Post TPP confusion - or, will Ms Miller come to Wellington?

Is it a good idea for New Zealand to try and resurrect the Trans-Pacific Partnership without the involvement of the USA? And, if it does so, will the Government have to go back to Parliament and ask it to change a Bill it's just agreed to?

Donald Trump's election as President of the USA was interpreted widely as the death knell for the Trans-Pacific Partnership (TPP). That, anyway, was John Key's immediate response following the result.  

However, on his recent trip to Peru for an APEC meeting,  Newshub reported that Key still saw some options for the TPP in a post-Trump world.

The second option is somewhere along the line there is some cosmetic change to TPP that allows Donald Trump as President to say: 'Look it was a horrible deal before but because of these changes now it's a good one and I'll sign up to it.' A name change or something, something different.

I guess it's a sign of how deep we're into "it's Trump, so who the hell knows?" territory that such a proposal (humorous though its intent) can't completely be ruled out. But given what Trump has said about the TPP on the campaign trail, and given how that resonated amongst those who've just voted for him, it's pretty hard to see him getting behind anything like the current agreement, no matter what its name.

So let's just file that away in the  "yeah, nah?" folder, for the moment at least.

That then leaves Key's expressed alternative avenue:

One option is that the other 11 countries hold hands and after two-year ratification period we sign up to TPP in the form its currently in… in principle if the other 11 countries want to hold hands, then we can do that.

People have started calling this option "TPP-minus1", or TTP-1. The first thing to note about it is that, despite Key's claim, the other 11 members of the agreement can't actually bring the TPP as originally negotiated into force if the US doesn't ratify it. According to Article 30.5.2 of the text:

In the event that not all original signatories have notified the Depositary in writing of the completion of their applicable legal procedures within a period of two years of the date of signature of this Agreement, it shall enter into force 60 days after the expiry of this period if at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013 have notified the Depositary in writing of the completion of their applicable legal procedures within this period. 

The bolded words are key here - they mean that without the USA (which accounts for 56% of the total GDP of the participant nations) ratifying it, the TPP cannot come into force even if everyone else notifies that they are ready for it do so. That's a quite deliberate provision. The US's involvement - and the access to the US market that the TPP would deliver - was considered to be so vital that if it wasn't going to put the agreement into effect, then other nations didn't want to be bound by it either.

Now, of course, those other 11 nations may change their mind. They may decide to sign up to a new TPP-1 that contains all the same provisions as the original TPP (thus avoiding having to reopen the messy multi-lateral negotiation process as to what is and isn't in it), but has a different set of conditions for entry into force (i.e. is able to take effect with only the 11 of them agreeing). That seems to be what Key means when he's quoted as saying "New Zealand would still get trade deals with countries it did not already have agreements with, including Canada, Mexico and Peru."

Maybe that's a good thing for us? As I'm not a fancy, big city trade economist, I won't presume to answer. But I've a set of substantive questions about the wisdom of going into a TPP-1, and then some domestic constitutional comments to make.

On the substance of such a deal, remember how the TPP in its original form was sold. It was a multi-lateral deal, sure. But the real jewel in the crown was that it got us a free trade agreement with the USA - something we've been after for a long time. That certainly is how it was presented in pitches like this:

TPP offers much better access to large and important markets for New Zealand’s goods and services. The largest of these markets is the United States, which is responsible for over a quarter of all household consumption in the world. 

Also remember how such agreements are reached. To get something, you have to give up something in return. And so under the original TPP, New Zealand agreed to do a bunch of things we otherwise would prefer not to do. Of course, our negotiators didn't just go in and agree to pay any price for the things we wanted to get. We drove a bargain whereby we said we'd accept certain things, provided the other parties (including the US) agreed to do things to our benefit. Meaning that the original TPP marked out a balance of gains and losses - the price it came at was worth it only because of the benefits it promised. 

However, if TPP-1 comes into force, the USA now won't have to do the things it promised it would (and from which we would have benefitted). On the other side of the coin, assuming that TPP-1 simply replicates the original TPP agreement (to avoid the mess of renegotiating its terms in full), we will still be bound to put into effect all the things we said we'd do in order to get the USA to agree to sign (because we'll have to in order to get a deal with the other 10 participants).

Of course, if the US is not a part of the TPP-1, US companies won't be able to take direct advantage of its provisions. So, US exports to NZ won't get the benefit of the TPP-1's reduced tariffs. Direct investment from US companies won't get the protection that the TPP-1 will grant - they can't, for example, take us through its ISDS procedures if they think our domestic regulations are harming their profit. And so on.

However, the original TPP (and, we're assuming, any TPP-1) also requires New Zealand to introduce a bunch of changes to our domestic laws. These passed through the House of Representatives recently, in the form of the Trans-Pacific Partnership Agreement Amendment Bill, but haven't yet come into force (more on this in a moment). If and when these do so, they will apply to everyone - all people and companies doing business in New Zealand may take the same advantage of them, irrespective of where they are from.

And at least some of the law changes in the Bill were made because they were a part of the price that the USA demanded in exchange for the original TPP. Here, for example, is David Farrar accepting that the USA is the reason why the Bill extends the term of copyright from 50 to 70 years. And the Bill also extends the period of patent protection for biologic drugs in response to US demands, at the cost of increasing the price we'll likely have to pay for these medicines in the future.

So US commercial interests will still get the benefit of these changed domestic laws - longer copyright terms, longer biologic patents, etc - without the US delivering anything to us in return (because it isn't a part of the TPP-1). It's all cost to us, and all upside for them.

To which it may be said, so what? Sure, US companies will get a windfall gain if our domestic laws are made to suit them without NZ companies getting any reciprocal benefits from the USA. But if the TPP-1 delivers net benefits to NZ from free trade with the other 10 members - which Key claims it will, saying that some 2/3rds of the financial gains still are available - then it's worth going through with. We shouldn't let rancour at the USA prevent us from taking advantage of this opportunity.

However, here's the problem (as I see it). We still really, really want a free trade agreement with the USA. But if we go into a TPP-1, what happens the next time we sit down to negotiate such a deal? What will we have left to offer the USA in exchange for the benefits we may get out of it? Well, it won't be any law changes that we agreed to in the original TPP, because these will already be in force if TPP-1 goes into effect. Those bargaining chips have already been played.

And so the cost of a future FTA with the USA will go up; we'll have to find other things that we haven't already done to trade off against whatever it is that the USA is offering. And remember - we were promised by the negotiators of the original TPP that they had pushed right to the limit when getting that deal together ... we were told that NZ was prepared to walk away from it if the USA (and others) demanded anything more from us than was in the original TPP.

So, the question now can't just be "what benefits will the TPP-1 deliver?". It also has to be "if we want a free trade agreement with the USA, what else will we have to give up in the future if we agree to a TPP-1 having effect?". Or, alternatively, does entering into a TPP-1 tacitly mean that we're giving up on the idea of a free trade agreement with the USA for at least the medium term foreseeable future?

So much for the substance of any TPP-1. Let's move on to look at the domestic constitutional issues that it raises. 

As noted above, the Government already has passed through the House of Representatives a bunch of amendments to New Zealand law as required by New Zealand's agreement to the original TPP. However, those amendments are not yet in force, because as clause 2 of the Bill states:

(1) This Act comes into force on a date appointed by the Governor-General by Order in Council.

(2) That date must be the date on which the Trans-Pacific Partnership Agreement, done at Auckland on 4 February 2016, enters into force for New Zealand.

Now, here's the issue. Let's assume that TPP-1 gets agreed to, containing all the same provisions as the original TPP except allowing for the 11 remaining participants to bring it into force. Once TPP-1 enters into force, can the Governor-General appoint that date under the Bill that already has passed through the House and bring its provisions into force, therefore meeting New Zealand's obligations under that text?

I'm not sure that she can do so. Here's why.

First of all, unless Trump does something very weird, "the Trans-Pacific Partnership Agreement, done at Auckland on 4 February 2016" won't ever enter into force. That's because that agreement contained article 30.5 ... a commencement provision requiring the USA's participation. So any TPP-1 can never be, literally, be the same agreement as that made in Auckland at the start of this year.

What is more, such a deal won't be the same in substance as the one that underpinned the Bill that the House of Representatives has agreed to. That's because the original TPP was predicated on the USA's involvement - this was, remember, the jewel in the agreement's crown. And so the House's Foreign Affairs, Defence and Trade Committee examined the original TPP on the basis that the "TPP achieves the goal of successive New Zealand Governments to seek an FTA with the world’s largest economy, the United States ... ." Todd McClay, at the Bill's first reading in the House back in May, told it that:

The TPP will deliver benefits to New Zealand and, ultimately, to all New Zealanders. The 12 TPP countries total 800 million people, who already buy over 40 percent of New Zealand’s exports—that is, $20 billion in goods and $8 billion in services. The TPP is New Zealand’s first free-trade agreement with the US, Japan, Canada, Mexico, and Peru, and together these countries buy around $12 billion of New Zealand’s goods and services annually.

Meaning that when the House agreed to change New Zealand's domestic laws in order to meet our obligations under the original TPP, it did so on the assurance that we would get in exchange a free trade arrangement that included the United States with all the promised economic benefits that that brings.

Can that legislative consent then be assumed to carry over to TPP-1, a trade agreement that doesn't have the USA in it? I don't think it can - I don't think it can be said that because the House agreed to change NZ's domestic law to get a trade agreement with the USA, it is deemed willing to make the same changes to NZ's domestic laws to get a trade agreement without that country in it.

Furthermore, there's evidence that the House deliberately intended these changes to domestic law to take effect only if the original TPP came into force. The Bill when first introduced into the House had this commencement clause in it:

This Act comes into force on a date appointed by the Governor-General by Order in Council, and 1 or more orders may be made appointing different dates for different provisions and for different purposes.

Under this provision, it was left up to the executive branch (ministers) to advise the Governor General on when to bring the Bill into force. But at select committee this clause was changed so that the Bill could only come into force if and when the TPP came into force - the executive branch's power to advise the Governor-General to bring it into effect "for different purposes" was removed and instead this was strictly tied to "the date on which the Trans-Pacific Partnership Agreement, done at Auckland on 4 February 2016, enters into force for New Zealand." 

So, if the Government was to sign up to a TPP-1 and then tell the Governor-General to bring its provisions into effect, I don't think she can do so because the conditions of the commencement clause have not been met. And if the Governor-General were to go ahead and do so anyway, I don't think that action would be lawful ... and someone could go to court to challenge it.

Meaning that if the Government does sign up to a TPP-1 agreement that contains all the same provisions except for its entry into force, it cannot rely on the Bill it already has passed through the House to meet our domestic obligations under it. At the very least, it will have to amend the commencement clause in the current Bill - which will allow the House to debate whether it really is a good idea to change our domestic laws to meet the trade demands of a country that we no longer will be getting any reciprocal trade benefits from.