The TPP - there's a lot to like

The TPP may not deliver an immediate big bang for our dairy industry. But there's an awful lot to like in it - and New Zealand really has to be a part of it.

Helen Clark had the most succinct and best explanation of why New Zealand had to be part of the TPP. I know for a fact that her late intervention caused some people who were sceptical about the TPP to revise their opinion about the necessity for New Zealand being in TPP.

It would have been unthinkable for New Zealand to be outside a deal encompassing 40% of the world economy. More particularly TPP includes three of New Zealand’s top five trade partners, Australia, United States and Japan. Was it ever really conceivable that New Zealand would choose not to be in a trade deal that encompassed these nations?

Well, if the New Zealand government was dominated by the Green Party and New Zealand First the answer would be yes. But there is a reason why these parties only gain 20% of the vote. Most New Zealanders know that the country depends on trade and investment for its living.

Many of the defenders of the TPP deal, including Tim Groser, have been rather apologetic about it on the basis that it did not deliver the hoped for gains in the diary trade. Essentially this reaction is a result of disappointed expectations. Perhaps the government raised New Zealand hopes too high. Once Canada joined there was never much prospect of major removal of restrictions on the diary trade. Not that Canada was ever much of a target for New Zealand diary exports. But Canada’s intransigence also meant that the United States also did not have to do too much either. 

The public focus on the dairy trade has obscured the broader gains for the New Zealand economy. It also ignores how trade and investment agreements evolve. Once markets start to open there is inevitably pressure to further open the market. Agreements like TPP typically have follow-up negotiations. Within the next ten years there will be a new round of negotiations to expand the TPP concessions, especially on investment, services and agriculture. In addition other nations are likely to want to join TPP. South Korea, the Philippines and Indonesia are probable candidates. 

And China will be carefully evaluating whether it is better to be in rather than out.

So rather than bemoaning what a perfect deal might have looked like, why not focus on what has been achieved now?

The ANZ has done a rather nice analysis of the percentage gains on current earning as a result of the tariff reductions in each trade sector (hat tip to David Farrar). Notably for meat it is 3.1%, for dairy it is 2.2%, for fruit and vegetables it is 2.2%, of fish it is 1.4% and for wine it is 1.2%. Some gains are immediate, such as the tariff reduction of kiwifruit to Japan, beef and sheep meat to most markets. Others occur over time as the tariff reductions are phased in. Overall the gains amount to hundreds of millions of dollars for the New Zealand economy. The officials estimate $260 million, but this is on the basis of a static picture. Invariably reduced barriers led to greater volumes. For disbelievers, have a look at the impact of the China FTA.

Some reductions will also force some necessary changes in the New Zealand dairy industry. There are minimal reductions in barriers to exports of milk powder, but respectable gains for cheese and baby formula. Surely a real incentive for Fonterra to move up the value chain.

The biggest advantage of TPP is not to be measured by an enumerating of financial gains in individual sectors; it is the progressive transformation of the Asia-Pacific economy. The 12 TPP nations will become more tightly woven together. Other Asia-Pacific nations will want to participate. From trade in goods, to deeper integration of services, to freer flows of investment and of people, the Asia-Pacific will be enriched and become more cohesive.

The focus of the world economy will continue to shift toward the Asia-Pacific. The fact that twelve nations within the region could do this when Doha has so signally failed is indicative of the importance that the 12 placed on their future in the Asia-Pacific.

There are still hurdles to cross. TPP has to get through the US Congress. In my view it will do so.

There will be enough legislators on both sides of Congress who will appreciate what a strategic opportunity that TPPA represents. They will know that it will not be possible to negotiate better deal. None of the other eleven nations would be willing to go through such a process again to be hostages to congressional whim.

The legislators will also know that TPP is about US leadership in the Asia-Pacific. Failure to ratify would be tantamount to abandonment of any such ambitions. And any presidential contender worth his or her salt will know this.