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Saturday, 6 February 2016

TPPA

This is one of those things which people just don't understand. In the same way that common flag referendum complaint "it costs 26 million" was really about what else could be done with that money, a lot of the protests over the TPPA are not in principle objections to free trade agreements. They are specific objections to a particular deal. And one of the major reasons behind that was that the TPPA was constructed in secrecy. Now, I am not saying that you should have a live twitter stream at every TPPA meeting, but transparency is a critically important part of non-corrupted democratic processes. Like flag change, just because the TPPA is happening doesn't mean we're given a free pass to ignore what was bad about how it came to happen. What it does mean, though, is that we can at least try and figure out... potential harm to democracy aside... whether the effects are good or bad.

One of the first things that a New Zealander needs to understand is that New Zealand is not like most world economies. That is to say, when our governments say they are committed to free trade, what they really mean is that there are basically no tariffs to start with. When American governments say this, what they mean is "well, we want you to remove tariffs". Compare and contrast these bad boys. What this means is that, in practice, the typical consumer will probably not experience cheaper goods. Same goes for purchasing imported raw materials/other production inputs. Why? Because in some sense, New Zealand has already experienced the gains from that particular aspect of free trade... even when trading with nations (e.g. the USA) where the TPPA is our first FTA.

Another thing that you have to understand about New Zealand is that our economy looks a lot more like Bolivia's than it looks like Germany's. Basically no manufacturing and a general reliance on primary industries (i.e. growing or extracting stuff). Tourism is also pretty big, but because of the radically different colonial model in New Zealand than, say, Bolivia New Zealand is also what we think of as a developed nation. This reliance is one reason why we have current account deficits. Primary industries don't add much value to the economy, for their size, because unlike manufacturing a lot of their customers are not end users: their customers need to buy low enough to be profitable once they've finished using whatever they've bought. Basically, this is why everyone gets their knickers in a twist about dairy prices.

What is probably the big theoretical rationale of free trade is called comparative advantage. That's the idea that countries will, in a free trade environment, only produce what they are relatively better at than the others. This is tempered by the idea of absolute advantage (where in overall terms one country is better than the other), but because for countries with absolute advantages they can comparatively do better elsewhere, it theoretically all works out. (I say theoretically because I cannot be arsed seeing if it does, and I don't know where to look in any case.) For New Zealand, dairy is an industry where we have a comparative advantage. Even compared with other agricultural pursuits, dairy is king. Now, we can change this up a bit, if say, meat was to become more significant because they are broadly related goods. However, the thing with dairy cows is that you don't just sell their milk once. In other words, when we get FTAs what we really, really want is to get the other country/countries to open up to our dairy products. From what I have read, the TPPA has, effectively, just achieved a minor breakthrough in respect to Japan and cheese.

With respect to some other primary industry activities, though, the news seems a bit better. After all, that link mentions wine and meat. While wine isn't a related good in the sense of production, these are complementary effects. You can now, after all, get cheaper NZ meat, wine and cheese in several countries, at least in theory. But still, dairy is king so the positive impacts are quite easy to overstate. Essentially, one would have to ignore all the other things going on... such as NZ dairy and China... and conclude that the overall importance of dairy to the economy will be weakened. If it is does prove to be the case that, while NZ dairy doesn't get any votes, it at least has a seat at the table now, the TPPA could merely have preserved our current dairy reliance, without offering us any big positive in return. On the other hand, I have concerns about whether or not the "corporations can sue governments" provision (see, Australia and plain packaging... tobacco is excluded under the TPPA, that's a different deal's similar provision) having negative consequences for New Zealand's biosecurity.

Biosecurity is actually a really big deal in New Zealand. In fact, biosecurity is, in real (if not perceived) terms, more significant than national security. Firstly, good biosecurity is part of the, admittedly bollocks, "Clean Green" image promoted to tourists and conservation tourism especially. Secondly, biosecurity preserves the quality of, say, NZ honey (and the health of the industry) and stops the coming into the country of things like the Queensland Fruit Fly. Naturally, no security system is impregnable... and some parties (e.g. National) have shown a disregard for it... but having at least something matters. Let's put it this way, you can't import honey into New Zealand. I don't think the TPPA has done anything specifically to change our approaches to biosecurity, but I am concerned about those law suits possibly having an negative impact. If I have to tell you that a bad biosecurity breach is a big problem for a country with New Zealand's economic profile, you shouldn't be involved in making decisions about anything remotely related to business and/or economic affairs.

It should also be noted that when it comes to international investment, New Zealand also looks like Bolivia... minimal investment by NZers outside the country, lots of investment from overseas inside the country. Foreign investment has a trade off. Often, esp. in places like Bolivia, if you don't get the money the goose that lays the golden eggs switches to silver, then bronze and finally packs it in and dies on you. On the other hand, when you do get the money, your ability to not need foreign investment decreases because a lot of the profit (i.e. what would be invested) now goes overseas. It is a very complex issue. But in particular, it is one reason why investor dispute clauses are more concerns for our government than it is for our business interests... possibly because it makes sense to say we have none: that's an appropriate hyperbole.

I think, possibly, that this is the big reason to be very sceptical of the TPPA: the law suits. Sure, maybe there's an issue with Pharmac but it seems Australia actually had some guts and some weight so that worked out a bit better. Copyright going up to 70 years is, in some sense, only mildly worrying... more a frustration than a big problem. But, when you have something which clearly compromises the ability to a country to rule itself, and not in the name of international law or human rights or all that jazz but instead profit, then you better hope that the benefits are big. And as we have seen, they're sketchy benefits. The whole idea of investor state resolution is that you can't trust the courts in a given country, so therefore you need some sort of stability that can be trusted. If that was ever true, it isn't now and certainly isn't when you're talking about the TPPA countries... even the developing ones... so the rationale no longer exists. Remove this from the TPPA and you don't do anything about the problems with its arrival into being, but you do do a lot towards creating a FTA agreement that looks less like the TPPA and more like a FTA.

I think free trade is a good idea, I don't think that New Zealand gets anywhere near enough out of the TPPA to risk the insanity of investor state dispute settlement. 

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