Speeches and Articles

The Trans Pacific Partnership - why what and when

Stephen Jacobi
10 September 2013


Address by Stephen Jacobi to the Wellington branch of The New Zealand Institute for International Affairs.

Thanks for the opportunity to be with you this evening.

After three years of negotiations, nineteen rounds involving hundreds if not thousands of officials and stakeholders, and a whole lot of ink and airtime, the Trans Pacific Partnership (TPP) negotiations are entering what US Trade Representative Mike Froman calls an “end game”.

Tonight I’d like to share with you a business perspective on the TPP negotiations.

I do so from the vantage point of the NZ US Council, a non-partisan organization funded by both business and the Government, which seeks to build New Zealand’s relationship with the United States.

I need to stress at the outset that TPP is about more than just New Zealand and the United States but the involvement of the United States gives these negotiations a particular significance.

Not just because the United States is still the world’s largest economy, or because its economic fortunes are slowly but surely improving, but because US leadership on trade has always been vital for opening global markets.

TPP currently links 12 partners in the Asia Pacific region - a sort of economic fellowship of the ring – with Japan as the latest to join – but its vocation is much broader.

TPP is about creating a pathway to further trade liberalization amongst the 21 economies of APEC including significant economies not currently part of the negotiation including China and Indonesia.

I’m conscious too that we’re discussing a complex and rather controversial topic so I hope we can have some conversation about some of the things I have to say this evening.

I’m keen to hear your views and concerns about TPP and perhaps clarify some of the rather dire predictions about what TPP might mean for a range of interests.

TPP is potentially a very big deal and certainly deserves scrutiny from civil society organizations like this one.

Tonight I’d like to give you a sense of just why business feels TPP is in New Zealand’s best interests, where we think TPP is up to and where we expect this negotiation to go during the rest of this year.

Why TPP?

As we enter the second decade of the 21st century we in New Zealand find ourselves in something of an economic predicament.

Certainly our small economy survived the worst of the global financial crisis.

Certainly our current economic performance is the envy of others around the world.

Certainly we’ve just come out rather well in the latest survey of global economic competitiveness (especially if beating Australia is a measure of our success).

The problem is our economy is not generating the levels of job creation sufficient to secure the future for a good number of our citizens.

I’m not thinking here so much about our official unemployment rate which, while still too high, is pretty good compared to many other countries.

I’m thinking more about the numbers of New Zealanders who are moving overseas and the numbers of expatriates who are reluctant to return.

I’m thinking especially about the pockets of poverty we see in places like Flaxmere in Hawke’s Bay, or South Auckland or in eastern Christchurch.

And I’m wondering what it would take to get these and other parts of New Zealand working and thriving.

I don’t think that our current level of economic performance, however credible in global terms, is sufficient.

I do not accept that this is as good as it gets.

The inconvenient truth is that after 30 years of on-off economic reform the New Zealand economy is neither big enough nor of sufficient depth to provide the resources we need for the lifestyles to which we have become accustomed.

I know that some would say that this is because our economic policy has been overly fixated on growth.

There are indeed some other economic policy scenarios out there and some are pretty scary.

It’s hard to escape the fact that New Zealand’s economic predicament has to do with our size and distance from markets.

Our economic future lies in the extent to which our businesses can connect more easily in the markets of the Asia Pacific region.

The Prime Minister put it well recently when he said “we can’t get rich selling to ourselves”.

Helen Clark once said “trade is our lifeblood”.

It’s New Zealand’s returns from offshore markers that give us the resources to build world-class infrastructure, fund a health and education system we can be proud of, and provide social welfare and assistance for those who need it.

It’s all about hip replacements really.

Where does the money for funding hip replacements come from, if not from returns from overseas markets?

We’ve come a long way down the path of integrating ourselves in the region in recent years but there is more to do.

And that’s why we need TPP.

Over 50% of New Zealand exports are now covered by our network of free trade agreements, but some of our major partners including the United States and Japan are not covered.

TPP can help bridge the gaps in FTA coverage and also begin the process of convergence – making it easier for our exporters to do business by aligning and harmonizing the rules of trade and investment.

TPP is about creating a more seamless space in the region, finding ways to reduce the costs of doing business and using trade and investment as the drivers of sustainable economic growth.

Why is that important?

Because just as our future is tied to the markets of the Asia Pacific region, we sink or swim on the economic health of the region.

New Zealand was able to weather the storm of the global financial crisis because the risk was spread over a number of important markets – as markets in North America and Europe went into difficulty, markets in Australia and especially Asia continued to grow.

Today we see change on the horizon.

Europe continues to struggle, but the United States is pulling away from the economic doldrums.

Growth in the developing world and in emerging economies in Asia is slowing but coming off a significant expansion of their economies in recent years.

Governments around the world are looking for ways to accelerate the growth trends and since most of them continue to face fiscal pressures they are looking especially at business.

And that’s also why we need TPP.

Because expanding trade and investment can only happen by lowering barriers, reducing costs, and ensuring the businesses have the confidence to invest in new business ventures.

The business landscape is constantly changing – today, as the events of the last month have shown us, economies and companies are inter-connected by a vast network of supply and value chains by which products are made often in multiple locations and finally end up in the hands of consumers.

Just look at your I-phone and work out where all the components come from – products today are “made in the world” not made in any one country.

Trade policy which at the best of times is a laborious process has trouble keeping up with the speed of business changes.

TPP is often presented as a “21st century” or “new generation” trade agreement – however imperfect these words are, they are trying to reflect the fact that business today is done differently from the past and our trade agreements, the means by which we put rules in place, need to evolve as well.

So we need TPP to contribute to a new wave of economic growth, to expand trade, investment and job creation and to reflect the new way that business is being done.

The New Zealand Government has adopted a goal of increasing the ratio of exports to GDP by around ten percentage points to 40% of GDP by 2025.

A few weeks ago here in Wellington in a speech to the Chamber of Commerce Trade Minister Groser gave a passionate and detailed presentation about why that goal is achievable.

The point is the goal will not be achieved without the help of initiatives like TPP in opening markets and putting in place new and more effective rules for trade and investment.

What is TPP?

Let me now turn to what TPP means in some more detail.

I’ve already described TPP as a body of rules.   In fact TPP is an international treaty under negotiation between 12 economies, all members of APEC and all important trade partners for New Zealand.

The TPP economies represent around 40 percent of global GDP.

New Zealand has free trade agreements with some of them, such as Australia and the ASEAN nations, but with others it does not.

If successfully negotiated TPP will deliver an FTA with the United States, which has been a goal of the NZ US Council since our inception in 2001.

TPP will also deliver an FTA with our old friend Japan which until recently had been the missing link of New Zealand’s coverage in North Asia.

TPP will also deliver freer trade with Canada, Mexico and Peru.

For the time being TPP is a work in progress, although to read the commentary from some quarters you’d think TPP had already been concluded.

TPP hasn’t been concluded, there is no TPPA, with “A” standing for “agreement” and there won’t be until the process of negotiation is completed and the final agreement presented for ratification in each of the economies concerned.

In New Zealand’s case our international treaty making processes will require the final agreement to be submitted for Parliamentary scrutiny and where laws need to be changed there will be the normal Parliamentary processes.

That is how we make treaties in New Zealand and TPP is no different.

Now there is understandable public concern about the transparency associated with trade negotiations.

That’s why stakeholder sessions have been held at most if not all the TPP negotiating rounds including the two that have been held in New Zealand.

That’s why the MFAT negotiators are making themselves available for discussions with interested stakeholders.

Of course it’s in everyone’s interest to find ways to make the process of trade negotiations more transparent – who could argue with that?

The problem is that this negotiation includes sensitive matters, which are of national political and economic importance for the governments involved.

That means there have to be some limits on what can be made available in the course of a negotiation.

Even CTU President Helen Kelly said recently, when talking about the GCSB legislation, “we in the trade union movement have stuff to hide.  We have plans, strategies, disagreements, debates, bargaining positions, workers’ secrets and personal stuff to hide, and this makes us an important part of a robust democracy”.

In the some way some things need to be kept confidential by governments until the agreement is reached amongst the parties.

This does not mean to say that there is no information out there about TPP.

MFAT’s website has a regular TPP Talk posting and the NZ US Council and other business organisations have developed a site known as Trade Works – www.tradeworks.org.nz, with a wealth of information and links about TPP and other trade negotiations.

And even organisations with serious reservations about TPP make a lot of other information available.

What we do know about the structure of the negotiation is that around 26 separate “chapters” of what will be in due course a final agreement are under negotiation.

Some of the work in less controversial areas is believed to have been closed – this may include matters such as regulatory coherence, competitiveness, development, temporary entry of business persons, cooperation, and small- and medium-sized enterprises.

A range of other issues remain under active negotiation – meetings are reported to be taking place this month on technical barriers to trade, e-commerce, legal issues and intellectual property.

A small number of issues are subject to continuing debate and disagreement – these include intellectual property, state owned enterprises and investment, as well as the all important issue of market access.

I’ll come back to these more problematic issues in a moment.

Governments have been rather reluctant to issue any estimates of the potential value to national economies from TPP.

Forecasting of this nature is very difficult but it is not impossible.

A very credible study has been undertaken for the East West Center in Hawaii by Professor Peter Petri of Brandeis University.

Professor Petri estimates that adding Japan increases welfare benefits for New Zealand from TPP from NZ$3.6 billion to NZ$5.1 billion by 2025.

That’s because of the high tariffs that apply to New Zealand exports to Japan.

These are significant numbers, which simply cannot be left on the table – it makes TPP worth the effort, despite the obvious difficulties in reaching agreement amongst the twelve.

New Zealand stands to benefit from a successful outcome in several ways:

•    Tariffs on our products will be eliminated over a specified period – this will be particularly beneficial for agricultural exports to markets like Japan, the United States and Canada

•    Existing trade and investment will be put on a more secure basis as partners will find it harder to take action against our interests when protectionist pressures arise

•    We will receive access to government procurement markets in the TPP economies

•    We will benefit from measures to increase the speed of doing business across supply chains, to align and harmonise regulations where possible and to promote the security and integrity of trade.

A few caveats need to be placed on all this.

First, it is clear that a new generation, 21st century agreement can only be concluded if the old issues of the 20th century are finally addressed.

For New Zealand this means agriculture and the absurdly high protective walls that have been built around agriculture in Japan, United States and Canada.

There is skepticism in some quarters that this is at all achievable.

The skeptics may be right but let’s hope they are wrong – in any event TPP cannot be achieved without market access for agriculture including dairy products, sugar and rice as well as other non-agriculture products like textiles and clothing.

Change need not happen overnight, nor do all products need to be treated exactly the same but TPP Leaders have already agreed that TPP will be ambitious, high quality and comprehensive.

That means no products are excluded, end of story.

Last week agricultural groups in New Zealand released a set of principles, which they contend should guide the negotiations.

Happily they reflect a similar set of principles released by US agriculture groups in July.

Whether these principles will be applied in the final agreement can only be determined once the negotiation is finished.

Much will depend on the United States and whether President Obama is willing and able to push through the market openings in highly protected sectors like sugar, dairy and textiles, which will be necessary to close the negotiation.

So far the omens look propitious and the President’s newly appointed Trade Representative, Ambassador Froman, is showing great leadership.

The second caveat relates to those more difficult issues.

In these areas as in market access there remains a lot of work to be done by negotiators. 

In these areas also the United States has advanced challenging proposals, which have alarmed a number of stakeholders.

For example in the area of intellectual property the United States is seeking a major strengthening of rules around patent, copyright and the supply of medicines.

It’s sometimes suggested that New Zealand has vastly different interests from the United States on these issues.

It’s true that we import more intellectual property than we export but both our established agricultural sector as well as our emerging IT sector has a high knowledge economy component.

New Zealand business has an interest in a system of strong intellectual property rights, which provides the right incentives and protection for innovation.

What is not clear is that that this should extend to the patenting of software or to an increase in the length of copyright term and there is concern that too stringent restrictions on file sharing might impact negatively on use of the internet.

New Zealand’s policies in these areas are well set out in our domestic legislation, which already comply with international standards set out in the WTO.

On pharmaceuticals the New Zealand Government is already on record as saying it does not intend to make significant changes to the operation of Pharmac and no-one will want to see the costs of medicines rise.

At the same time everyone wants more medicines more readily available and more medical research to be undertaken in New Zealand.

In the area of investment there is concern that the rights of foreign investors might trump the sovereignty of governments.

Yet successive governments have actively sought foreign investment because without increased foreign investment it will be difficult to grow the economy and offshore investment by New Zealand companies is part of the new way of doing business that I mentioned earlier.

Look at recent developments in Sri Lanka to see what can happen to New Zealand companies operating in other jurisdictions and you will understand the need to promote rules in instruments like TPP whereby when foreign investors are treated the same, not differently from domestic companies.

In all these areas New Zealand has allies amongst the other participants, and in others we can make common cause with the United States.

Negotiators are trying to narrow the differences to be able to come up with a final package that meets everyone’s needs.

That’s what a negotiation is all about.

In this process we should be wary of doomsday scenarios.

New Zealand negotiators have a good understanding of our national interests and will guided by New Zealand’s current policy settings.

When will TPP be finished?

That brings me to the final point for this evening:  when do we expect TPP to be concluded?

Business always wants things to be done sooner but substance rather than artificial deadlines should drive this negotiation.

For the time being TPP Leaders have indicated that they would like to see the negotiation wrapped up by the end of the year.

Negotiators are working assiduously to that end.

Japan’s late entry into the negotiations is a complicating factor as Japanese officials will only have had the negotiating text such as it is for a few months.

At the same time these negotiations cannot go on forever.

To do so risks delaying the action required to get economies moving and sending the wrong signals to business.

Public apprehensions about the shape of the final agreement will not be helped either.

No-one wants TPP to end up like the Doha Development Agenda.

At the last negotiating round in Brunei a programme of inter-sessional work was adopted to carry the negotiation through to the meeting of TPP Leaders, which will take place in Bali in early October.

A Ministerial meeting was held in Brunei, the first one held outside an APEC gathering since the negotiations began.

All of this is a sign of growing momentum but where that momentum leads us will depend on the skill of negotiators and the political will of the governments involved.

At this point it seems most likely that we will know by October whether the negotiation could be concluded by year end or whether it will need to be carried on in 2014.

Even once the negotiation is complete there is time required for legal verification and for the ratification process to begin in each economy. 

None of this is straightforward – in the United States a renewal of the President’s lapsed Trade Promotion Authority will also be required.

TPP like any trade negotiation is the art of the possible.

Be prepared therefore for a little more water to flow under the bridge.

Conclusion

I’ve tried this evening to paint a picture of the TPP negotiations.

TPP is being pursued not because some economics textbook says so but because governments and businesses want to see increased trade and investment be the means for creating growth and jobs.

New Zealand, as a small economy distant from its export markets, has more interest than most, and potentially more to gain, from a successful conclusion to TPP.

If we want to maintain the lifestyle we currently enjoy and ensure those on the margins of society can participate fully we need the level of economic growth that TPP can bring.

TPP is a work in progress and addresses some complex issues, which need to be carefully thought through by governments with the help of stakeholders.

TPP is now entering the end game.

It’s still too soon to be definitive, but if successful TPP can be an important part of the policy mix enabling New Zealand and its businesses to integrate more deeply in the Asia Pacific region.



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