In his recent article calling into question international research on the possible benefits of the Trans Pacific Partnership (TPP), Simon Terry of the Sustainability Council asks why there is reluctance to discuss the overall costs and benefits. In fact the NZ US Council drew attention to the quantitative study on TPP back in May 2012. We even asked the New Zealand Institute of Economic Research (NZIER) to assess the research methodology and findings in relation to New Zealand.
One problem in evaluating the costs and benefits of trade agreements is that the full extent of future liberalisation is unknown before they are actually signed. That’s why the original study’s authors, Peter Petri, Michael Plummer and Fan Zhai, actually modeled several scenarios. This is a standard practice by research economists and the study and the accompanying website which is continually updated – www.asiapacifictrade.org - has a wealth of background data and related material.
The Sustainability Council has now produced its own research which is limited to criticizing the modeling used in the Petri et al study. No alternative modeling nor any new data are offered to provide evidence for a different perspective.
Simon Terry and Geoff Bertram, the report’s authors, suggest the benefits are "less than a quarter" of those claimed, but offer no detail about this calculation. In fact the "readily visible costs" they identify appear to be more in the nature of philosophical objections than quantifiable indicators.
The report refers to the potential extension of intellectual property rights in TPP and claims these as adding costs. Unfortunately no economic modeling of these costs is presented and no new analysis of the economic wealth generated by the IP rights that New Zealand creators of advanced health care systems, environmental technologies, movies or other media currently enjoy. The assertion of costs is based on leaked text regardless of how this draft text might be adjusted in the final agreement.
On investor state dispute settlement, the report again defaults to generic statements with little actual evidence. Investor state dispute settlement is likely to figure in the final TPP as it has done in earlier agreements New Zealand has signed including with China and ASEAN. Trade Minister Groser is on record as saying that this will not compromise New Zealand's ability to regulate in the areas of public health (including tobacco packaging), the environment, or the Treaty of Waitangi. Here again the Sustainability Council report offers no economic analysis to back up their claims nor an estimation of the benefits that New Zealand investors overseas including Fisher and Paykel Appliances, Fonterra and Zespri can expect to obtain when their investments are protected overseas.
The Sustainability Council suggests the benefits of TPP should be confined to tariff cuts. But that’s not even half the picture. It is not just empirical literature that suggests there are gains from reducing non-tariff barriers and easing impediments to investment – this is something that is continually being stressed by New Zealand businesses operating in international markets. Non-tariff, behind-the-border dimensions to trade agreements are admittedly difficult to measure but that is no reason for ignoring them.
Trade policy today is mostly not about tariffs. The vast bulk of the world’s wealth today is generated by trade in services, not goods. Finding ways to speed up the movement of goods through supply chains and reduce costs may be even more significant than reductions in duties and taxes.
The final word on TPP will need to wait until the text is released. The Sustainability Council wants that to happen now. The NZ US Council wants to wait until the negotiation is concluded. Readers are at liberty to make up their own minds about this.
In the meantime those supporting TPP are very happy to have a respectful conversation with the Sustainability Council and others who hold different views. We stand by the Petri study, which appears to us to have used robust methodology, in the knowledge that these figures are estimations, albeit well-founded ones.