect its people from the damaging health effects of glyphosate (and particularly Monsanto's Roundup) once that story makes the daily press.  Sacrificial betrayal is the only outcome I can see.

A solution? Kick the US off its TPPA chair and return to the original P4+ real FTA.

by James Green on June 01, 2015
James Green

Free trade is great, but this deal is going to be anything but that. The US along with Japan (and the EU) is one of the most protectionist states out there. I constantly come across stories of their incredibly inefficient government subsidised farming practices. Just look at the California drought for example.

Immigration from Mexico to the US rose dramatically under NAFTA as Mexican farmers could no longer compete with subsidised US food that was dumped on the market. Now Mexicans work on US farms for wages so low that no Americans will work there.

I'm sure that's why the Doha round failed, because the US and EU couldn't give up their protectionist policies and the rest of the world figured out the con that was going on.

by Katharine Moody on June 02, 2015
Katharine Moody

A solution? Kick the US off its TPPA chair and return to the original P4+ real FTA.


That's the very last thing this National executive would do. 


by Nick Gibbs on June 02, 2015
Nick Gibbs

An excellent article Brian. Thanks you. Two questions: I know that prior to ratification the Treasury have to complete and publicly release a National Interest Analysis. Is this a politically neutral document or can the govt use it to present their spin? Secondly, if Treasury released a negative review do you think the cabinet would go ahead and ratify the treaty?

by Andrew Geddis on June 02, 2015
Andrew Geddis

@Fentex,

Surely if our negotiators were trying to obtain parliamentary support our parliamentarians would be shown copies of the suggested agreements?

There is a parliamentary process that any TPP agreement must go through before NZ will ratify it (i.e. bind ourselves to it). However, this will only take place after the deal is done (i.e. all the parties have agreed on the final wording). It also takes place on a straight up-or-down vote - there is no capacity for the House to amend the agreement. And note National's near-majority status ... even if Labour opposes the final TPP (unclear at this stage), you can be pretty sure they'll have the numbers to OK it.

@Nick,

The National Interest Analysis (or NIA, to coin yet another acronym) is completed by the Ministry of Foreign Affairs and Trade. This also just happens to be the people who have been intimately involved in negotiating the terms of the TPP. So you might very well ask if this colours/clouds their assessment of the relative pros-and-cons of the agreement. (You can see an example of a NIA here.)

There is zero chance that the NIA on the TPP will be negative.

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