Trust Us?

If you think you know what has been going on with the TPP, you have not been following closely enough. However, here are a few matters for clarification.

Trade negotiations used to be like the following. Japan wants better access to the US market for the cars it produces, while the US wants better access to the Japanese markets for its agricultural products. If they agree, car workers in the US will be worse off, as will Japanese farmers. Conversely, US farmers and Japanese car workers will be better off. In each case the government will have to trade the interests of its farmers against the interests of its car industry.

The introduction of a third party complicates the deal. Mexico will also lose out because it currently supplies cars to the US. There is the additional demand that it open its markets up to dairy imports so it loses on that dimension too. (Presumably it has hopes for other wins.)

There you are; three paragraphs before I mention New Zealand. We are a bit player in the game. Our hope is to benefit from the overall deal, but it wont matter if we withdraw – it would matter if Japan did.

New Zealand’s difficulty is that two decades ago we gave away barriers to imports so we have little to offer. Yet our agricultural exports are often (brutally) restricted. We’ve been hunting around for decades trying to reduce foreign barriers to agricultural products. While we have had some successes, the fact is that while there is, virtually, total free trade in manufactures, severe restrictions on international trade in foodstuffs remain. It would be a big gain for New Zealand if access was easier in the TPP twelve. I doubt there will be unlimited access any more than we have unlimited access to the Chinese market. But a TPP agreement offers the opportunity of substantial improvements. (As an aside, whatever the TPP outcome, it will do little for the current state of dairy prices. The impact will be slow.)

The danger is that, say, Japan will give access to US products but not to ours. That might not be a total disaster because US dairy exports would be diverted from some of our current markets. It would be better for an orderly liberalisation of world agricultural trade if a number of markets opened up together. (Hence the importance of the WTO and the Doha round.)  Opening up one could have a lot of farmers charging into it. Better to have improved access to the Canadian, Japanese and Mexican markets together (and the American one, for despite its dairy export ambitions it is still very restrictive to dairy imports).

Instead of offering a concession to US and Japanese imports in exchange for our market access we could offer to pay their governments if they let our products in. That is not the way gentlemen do trade deals. Instead their pharmaceutical industries have said pay it to them by extending the period of their patents.

It works roughly like this. Each year some of the pharmaceuticals come out of patent and Pharmac gets cheaper generic drugs instead. It uses the savings to purchase new drugs. This will not happen to the same extent if the patent period is extended.

The government has said it will increase the Pharmac budget for the additional costs it faces so that it can continue to provide the new drugs. Where the funds would come from is not stated. I would be very opposed to the funding coming at the expense of other components of the public healthcare budget, which would mean the sick suffering in order to give a better deal to our farmers. The government should promise to lift its healthcare budget above current plans to pay for any increase in the drug costs as a result of the TPP.

A couple of asides. First, this arrangement does not compromise Pharmac; it would just be more expensive to run. Second, there is not much agreement, even among American economists, that long patents are a good idea. Allow me to duck the argument, by saying that if the US government has decided they are, we might go along with it if we get enough gains for market access for our foodstuffs. (While the talk is all about dairy, I assume that there could be some loosening of restrictions for meat too.)

The Prime Minister, John Key, has said for some time that Pharmac will not be compromised (all he has said is that it will be more expensive to run). I am intrigued how many have ignored his assurance. The indications are that people are not listening to him and we are not weighing his words carefully. Key trades on a ‘trust me’ brand. Some sections of the public say they do not trust him. It is not just the TPP deal; the Saudi farm deal is yet another example of his undermining Brand Key (so was the convention centre). Perhaps ithe lack of confidence  is only among those who value proper procedure. Unsurprisingly, doubts are common in inner Wellington but I have no idea how widespread they are in the country.

Why should he be ‘lying’ – a sentiment often mentioned to me– when he says that the TPP is very close to a deal on dairy access? He could soon be found out; there are Fonterra officials who are just as informed but could leak the opposite if it was true. (Mind you, I have not much idea how close is ‘close’.)

The government is handling its relations with the public appallingly. My guess that when any deal is announced there will be a sizeable minority who will reject whatever is proposed, no matter how favourable it is, because they simply dont trust the government.

But neither does the government trust the public. In answer to a question in parliament the acting Minister of Trade, Todd McClay, stated ‘What I would say to that member [Russel Norman] is that people who want us to make public these documents actually do not want to see the text; they just want to derail the agreement.’

I accept that much of the negotiation material between diverse parties has to be held back – a point McClay made earlier in his answer. But I was insulted by the above response. I’d like to see more but, as this column shows, I dont want to derail the deal. I would like to know what is going on so we can have a better informed discussion to judge the deal on its merits.

Comments (6)

by onsos on August 10, 2015

Why do people no longer have faith in what Key says? There is now repeated evidence that Key says whatever is simply politically expedient in the short term. The Saudi sheep deal is just one example of this, but his comments on the Auckland property market, foreign buyers, the impact of changes to Kiwisaver, or the future outlook of the economy are all current examples. You can go back further and find endless examples of where Key has said stuff that is patently not true.

What is more interesting is that people just seem to accept this. The fact that Key speaks total nonsense is obvious, and yet this has become the new normal in NZ politics.

It leaves Key in no position to provide faith in the TPPA negotiations. This is not helped by the fact that he has had to contradict himself: reassurances about Pharmac have had to be changed, statements of the benefits have changed, and even statements about the timeline and likelihood of completion have changed. If there was reason to have confidence in the prime minister, this could be contextualised as changing circumstances. But the prime minister has not even acknowledged that he is saying different things, and there is no reason to have faith in what he says anyway.

There is nobody else who can provide this faith, either. Groser’s Pollyanna optimism is looking wan, and English and anybody else who might boost this within National have been party to the same games.

by Tim Watkin on August 10, 2015
Tim Watkin

Key's trust levels are interesting. It seems many give him a certain amount of latitude to fudge and change course (in fact act in an untrustworthy manner) because they do trust him. NZers are not sticklers for rules and process, and are happy to give latitude to those they rate (what happens at the bottom of the scrum's OK if you win the test etc).

But if that fudging and changing course impacts you more directly, then the lenience fades. It hasn't changed significantly in six years, but there is a sense it has slipped somewhat this year and some polls support this view.

Onsos, you say assurances have had to change on Pharmac... but hardly. National has promised to protect it for years and as Brian says, they've stuck to that. It'd be political suicide not to. But it's only recently (I'd like to think in part because we pushed Groser on it on The Nation) that he's admitted it will raise costs.



by Rich on August 10, 2015

Most countries are going to be highly reluctant to open up their commodity agriculture sector for two reasons: farmers forming an effective lobby (especially in states with a distorted electoral system) and a perceived need for food security (often for good reason - Britain chose to import much of its food in the early 20th century and was nearly starved out of WW2 as a result).

It's also not clear that NZ will do well in commodity agriculture from any global liberalisation. Our labour, input, land and transport costs are higher than many potential competitors, and it's unclear how much our favourable climate compensates for this.

The industries NZ has the potential to grow in (like tech) are little affected by tariffs. Indeed, if you ask most people in the export-oriented tech sector (as opposed to the mostly foreign owned toll-taking sector that lives off implementation contracts), they are opposed to TPP, not least because of its export of the USA's unworkable and oppressive intellectual property laws.


by onsos on August 10, 2015

I’m surprised that you, Tim, think this: “National has promised to protect [Pharmac] for years and as Brian says, they've stuck to that. It'd be political suicide not to.” 

The terms under which they are protecting it have changed. At various times they have asserted that Pharmac wouldn’t be affected, that it wouldn’t be significantly affected, that its way of working wouldn’t change. As late as October last year, Groser was asserting that medicines wouldn’t be more expensive.

All of this could be described as protecting it, but some of it is patently false, and some of it means protecting it in ways that mean it will either be much more expensive, or much less effective. Either way, Pharmac will be compromised (where is the money going to come from?), and I’m a little perplexed as to why usually cogent commentators are happy to accept this bunk.

So what has happened is that National have weaselled their way through this. They refused to acknowledge valid criticism. They dismiss well-informed critics as ‘anti-trade’. They dismiss leaked evidence as false, and it later plays out to be true. They dissemble about what will happen, and they outright lie. This is not surprising; this is what politicians do. I watched Clarke’s government do this, and I watched the Bolger/Shipley government do it, and I know that the Muldoon and Lange governments did it.

What perplexes me is that commentators I normally respect just accept this. Apparently, it is okay for Key to roll out this nonsense, year after year.

It won’t be ‘political suicide’, as you put it, if they gut Pharmac. It will be an exercise in PR. Pharmac won’t be ‘gutted’; in fact, it will have its funding increased. But, over time, it will be able to do less and less with more and more. 

by James Green on August 10, 2015
James Green

I'm with Tim and Brian on Pharmac, so far it purpose - to be a single buyer - has not been compromised. However I don't think it would be political suicide to even completely scrap it and I would point to the asset sales as a prime example of the public strongly disagreeing with John Key, but them re-electing him anyway. Also his continual lying having no affect on his popularity (until maybe this year).


I think agricultural trade protection by the EU, US, Japan and also Canada, Korea and EFTA countries is the single biggest reason why poor countries remain so. Meddling by the UNSC Permanent 5 is also a big factor (esp. US, France and Russia).

If those countries stopped subsidising their farmers (tariffs are subsidies by another form) then other countries would be able to compete to some degree because they have cheaper labour and land costs. These growth opportunities will attract foreign money, but if FDI is restricted to bonds and not shares I think this could help a lot.

They will be less economic migrants to these countries too if they are allowed to develop. And without the subsidies/tariffs food will become cheaper.

by Brian Easton on August 13, 2015
Brian Easton

My impression is that sometime ago the Big Pharma demands on Pharmac were taken off the negotiating table, and its essential role of as a monopsonistic purchaser will be retained. About that time Key began giving assurances that there would be no fundamental change to the way Pharmac would work – although there may be some cosmetic changes.

Of course I could be wrong. If I am, then Key’s credibility will be in tatters. (Some will try to damage him if there are any cosmetic change but he will breeze through that.)

The big Pharma are now concentrating on lengthening the patent period. They want another 12 years, the other 11 TPP members argue for zero. Commentators seem to think the compromise may be about 5 years. However there does not yet appear to be a settlement. It will probably be one of the very last made.

If the patent period is extended it will affect the cost of our drugs bill. As I explained the government has not yet indicated who will pay (except ‘the taxpayer’). It probably has an idea but it thinks it is not the time yet to tell. Let’s hope its idea is the general taxpayer and not the sick via health spending cuts elsewhere.

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