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A House divided over the Trans-Pacific Partnership

03 February 2016

​For New Zealand to host the signing of the Trans-Pacific Partnership agreement (TPP) tomorrow is an extraordinary outcome to negotiations which began life in 2008 as Tim Groser’s ‘Plan B’.

As the multilateral World Trade Organisation (WTO) talks became mired in inertia, New Zealand sought a way forward through a series of bilateral and regional free trade agreements (FTAs) based on the successful CER model.  From Singapore in 2001 to the Republic of Korea in 2015, New Zealand has now entered into FTAs with 15 WTO members in addition to Australia.

The TPP began life modestly as an initiative between New Zealand and Singapore, but the ambition was that it would evolve into a trans-Pacific agreement.  The first recruits were Chile and Brunei and the net has subsequently extended to Australia, the United States, Canada, Japan, Malaysia, Mexico, Peru and Vietnam.

New Zealand now finds itself in the vanguard of the new wave of economic globalisation.  This is a coincidence of the worldwide focus on FTAs to further integrate economies, the prominence of Asia, and the United States’ and Japan’s renewed interest in the Pacific Rim. 

Some find this uncomfortable.  Many, including the protesters at Seattle, found the birth of the WTO in 1994 similarly uncomfortable.

Difficult as change can be, this is an opportunity which will not come again.  In its final form, the TPP is the biggest free trade deal in a generation and will establish the architecture of Asia Pacific trading relationships for decades to come. 

World Bank analysis indicates that Vietnam and Malaysia are the two big winners out of the TPP, with projected economic growth of 10% and 8%, respectively by 2030, when the TPP would fully enter into force.  The World Bank estimates New Zealand’s gain at around 3%. 

For the United States and Australia, however, the annual impact of the TPPA is estimated to be in the order of 0.6%.  This reflects that it is the smaller, open economies that will benefit most from greater access to large export markets and a stronger position in regional supply chains.

The Government’s national interest analysis, published on 25 January, estimates an annual net gain of $2.6 billion by 2030 and concludes that: 1

These estimated gains to New Zealand’s GDP in 2030 compare the impact of TPP against the scenario where TPP never enters into force.  In reality, TPP will almost certainly enter into force regardless of whether New Zealand joins.  If TPP goes ahead without New Zealand, New Zealand would be placed at a competitive disadvantage to the region, incurring significant net cost to the economy.

There is a long way to go even after the TPP is signed.  Each of the 12 signatory countries will have to ratify the agreement.  The TPP requires ratification by parties representing at least 85% of the GDP of the original signatories.  Effectively, this puts the United States in a make or break position. 

Whether Congress will ratify the TPP is far from certain, with both Republican and Democrat presidential frontrunners opposing the deal.  The reason is not hard to find.  The TPP, like the WTO before it, represents a colossal compromise for all parties.  No country got everything it sought. 

The political divide over the TPP in New Zealand is disappointing and runs counter to decades of bipartisan support among the two major parties.  National still has the numbers it needs with the support of ACT, United Future and Phil Goff who has special dispensation to cross the floor.

Labour’s opposition is based on the failure of the TPP to meet one of the ‘bottom lines’ it announced in July 2015: expressly preserving policy space to restrict foreigners from buying residential property by expanding the scope of the Overseas Investment Act (OIA). 

Labour’s frustration is understandable.  The TPP does not appear to include the specific reservation of rights Labour wanted.  New Zealand negotiators could perhaps have sought a more nuanced provision, such as appears in the NZ-Korea FTA, which arguably preserves some scope to expand the OIA screening regime.  It is hard to see that the more absolute language in the relevant TPP annex was a deal breaker for other negotiating parties. 

Negotiating parties tend not to publicly announce their bottom lines in advance to avoid painting themselves into a corner, as Labour has effectively done.  One cannot, of course, sensibly weigh up the overall merits or demerits of a 6000 page 12 party agreement by looking only at one provision.  To attempt this is to miss the wood for the trees. 

None of the signatory countries will be perfectly satisfied with the deal.  Each will have a particular clause or clauses that they would prefer were not there.  The US Republican Senator, Orrin Hatch, for instance is chagrined that the IP chapter grants only five, and not eight, years’ protection to biologics. 

But if support for the deal was premised on perfection, then it would go the way of the Doha Round.  It is no coincidence that TPP opponents play the single issue game.  Conflating whether one gets everything one wants, and whether the deal is acceptable overall, is a classic black hat strategy. 

The art of negotiating involves being able to push hard for one’s positions, then to stand back and work out whether (even if one did not get all one wanted) the deal on the table is better than no deal at all. 

Here, the question is even more stark.  Would New Zealand be better off inside, or outside, the tent?  MFAT’s national interest analysis reaches a firm conclusion, having weighed everything up over 276 pages.  It is respectfully suggested that this conclusion deserves to be afforded more weight than anyone’s position based on a single issue.

Footnote:

1    Ministry of Foreign Affairs and Trade Trans-Pacific Partnership (TPP) National Interest Analysis (25 January 2016)

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