As PM Bill English flies off to Japan with his business delegation today, his discussions with Japanese counterpart Shinzo Abe will focus on how to keep the TPP trade pact alive, now that the United States has bailed. It is much, much easier to see what Japan stands to gain from this “TPP 11” version than gleaning what New Zealand possibly stands to gain.
The main problem with this whole process being… all of the TPP member countries made concessions and trade-offs that were premised on their gaining access to markets in North America. Without the US on board, those rewards will not eventuate. Vietnam will take some convincing that – for example – it should still reform its state owned enterprises and rules on government procurement, when Vietnam’s access for its footwear exports to the US will no longer happen.
Malaysia will have similar misgivings. To repeat: the leaders of the eleven remaining TPP countries are trying to sell a revised pact that lacks many of the key benefits they bargained for during the original negotiations. Regardless, Japan is seeking quick agreement (by year’s end!) from all the other “TPP minus the US” member countries, based on the same original terms. We seem willing to play along. At yesterday’s post-Cabinet press conference for instance, English confirmed to me that he would not be asking Abe for anything additional (by way of farm access to Japanese markets) beyond what is in the original TPP text.
As mentioned, it is obvious why Japan wants to ram this second-rate TPP version through. Japan wants to use the TPP provisions as its bottom line while it pursues a bilateral trade deal with the US. It also wants to use the “TPP 11” deal for its own diplomatic reasons in Asia, to counter the RCEP deal that’s being promoted by China. Japan is also gambling that it will win friends in Washington if it can hold the TPP together on terms favourable to US corporates on issues like intellectual property, especially given that the TPP terms are far stricter on IP, copyright and patenting than what China is proposing under the RCEP. This role as Washington’s agent will not only earn Japan brownie points with the Trump administration; if everything pans out as planned, Japan may even be able to induce the US to rejoin the original pact, sometime next year.
Ironically though… an agreement by English and Abe to cling to the terms of the original TPP deal is more likely to keep Japan’s farm markets shut tighter in the longer term. As I said above, the limited concessions that Japan made on farm access on the TPP will be used by it as a shield against further pressure from the US to free up its agricultural trade:
However….some farming insiders argue Tokyo should use the TPP 11 as leverage to achieve a more favourable outcome [in its bilateral deal with the US.]
Under the TPP terms that the parties — including the U.S. — agreed on in principle in 2015, Japan would exempt five “sacred” segments, including rice, beef and pork, and dairy products, from tariff cuts and abolish duties on 81% of all agricultural items under the deal, which was the lowest figure among the 12 nations. These terms are seen as representing the minimum conditions Tokyo could achieve without alienating domestic stakeholders.
Japan plans to maintain these terms in the TPP 11 talks starting in May. The strategy is to keep them intact and send Washington a strong message that Tokyo will not budge in agriculture talks.
So… the Japanese want to use us to help cement in its limited farm concessions, which will save it from daring to go in cold against the US, who are likely to make much bigger demands of Japan on agriculture. But what’s in it for New Zealand? Not much at all. The original pact – even when it included the US – was still only estimated to deliver benefits by 2030 that were within the margin of error, and which could be cancelled out entirely by the fluctuation of a few decimal points in our exchange rate.
That’s not simply the verdict by free trade sceptics. Keep in mind just how lukewarm the response was from the Australasian dairy sector, back when the original TPP deal was finalised in 2015. Here was the Aussie verdict:
Joanne Bills, director of the Melbourne-based specialist food consultants Freshagenda, said the TPP has produced incremental gains in some dairy segments but will not improve significantly on the preferential trade conditions already in place for Australia and New Zealand dairy manufacturers, notably through free trade agreements both countries already have with some TPP countries.
“Canada and the US really conceded little, but in some cases there have been improvements on existing FTAs. Milk powders, for example, was a disappointing segment in the Australia-Japan FTA and this seems to have received better treatment from Japan under the [TPP]” Bills said.
And here similarly, was the less-than-excited New Zealand verdict:
Kimberly Crewther, executive director of the Dairy Companies Association of New Zealand (DCANZ), which counts the likes of Fonterra and Goodman Fielder among its members, says some benefits from the deal could take years to materialise. “There will be some tariff savings, but in terms of new market openings, gains have been incremental. The one cheese line that we’ll have tariff elimination on into the US, for example, will take 20 years to get there. [ and will not now occur at all.] The phase-in periods in general are so long that I don’t think we’ll be seeing any increase in short-term production of New Zealand dairy products on the back of the TPP,” Crewther says.
She adds: “One thing we did hope for was wholesale opening of these Pacific markets to alleviate price volatility that industry is dealing with, but we didn’t get close to achieving that.”
Significant production increases in any one Australian dairy segment are also unlikely, according to Bills. “I get the sense that the [TPP], which has covered many more sectors than most other trade agreements, is broad and shallow and less focused on things like agricultural trade, and therefore less deep in terms of what it delivers,” she explains. “From talking to industry members, I can say that people were not all that excited about the [TPP], there weren’t huge expectations, and in the end it delivered little [for Australia and NZ dairy manufacturers]
A “TPP 11” will deliver even less than this. If Vietnam and its SOE reforms (and the related opportunities for our trade in services) are off the table, then the gains will be even less again. By backing the “TPP 11” version, we will be cementing in place what was only a mediocre outcome at the time, including us swallowing all the drawbacks of the investor-state dispute mechanisms – which, incidentally, we should be trying to improve, given that since 2015, the European Union has been promoting a superior, more democratic method of dispute resolution.
Instead, New Zealand seems intent on settling for the TPP –era tribunal system that was created back in the previous century, and which now belongs in the dustbin of history. So much for the rhetoric from previous NZ trade ministers about the TPP being a deal for the 21st century.
For now…some comparative costs and benefits to New Zealand under all of these “original TPP vs TPP 11 (or fewer)” scenarios would be welcome. Also in the meantime, maybe Bill English and Trade Minister Todd McClay can do us all a favour and dial back the childish platitudes about how great free trade is, and how all the sceptics are anti-trade.
Sounds of Japan
As English heads to Japan…here’s Shintaro Sakamoto’s “Extremely Bad Man” song, with his usual steel guitar weirdness… If you like this track, “Mask on Mask” is really good, too.
Since Bill English will have NZRFU boss Steve Tew with him on the plane to Tokyo, here’s Harry Hosono (from Yellow Magic Orchestra) with a typically wry track called “Sports Men”….
Finally, and in an entirely different mood from 1976, here’s the haunting “Wandering” by the under-rated vocalist Hako Yamasaki – who made very few recordings, but all of them are worth checking out…