Underlying Trade Deals

This was an introduction to a presentation by Stephen Jacobi: "TPP – Where to from Here (And How Did We Get Here Anyway)?" To a NZIIA lecture, 2 September 2015. (Some editing)

It was suggested I first say a few words about the context in which the TPP and other trade negotiations are occurring. At the heart of economic progress is specialisation. That Economics Stage I comparative advantage model that you were taught said that by specialising and trading its surplus a country could be better off.

That the model had a number of assumptions which are no longer true – especially as the costs of distance have fallen. It is not just that more products – notably services – have become tradeable. The model did not have foreign direct investment – capital flows – nor did it have labour mobility – people flows. It did not touch upon the flow of ideas – of intellectual property – not all of which can be commercialised. Ownership of the factors of production and business has changed dramatically as has the organisation of production illustrated by the rise of supply chains. International markets are becoming increasingly integrated.

None of these ruin the conclusions of the comparative advantage model but they make international trade deals more difficult to negotiate – much more difficult than, say, NAFTA, the New Zealand Australian Free Trade Agreement of 50 years ago.

The model has another implicit assumption which is proving even more difficult to deal with. It assumes nation states exist. Yet international trade in goods, services, investment, people, ideas –market integration – undermines the nation state, fudging its boundaries, its coverage, its powers its sovereignty.

This is the background to Stephen’s presentation on the TPP which, with its ambitions of a 21st century deal, is attempting to cope with some of the issues I have just raised.

A consequence has been a considerable backlash. I recognise three key features in the public concern.

One is a lack of appreciation that international commerce has moved on and the old limited deals are no longer as relevant as it integrates.

The second is there remains a loyalty to the nation state as we once understood it and a fear that the deals will undermine it without an appreciation that it is actually being undermined by the market integration. Perhaps there is the hope that resistance to the TPP will halt or delay the inevitable.

Third, compounding this nostalgia, is a lack of understanding of what is being negotiated. The blogosphere and public comment is thick with claims, many of which cant possibly be true while others remain unsettled. There is a notable tendency to assume the worst possible outcome.

Until those involved in the negotiations speak publicly – they may not yet be able to – this turmoil of public misunderstanding will continue. Tonight we have, what an economist would call, a second best solution to the actual negotiators. Our speaker, Stephen Jacobi, is an excellent substitute both by experience – he is a former diplomat and industry organisation CEO – while his current position – Executive Director of the NZ International Business Forum and alternate member of the APEC Business Advisory Council – requires him to follow trade negotiations very closely and in an informed way on behalf of the business sector.