If the TPP was the Rugby World Cup, the New Zealand team probably wouldn’t be making it out of pool play. While the final details will not emerge for a month, the TPP is offering disappointing returns for New Zealand… and over a very long phase-in period… of up to 25 years in major areas important to us, even though many of the concessions we have made would take immediate effect. Typically, Prime Minister John Key has already been spinning the “93% tariff free” outcome across the TPP region, as if that situation was entirely due to the TPP deal. To get that figure, Key is adding all pre-existing tariff reductions and adding them to the TPP. To take a relevant example… 80% of US trade with other TPP members is already duty free.
Yes, the TPP has helped to knock a few points off the tariffs facing our exporters. Yet some of those alleged dollar gains may well have been made regardless over time – and without the negative baggage of the concessions in the non-trade areas (intellectual property, copyright extensions, investor-state dispute mechanisms etc) that the TPP deal also brings in its wake. The annual dollar returns being trumpeted by TPP advocates should be being treated with a few handfuls of salt. It will be a further month before the details are translated and legalled (and while corporations and the parliaments of member countries are fully briefed) before the contents are finally opened up to public scrutiny. Over the period from now until 2030, even the rosier projections for New Zealand see the TPP adding only about 1% per annum to this country’s GDP.
In the meantime, we have got the general gist. On our biggest export commodity – dairy milk powder – we have achieved almost zero extra advantage in the Japanese, US or Canadian markets. As Trade Minister Tim Groser confirmed on RNZ this morning, there will be a 25 year phase-in for the whole milk powder access we’ve “won” to the US market. Any small market opening by Canada – and this has been mainly in liquid milk and yoghurt – will almost certainly accrue to US dairy producers. Over the final phase of the dairy negotiations we actually lost ground – as the US buckled to the pressure from its own dairy producers, and as Canada failed to bail out the Americans by making any significant changes to its own system of dairy supply management.
Look at the contrast. While New Zealand dairy industry leaders ie Fonterra are treating the dairy deal as a disappointing but better-than-nothing deal for this country, Canada’s dairy farmers not only held the line, but secured a massive compensatory payoff on top, for their pains:
“We have been successful in protecting the three key pillars of supply management — being production controls, price controls, and import controls,” ‘[ Canada’s Trade Minister Ed] Fast said.
In exchange for opening up 3.25 per cent of the Canadian market, the Conservatives agreed to compensate dairy farmers to the tune of $4.3 billion over 15 years — a much more generous package than they received in the Canada-EU trade deal.
So… while failing to achieve any significant – or immediate – market gains for our major export commodity, we have made major concessions on intellectual property, the operations of Pharmac and on investor state disputes. In each case, things could have been far worse: but that doesn’t mean the concessions we have made are insignificant, or good.
Pharmac. Thanks to the Australians – who dug in on this issue – a two tier solution was achieved on the market exclusivity term for the cutting edge medicines called biologics. (These drugs include the likes of the expensive new lung cancer drug Keytruda.) For some countries – including Australia and New Zealand – this exclusivity term will remain at five years. Competitors will be able to produce ‘bio-similars” during these periods, but will be restricted as to when these can be brought to market.
By preserving the current five year term, the superficial response is to say this will not change the rules for Pharmac. However it remains to be seen how the two track model functions in practice, when it comes down to availability. Will Pharmac really be able in practice to access these medicines at the same price during the three year window that has nominally been opened? Moreover, Pharmac’s operations will certainly be changed by the Transparency Annex to the TPP deal, which will open up Pharmac’s purchasing decisions to legal challenge by multinational drug companies if and when their products are turned down.
Copyright extension. Under US pressure, we have expanded our copyright term from 50 to 70 years. As some US commentators are already saying, these and other measures in the intellectual property chapter will have a chilling effect on innovation, will place greater restrictions on what counts as fair use, and will criminalise some activities that were hitherto not criminal in either their intention or their effect. While New Zealand is banging about dairy access as part of its traditional role as an exporter of raw agricultural products, the rest of the global economy is seeing a future in adding value and promoting its service industries… And on that score, our innovators stand to lose more than they gain from the intellectual property rights dimension of this deal. The TPP entrenches the position of existing intellectual property owners.
Investor state dispute mechanisms (ISDS). Thanks to Malaysia, the grounds on which investor state disputes can be brought have been tightened. Vexatious and frivolous cases will be reduced. In particular, governments that seek to regulate the marketing of tobacco can no longer be sued by the likes of Philip Morris for doing so. The cosy relationships between tribunal lawyers and corporates bringing legal action have also been challenged by the final wording.
These changes were long overdue. However, they address only the most blatant ways by which these secretive, unelected trade tribunals impinge on the sovereignty of the countries concerned. The inherent risk from these tribunals remains, and that risk is increasing. More and more ISDS cases are being brought worldwide, and the amounts of money at stake have also been increasing.
US Senator Elizabeth Warren drew attention to this trend earlier this year:
From 1959 to 2002, there were fewer than 100 ISDS claims worldwide. But in 2012 alone, there were 58 cases. Recent cases include a French company that sued Egypt because Egypt raised its minimum wage, a Swedish company that sued Germany because Germany decided to phase out nuclear power after Japan’s Fukushima disaster, and a Dutch company that sued the Czech Republic because the Czechs didn’t bail out a bank that the company partially owned.
The Bilcom case in Canada – discussed in this column last week – remains a clear example of the risk that the TPP will now pose to any future New Zealand government that seeks to protect the environment and in the process, affects the profit expectations of foreign investors. Thanks to the TPP, that disgruntled foreign investor should now be able to sue our government and have every confidence of success. Read this and be worried.
President Barack Obama now has 90 days to convince Congress to ratify this deal. The TPP will face a Congressional vote in February, just as the US presidential primary season begins. Obviously, it will be harder for Obama to gain Republican votes at that time than a few months ago… when he won cross party for fast track trade authority. If the TPP vote splits more along party lines, more of the Democratic minority may rally to the President’s cause – but given that fast track authority only squeaked through Congress by a handful of votes, there is a real risk that the TPP will be defeated.
It would be very, very easy for Republicans to (a) denounce the deal’s lack of any overt measures on currency manipulation. This could be seen as a virtual reward to China for bad behaviour that has boosted its exports and arguably cost American jobs (b) vilify the auto parts rules of origin reached by Japan and the US as being a threat to American jobs and (c) regard any small concession to New Zealand on dairy as a threat to the livelihoods of hard working, God-fearing US dairy farmers. The TPP still has this one last major hurdle to clear before we can assume it is a reality.