On why the TPP is something we shouldn’t sign, and that Labour should oppose

So the Trans Pacific Partnership is due to be signed next week. This means very little, beyond a confirmation that the text being signed was indeed the text that was negotiated. There is no guarantee that the US will ever actually ratify it, nor is there any clarity about when Congress will get to vote for it, or in which year – 2016 or 2017 ? – such a vote might occur. For its part, Canada will sign the TPP next week, but its International Trade Minister Chrystia Freeland has just made it clear that signing the deal shouldn’t be confused with ratifying it:

…… The Trudeau Liberals remain officially uncommitted to the trade deal reached by the former Conservative government during the 2015 election campaign… Ms. Freeland explained that the signing ceremony…..is not a green light for the deal.

“Signing does not equal ratifying. Only a majority vote in our Parliament can allow the agreement to take force. Signing is simply a technical step in the process, allowing the … text to be tabled in Parliament for consideration and debate before any final decision is made,”

Even if this is merely a case of the Trudeau government soft-soaping the Canadian public to prepare them for on its eventual surrender to the inevitable, the research evidence is accumulating that the alleged benefits from the TPP are being wildly over-stated. Citing evidence on the TPP published this month by researchers from Tufts University, Canadian trade commentator Peter Clark pointed out that – ultimately – the best argument for Canada joining the TPP may be the need to defend its existing markets, rather than the much-touted ability of the TPP to unlock fresh new markets.

A Tufts University study claims that signing the Trans-Pacific Partnership Agreement (TPP) would cost Canada 58,000 jobs, while the benefits would amount to less than the cost of compensating the seriously affected stakeholders. This is gloomier than the World Bank projections — which themselves suggest an underwhelming result. The Tufts team has focused on changes in competition, which will force shifts between labour and capital in higher-wage countries, as duty-free access intensifies competition.

In most TPP member countries, the public remains justifiably sceptical-to-hostile about the deal’s alleged benefits. Much of that opposition is based on the contentious TPP provisions whereby corporations can charge the public for any damage done to their profits, while being insulated from any reciprocal charges for the damage that they may do to public health (or environmental or intellectual property) interests. The interesting thing about the Tufts University study – which is available here is that it heads off somewhere else entirely. It directly challenges prior estimates of the alleged economic gains from the TPP, and the (flawed) assumptions of the economic modelling on which they have been based. This is not an entirely new criticism. This 2015 study for instance pointed out that TPP cheerleaders were highlighting the estimated net national gains, while ignoring the directly related impact that the TPP will have on wealth and income patterns, and on savings, debt and spending – once you reshuffle jobs and incomes away from the labour intensive, import-competing sectors of the economy. The Tufts study usefully explains some of the mechanisms whereby the TPP will contribute to income inequality, by further tilting the existing imbalance between those reliant on profit taking as a source of income, and those reliant on wages. With these kind of deals, the only free lunch is for the already well fed – and the ripple effects travel well beyond those who immediately stand to lose their jobs:

If trade policy provides an incentive for firms to cut unit labor costs further, in order to become more competitive on global markets, the labour share of income will continue to fall. This has serious consequences for the economy. With a shrinking share of total income, working households encounter increasing difficulties in purchasing the consumption and investment goods that make up domestic demand. As a result, the economy becomes increasingly dependent on debt, external demand or both. Income concentration may generate economic instability.

Plus, on another front :

First, the TPP will push countries to increase trade performance. In order to preserve their market shares, producers in each country will have to sell at lower prices, and thereby cut costs. Specifically, we assume that this process will lower nominal unit labour costs, the main factor in total costs, through the combined actions of business managers and policymakers who negotiate lower wages (or limit their growth in the face of growing prices and productivity) and introduce more capital-intensive technologies.

And furthermore by expediting capital flows, the global economic system will be rendered that much more vulnerable to the likes of the GFC of 2008 , while also depressing domestic living standards :

The second dimension of international competition that the TPP will affect is capital flows. By facilitating cross-border capital movements, the TPP will push firms and other borrowers in each country to provide higher returns in order to avoid losing investors to other countries. For a given level of economic activity, a higher profit rate requires a higher profit share of total income and, therefore, a lower labour share. At the same time, it is generally recognized that inflows of foreign capital depend on a country’s fiscal policy (as summarized by its government deficit), although the link between investors’ preferences and constraints on government expenditure is seldom explored in empirical models….Since all TPP countries will want to preserve their market shares, we assume that they will engage in a race to the bottom, pushing labour shares downward across the whole TPP bloc.

In that respect, the TPP will function as a transnational scythe to push down labour’s share of wealth across all its participating member countries, and vis a vis those countries in the Asia Pacific that are not currently part of the bloc. Which takes us back to Peter Clark’s argument that for Canada, the rationale for being part of the TPP is primarily defensive – and not because of the putative gains the deal is being touted to deliver.

Before getting into what the Tuft University research says about the likely impact of the TPP on New Zealand, it is worth noting – in passing – its criticisms of the economic models commonly used to measure the benefits of trade liberalisation. (I’m talking about the influential 2012 paper on the TPP by Petri, Plummer and Zhai, and the Global Trade Analysis Project (GTAP) model relied on by the World Bank in its recently released evaluation of the TPP deal.)

To non-economists, the basic assumptions and exclusions that these models entail – and the rosy a priori outcomes they generate, which are then widely cited by politicians and policy-makers – are utterly hair-raising. The Tufts study is particularly unimpressed with the CGE (Computable General Equilibrium) model – and its GTAP variant – that MFAT has relied on to calculate the economic benefits it claims will accrue to New Zealand, as set out in its just-released paper on the TPP. See page 23 for the footnote confirming MFAT’s reliance on a “dynamic” version of a CGE model. The MFAT analysis is available here.

What is so suspect about CGE modeling (and the GTAP variant) that has been used for decades to project the likely outcomes of trade liberalisation? As the Tufts researchers point out, the premises of the standard CGE model – which assume the existence before and after of (a) full employment regardless of the real world evidence to the contrary (b) efficient market clearing mechanisms for prices and wages and (c) no shift in the relative earnings between profit takers and wage earners etc etc – are precisely what critics of the TPP see as relevant and needing to be justified – and not shunted aside, and ignored on principle. Yet the economic modeling all but ensures that the protagonists keep on talking past one another. As the Tufts researchers put it :

First, the CGE model used excludes, by assumption, TPP effects on employment and income distribution, thereby ruling out the major risks of trade liberalization. Negative outcomes after several trade liberalization experiences in the 1990s have been associated precisely with failure to appreciate these risks.

The Tufts team point to the tendency of CGE enthusiasts to make assumptions on income distribution that – for instance – insulate their positive outcomes from any demand shortfall :

First, income is assumed to accrue to a single representative household in each country bloc, thereby overlooking any distinction between wage earners and profit earners. The distinction is critical because individuals’ spending behaviour is closely related to the source and amount of their income. For the economy as a whole, a higher concentration of income in the hands of profit earners leads to an increase in total savings and a reduction in spending, with adverse consequences for growth and employment.

Secondly, the model assumes that income distribution follows the “productivity rule”, according to which real wages increase at the same rate as productivity. If this were really the case, the share of labour incomes in total income would be stable over time. Instead, the labour share has been decreasing in the US since the mid-1970s, and it has been far from stable in other TPP countries.

Finally, the Tufts team concludes, CGE modelling takes for granted a rosy connection between foreign direct investment (FDI) and economic growth that is not empirically justified :

The results obtained by Petri, Plummer and Zhai (2012) depend strongly on the projected increase in foreign direct investment, estimated to generate, on average, 33 percent of the TPP’s total income gains. This is at odds with the findings in the literature that analyzes the causes and effects of FDI. As Ackerman and Gallagher (2005) note, there is no convincing theory that explains the effects of liberalization or FTAs on FDI, or indeed, any convincing evidence of an FDI-growth nexus.

Instead and for reasons they state at length, the Tufts team use a different mechanism – the UN Global Policy Model – which makes far more realistic assumptions about economic adjustment and income distribution, and which is more capable of tracing the changes in income distribution, prices and financial flows in relation to the assumed trade expansion.

As a consequence, they find genuine – but far more modest – gains to New Zealand of 2.3 % growth in exports during the forecast period to 2025 alongside a net loss of 5,000 jobs. For New Zealand the export gains are considerably larger than for the US, Japan and Canada – for some of whom the TPP will create significant losses – and entail a smaller extent of job destruction. Even so, these gains are only relative and will be equivalent – at best – to less than what a few cents off the currency rate for the NZ dollar would deliver over the forecast period.

Moreover, if the TPP harms our trading partners as predicted by the Tufts University analysis – entirely possible, given that the TPP will serve as a tool for transnationals to cut their labour costs, amid concessions on IP rights that will inhibit New Zealand’s ability to reap added value from our exports – then that impact will eventually hurt the people we hope will buy our products. If everyone exports – competitively by cutting wages and jobs – and wealth thereby continues to concentrate in the hands of the few, this unsustainable trend will come back to bite our own exporters, too. On that score, it may be appropriate to leave the last word to the research team at Tufts University :

In TPP countries, the largest [employment] effect will occur in the US, with approximately 450,000 jobs lost by 2025. Japan and Canada follow, with approximately 75,000 and 58,000 jobs lost respectively. The smallest loss – approximately 5,000 jobs – is projected to occur in New Zealand, where the increase in net exports is projected to be the largest.

Encouraging cost reductions and compression of labour
shares in all member countries, the TPP will affect domestic demand, income distribution and employment in each country, but is unlikely to dramatically change competitiveness among them. Since all countries will reduce costs, no TPP country will gain a large advantage on other TPP members. Competitiveness is a relative feature. The risk with this prospect is that, with all countries cutting costs, losing jobs and aggravating already high levels of inequality, aggregate demand will suffer. This could compromise the ability of countries to achieve sustainable growth.

Maybe, someday, Labour leader Andrew Little will be able to reach a decision as to whether he – and Labour – consider this process to be one that they should support. Or oppose. As of this morning, Little was still sitting on the fence.

And Busta says….

Secrecy has been the bane of the TPP process. As Busta Rhymes said nearly 20 years ago in this great Hype Williams-directed video, you need to put your hands where my eyes can see…

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28 Comments on On why the TPP is something we shouldn’t sign, and that Labour should oppose

  1. I politely disagree, the signing of the TPPA by the administrator (NZ)denotes agreement, it is symbolic gesture of a global corporate takeover of govt.
    Even with the signing (& US “ratification” ) by the prime minister of the corporation( Key) it is still not a binding or legal agreement/contract/trust as the effected party( the people of NZ) did not have disclosure before the negotiation ended.
    Imagine the costs to NZ people with NZ named as the administrator of the TPPA.

    As for the controlled opposition party Little labour …the name says it all.

  2. This won’t happen. The agreement requires at least six signatories representing more than 80% of GDP to eventually ratify the agreement that is being finalised in Auckland February. The consequence of this is that the United States is needed to ratify it before it comes into force. The problem here is that the United States requires ‘compliance’ checks with *all* other signatories (domestic regulation in place etc) to be made before it will ratify the agreement.

    Basically, it means everybody has to be in place before the ‘keystone’ ratification takes place. It took six years to get agreement on the text; I can’t begin to imagine how long it will take for the parties to convince their parliaments.

  3. Interesting to see a take on the TPP focussing on the risks of free trade, as opposed to just calling out the unusual provisions that will likely be small fry and won’t necessarily have a fundamental impact on the economy or society.

    Is free trade bad, and should we protect our markets? As a trade based, export/import reliant economy, I wouldn’t think that’s a stand we could adopt.

  4. What do you disagree with Anabel?

    Gordon reported in detail results of analysis by Tufts University and argues it’s conclusions are more accurate than our governments and reason not to accept the TPP.

    As a whole he argues it makes a case not to sign it and for Labour to oppose it.

    The argument is not over details of the process of implementation of the TPP but over it’s costs and benefits and details of signing and ratification are beside the point of whether or not it ought be implemented.

    If you think it ought be do you have an argument against the one Gordon proffers?

  5. I explained what I disagree with Fentex.

    Congress is bought and paid for by corporates in the TPPA, their ratification of the TPPA does not make something lawful or legal.Or any more “meaningful”.

    The unlawful signing of the TPPA without agreement/consent from the people of NZ is symbolic, I argue that it has a meaning.

    Labour was controlled opposition now the greens are, even if Little labour had verbally opposed the TPPA( used speech writer words opposing and not exposing) why this just serves to strengthen.

    Since NZ is also the TPPA administrator what are the administration costs?

    I find the TPPA disagreeable.
    I also find the UN disagreeable.

  6. Another astute article.

    I had misgivings about the data yesterday when I heard the Prime Sinister say ALL data backs his position and immediately try to de-legitimise any opposition as “people who are anti-trade”.

    As to your title? I wasn’t planning on signing anyway. The sooner New Zealander’s cease identifying themselves with agreements made by strangers in secret the better.

  7. “Signing does not equal ratifying. Only a majority vote in our Parliament can allow the agreement to take force.”
    Wot!? Canada gets the right to have Parliament vote for/against TPPA!! But not Nz. Foul!

  8. Interesting the idea that the agreement will embed further inequality if it is successful. I’d got as far as thinking that any benefits would be distributed in accordance with existing inequalities which markedly undermines any residual attractiveness the TPPA may have.

    For wealth distribution Max Rashbrooke’s book shows that the top 1% in NZ are 238 times more wealthy per person than a person in the poorest 50%. For income distribution the wealthiest decile earn 20* more than the poorest decile. Either way the benefits to less well off New Zealanders might amount to a discount pizza per year in 15 years time (hurrah – lets give up some sovereignty for that) while the richest would benefit by thousands of $$ / year.

    This evening Geoff Bertram explained (additionally) how the models used to generate the anticipated GDP benefits are also faulty in that any reduction of protective legislation can only have a beneficial effect on GDP. Beautiful equations they are I’m sure – but as my Dad used to say – “work well but only if you start from the premise that the moon is made of green cheese”.

  9. That is a good example of the corporation’s obsessional fixation on GDP and virtual models when the central banking system (through govt) redistributes money back to the .01% .
    As though a nation’s GDP is important in an economy + market that is rigged and fixed by the banksters. What is forgotten is that the nations economy is determined by the borrowing of private money that can be created from nothing (with interest) from private foreign banksters that then impose an “austerity” policy .These bankers control the govt.

    The TPPA is not a free trade agreement.
    Special drawing rights(SDR) for govt agencies has nothing to do with trade (neither does taking money off the people of NZ to protect monopolies in foreign corporate courts).

    Its almost lucky the people of the nation didn’t get disclosure before TPPA negotiations ended making it an invalid agreement/trust.

  10. “The unlawful signing of the TPPA without agreement/consent from the people of NZ is symbolic, I argue that it has a meaning.”

    Sensibility aside, the signing of the TPPA is not unlawful and does have the consent of the electorate. It is dishonest to suggest otherwise.

    1) National stated clearly in its election manifesto that it would pursue completion and assent of the TPPA: https://www.national.org.nz/docs/default-source/PDF/2014/policy/trade.pdf#sthash.31BnJGyc.dpuf

    2) National and its confidence and supply partners (United Future, ACT and the Maori Party) gained electoral mandate to form a Government through the 2014 General Election

    3) Since the election, and since being sworn in by the Governor-General, the National-led Government has maintained confidence and supply in Parliament and therefore maintains prerogative to govern;

    4) For all intents and purposes, the negotiation and executive approval of the TPPA has been lawful (i.e. it is unlikely that the High Court would grant a judicial challenge on procedural or substantive merits)

    5) The National-led Government has prerogative to table the TPPA in Parliament, and subject to confidence and supply and Parliamentary Convention, it can follow the correct legislative process to support the ratification of the treaty

    The process described above is evidence of accountability. Any step in the process above is subject to judicial, opposition and/or public scrutiny (and has been subject to such).

    It is dishonest to suggest that the Government has unlawfully signed the TPPA and does not have support of the people. On issues that are within the discretion of Cabinet (such as treaty negotiation for example), mandate is inherited through the election and polling process.

  11. I also want to point out that I am not entirely convinced about the merits of the TPPA myself which is why I read Gordon’s excellent and analytical column.

    Argument and debate of the TPPA should centre around the merits of the treaty for New Zealand, for which the studies referenced by Gordon are highly relevant.

    This is debate on merits.

    However, an allegation that the Government has acted unlawfully or without electoral mandate/prerogative is not proved and distracts us from the actual issue at hand. If there had been grave impropriety, then a judicial review would be in order and we would rightly be outraged.

  12. ” whereby corporations can charge the public for any damage done to their profits,”

    doesnt this also include projected profits? Such a thing would be near impossible to challenge as it relies upon access to internal company financials and projections

    sounds like a recipe for having to just accept one parties claim as truth

  13. The charge of the TPPA lobbyists, whom I might add are many and are very well funded and try to limit what the debate is about.

    There is really no debate.
    No disclosure (before closing negotiations) means no consent in any contract/agreement. The people of NZ are the effected party and they do not know how much it will cost them. With NZ said to be the TPPA administrator (it is a trust set up) NZ meeting the costs of administering the illegal document for the mega corporation’s globally.
    We will probably have to fund the corporation’s courts that can sue us for any legislation that interferes with profits.

    Yeah China and Iran’s $600 billion dollar trade agreement, how is it they managed to trade without signing the TPPA! Oh my looks like the TPPA was unneeded for trade agreements.

  14. Thanks very much for your clear analysis of the Tufts University paper that shows the shallow nature of the MFAT sponsored economic analysis and the fallacious nature of the GTAP trade model. I have read all the associated reports myself and understood them well enough but I could never explain them as succinctly as you have in a month of Sundays. IMHO, the NZLF Expert Paper #5 (The Economics of the TPP¬, by Coates, Oram, Bertram and Hazledine, January 2016) does not cover your points so well either.

    When you wrote your post, were you aware of the following paper by the Sustainability Council and available from their website I assume? (I only have the pdf.): Geoff Bertram and Simon Terry, Economic Gains and Costs from the TPP, February 2014. This is a critique/demolition of the original 2012 Petri and Plummer papers. I think the Tufts paper is clearer but I also think that Terry and Bertram, writing in New Zealand, deserve credit for showing that Emperors Petri and Plummer had no clothes two years ago.

  15. George you live on another planet, planet govt “accountability” which is a virtual reality. Yours is an imagined place in your mind where the Crown temple’s judiciary is independent from the Crown.
    Say hi to Paula Bennett who must be there sharing your kooky new world order cool aid.

  16. I was a bit surprised you didn’t call out that comparison from the Tufts study on job losses per country as totals rather than a per capita statistic.

    With my handy-dandy calculator it appears that the US, Canada and New Zealand have projected job losses roughly the same (around 1-2%), with Japan about half that.

    Also, comparing the long term effects of the TPPA on signatory countries, when comparing one with a population of 4 million to another of 320 million is always going to be fraught with mistaken assumptions.

    I for one assume that small countries with little power will tend to be the losers. It doesn’t make logical sense otherwise, unless we make the (more likely correct) assumption that the greatest wins will for corporations, not governments.

  17. george

    legal – yes

    consent of the electorate – no

    for electorate consent on TPP the electorate has to have a chance to view and input then give consent or not

    you dont get policy consent on a single policy from an election win – if that were true we wouldnt even bother with an opposition, let alone debate and voting

    all you can really claim in that regard is that the election gave national a mandate to persue it.

    You cant consent to a policy or deal which you cant see or examine – not just in theory, but legally

  18. Framu Why would you believe George’s bizarre claim that the TPPA is legal, especially when you go on to acknowledge that without full disclosure there is no agreement?

    “You cant consent to a policy or deal which you cant see or examine – not just in theory, but legally”

    Got it right the first time, its not legal.
    Not only is it illegal but more importantly it is also unlawful.

  19. Not only is the TPPA illegal and unlawful but the corporation is now using police to try to legitimize it by harassing activists which is also unlawful.
    For police harassment does not serve to make an illegal action ” legal or lawful” (as we all know from the Hager case).

  20. George where does Key’s statements and promises that we will be able to fully debate and decide on the TPP fit in your legitimacy model? Is it that telling lies about the process (and I am talking here about Key’s statements not your description) doesn’t matter. Which leads to constitutional legitimacy but not moral or ethical legitimacy?

    On the National campaigned for it argument can you explain where the precise nature of the TPP was set out by National in advance of the election, v cheeleading about the supposed benefits of a trade negotiation being held in secret. Can it really be said that “we voted for it” when the negotiations were being held in such secrecy. What precisely did we vote for?

  21. George,

    Your analysis might be partially correct if it were not that the National Party said in it’s manifesto that that the benefits of the trade agreement were based on TARIFF REDUCTIONS ie about easier access for NZ into overseas markets. This is not the case. As Brian Fallow mentions in today’s NZ Herald “In both cases [of economic analysis – the government’s and in independent peer reviewed research], the lion’s share of the gains is attributed not to tariff reductions but to the reduction in behind-the-border non-tariff measures (NTMs)”.


    Non-tariff measures benefits are largely regulations reductions – health and safety, workplace, environmental – and so on that protect people and the environment. As I mentioned above Geoff Bertrams’ research identifies that the models for non-tariff measures can only create a GDP benefit. It can easily be demonstrated that there are downsides to the removal of regulations.

    Let’s say a regulation is removed to allows employers to behave more unsafely – removing mandatory tea-breaks is an example.

    There is not a way that the increased costs of additional workplace accidents can be either identified as costs of non-tariff reduction or charged to the employer whose workers have suffered. It becomes a social cost to be borne by tax-payers.

    Hence it is quite possible to argue that there was no manifesto commitment to make overseas companies richer if these benefits were derived by lower protections to New Zealand and New Zealanders or if tax-payers were made to bear the costs of NTM reductions.

  22. Absolutely MM, it was a very sneaky cunning weaselly move to use police harassment in order to make the illegal TPPA appear as though it was legal.

  23. Lawyer Jane Kelsey is now briefing the govts labour party MP’s on TPPA PR . Coaching MP’s on how not to talk about NZ being the administrator of the TPPA, the costs, what that it means to be in a partnership with the banksters mega corporations that drafted it or the TPPA being a agreement/secret trust .

    The TPPA is not a free trade agreement.

    The people of NZ legally are “the effected party” in the TPPA.
    The people of NZ were completely conned by Kelsey ( the 5 yr delay in the appeal, not naming the people of NZ as the effected party in the case etc ) if not for having the wool pulled over their eyes more people would see the TPPA as the illegal and unlawful takeover it is.
    With two lawyers Kelsey & Wallach on this controlled opposition TPPA campaign no one is mentioning the TPPA is not legal or lawful.

    In contract law its called “non disclosure” not “secrecy”.

  24. George,

    Your comments make a lot of sense and I enjoyed your analysis.

    “It is dishonest to suggest that the Government has unlawfully signed the TPPA and does not have support of the people.”

    My observation is whatever the current ruling apparatus dictates becomes by definition “lawful”. It’s seems the people of NZ look to the government for instruction rather that the other way around. Consider the amount of urgent and retroactive legislation passed by the current government with minimal, limited or token public consultation.

    As to “support of the people”. Mandate or no, we mustn’t confuse the “largest minority” with the “majority”. The last election results indicate that “the people’s” support of this government is mainly tacit support and (judging by the numbers) the current ruling party barely has half a leg to stand on.

  25. Yeah Mary it is illegal and unlawful.
    The govt has passed quite a bit of unlawful legislation and they have done this totally against the people’s will.
    Certainly it can be said the govt acts without the support of the people of NZ. therefore it has no mandate, the power legally and lawfully is only with the people.

    There is no democracy in NZ .The election process is unfair as the media creates bias and the Crown counts the votes.
    The govt’s “consultation” process is a joke and $10 million dollar non binding referendums always have the same outcome that of the govt completely ignoring the people’s input.

  26. I would like to hear what Marilyn Waring has to say about this. Would somebody please ask her? She is so invisible in our political commentary yet other nations value her opinions greatly.

  27. Last time I checked in a state of tyranny the (overvalued) opinion of a political corporate spokesperson clearly did not help the people understand for themselves the corporate agenda of a group setting up a global govt.
    We are at this moment in history in NZ it is not about division, gender or political opinion but about unity in spite of and against the corporations.
    Unless of course you really feel you need an opinion on why Heinz shouldn’t rule you,why Orwell’s 1984 was a good book but you wouldn’t like to live there and why the onus is on the govt to prove they have authority to act against the people of NZ.This is not legal or lawful.

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