Confusion about TPP

Trust Us?

If you think you know what has been going on with the TPP, you have not been following closely enough. However, here are a few matters for clarification.

Trade negotiations used to be like the following. Japan wants better access to the US market for the cars it produces, while the US wants better access to the Japanese markets for its agricultural products. If they agree, car workers in the US will be worse off, as will Japanese farmers. Conversely, US farmers and Japanese car workers will be better off. In each case the government will have to trade the interests of its farmers against the interests of its car industry.

The introduction of a third party complicates the deal. Mexico will also lose out because it currently supplies cars to the US. There is the additional demand that it open its markets up to dairy imports so it loses on that dimension too. (Presumably it has hopes for other wins.)

There you are; three paragraphs before I mention New Zealand. We are a bit player in the game. Our hope is to benefit from the overall deal, but it wont matter if we withdraw – it would matter if Japan did.

New Zealand’s difficulty is that two decades ago we gave away barriers to imports so we have little to offer. Yet our agricultural exports are often (brutally) restricted. We’ve been hunting around for decades trying to reduce foreign barriers to agricultural products. While we have had some successes, the fact is that while there is, virtually, total free trade in manufactures, severe restrictions on international trade in foodstuffs remain. It would be a big gain for New Zealand if access was easier in the TPP twelve. I doubt there will be unlimited access any more than we have unlimited access to the Chinese market. But a TPP agreement offers the opportunity of substantial improvements. (As an aside, whatever the TPP outcome, it will do little for the current state of dairy prices. The impact will be slow.)

The danger is that, say, Japan will give access to US products but not to ours. That might not be a total disaster because US dairy exports would be diverted from some of our current markets. It would be better for an orderly liberalisation of world agricultural trade if a number of markets opened up together. (Hence the importance of the WTO and the Doha round.)  Opening up one could have a lot of farmers charging into it. Better to have improved access to the Canadian, Japanese and Mexican markets together (and the American one, for despite its dairy export ambitions it is still very restrictive to dairy imports).

Instead of offering a concession to US and Japanese imports in exchange for our market access we could offer to pay their governments if they let our products in. That is not the way gentlemen do trade deals. Instead their pharmaceutical industries have said pay it to them by extending the period of their patents.

It works roughly like this. Each year some of the pharmaceuticals come out of patent and Pharmac gets cheaper generic drugs instead. It uses the savings to purchase new drugs. This will not happen to the same extent if the patent period is extended.

The government has said it will increase the Pharmac budget for the additional costs it faces so that it can continue to provide the new drugs. Where the funds would come from is not stated. I would be very opposed to the funding coming at the expense of other components of the public healthcare budget, which would mean the sick suffering in order to give a better deal to our farmers. The government should promise to lift its healthcare budget above current plans to pay for any increase in the drug costs as a result of the TPP.

A couple of asides. First, this arrangement does not compromise Pharmac; it would just be more expensive to run. Second, there is not much agreement, even among American economists, that long patents are a good idea. Allow me to duck the argument, by saying that if the US government has decided they are, we might go along with it if we get enough gains for market access for our foodstuffs. (While the talk is all about dairy, I assume that there could be some loosening of restrictions for meat too.)

The Prime Minister, John Key, has said for some time that Pharmac will not be compromised (all he has said is that it will be more expensive to run). I am intrigued how many have ignored his assurance. The indications are that people are not listening to him and we are not weighing his words carefully. Key trades on a ‘trust me’ brand. Some sections of the public say they do not trust him. It is not just the TPP deal; the Saudi farm deal is yet another example of his undermining Brand Key (so was the convention centre). Perhaps ithe lack of confidence  is only among those who value proper procedure. Unsurprisingly, doubts are common in inner Wellington but I have no idea how widespread they are in the country.

Why should he be ‘lying’ – a sentiment often mentioned to me– when he says that the TPP is very close to a deal on dairy access? He could soon be found out; there are Fonterra officials who are just as informed but could leak the opposite if it was true. (Mind you, I have not much idea how close is ‘close’.)

The government is handling its relations with the public appallingly. My guess that when any deal is announced there will be a sizeable minority who will reject whatever is proposed, no matter how favourable it is, because they simply dont trust the government.

But neither does the government trust the public. In answer to a question in parliament the acting Minister of Trade, Todd McClay, stated ‘What I would say to that member [Russel Norman] is that people who want us to make public these documents actually do not want to see the text; they just want to derail the agreement.’

I accept that much of the negotiation material between diverse parties has to be held back – a point McClay made earlier in his answer. But I was insulted by the above response. I’d like to see more but, as this column shows, I dont want to derail the deal. I would like to know what is going on so we can have a better informed discussion to judge the deal on its merits.