Trade agreements and the new TPP

And so it appears that agreement has now been reached on a TPP-like agreement, minus the United States.   We haven’t yet seen the details (although this MFAT note is useful), but all the comments late last year suggested that the new agreement would stick as closely to the previously-agreed, but not ratified, TPP as possible (but presumably without the Joint Macroeconomic Declaration).

I wrote a few posts a couple of years ago, expressing doubts about the then-TPP agreement.  I wrote –  and write –  from the pro-trade, pro-market side of the argument.   Which, of course, is not the same as a “pro-business” perspective.

Sadly, TPP (and its replacement), like the welter of preferential trade agreements various governments have been signing over recent decades, isn’t necessarily a step towards free-trade at all.  That is a point the Australian Productivity Commission has long been making about such trade agreements –  probably since around the time of the Australia-US agreement which many independent experts concluded made Australia worse off economically (having been signed for political signalling purposes more than anything else).    These agreements keep MFAT officials busy, and ministers of trade looking as if they are “doing something”, but there isn’t much evidence (net) that they are making New Zealanders as a whole better off.

There were always arguments about how we couldn’t really afford (in some political sense) to stay out if everyone else in the region did a deal of this sort.  And there might be some force to that –  we aren’t the United States, say –  but it would be good to see the arguments made in the context of a robust independent assessment of the costs and benefits of the deal to New Zealanders.  There was nothing like that done here for the ill-fated TPP deal.  The new government has claimed to be interested in more-open government.  This would be a good opportunity to demonstrate that it was serious.

There were all sorts of things that disconcert me about the earlier agreement:

  • investor-state dispute settlement provisions should be an affront to every citizen of a functioning democracy with a decent legal system.   We allow foreign investors access to binding dispute resolution procedures against the New Zealand government that are not open to our own companies operating here (people complain, sometimes reasonably about discrimination against foreign investors, but the ISDS procedures invert the arrangements, preferencing non-citizens non-residents over our own people).  And it is no consolation to argue, as government do, “oh, but our own businesses get the same advantage in other countries”.  But if we care at all about nurturing democratic values and the rule of law in other countries, it shouldn’t be a ‘gain’ we are happy with our politicians negotiating.   If you want to do business in (communist) Vietnam, that is your affair, not that of the New Zealand government.
  • then there are the labour provisions (which I wrote about here), under which governments declare that domestic labour market regulation is a matter for international negotiation (and associated dispute settlement procedures).  A minimum wage might or might not be a good idea, but there is no sound reason why a requirement to have one should be made part of a binding international treaty.   At the more wishy-washy end of the scale there was this sort of stuff

And then we have provisions for Cooperative Labour Dialogue and the new Labour Council (and its associated “general work programme”). It isn’t clear why we would want to enter such arrangements even with other advanced countries, let alone with Vietnam or Peru. A recipe for small and lean government it is not ( and I won’t bore readers by listing the items (a to u) which the parties agree they might “caucus and leverage their respective membership in regional and multilateral for a to further their common interest in addressing labour issues – except to note that “work-life balance” appears on the list, and corporate social responsibility pops up again). Real resources will devoted to paying for all these new bureaucratic and political overlays.

  •  there are unsatisfactory provisions around financial crises.   For example, the TPP agreement required any country considering using direct controls (on foreign exchange flows –  of the sort used by several countries in the last crisis) to preference all flows associated with foreign investment over any other financial flows (including those relating to an identical asset owned by a resident.
  • or the weird provision which appears to bind governments to have to compensate foreign investors just as much as citizens in any cases of losses resulting from wars or civil strife.  As I noted in an earlier post, it would have appeared to require the British government, after the Blitz in 1940, to have compensated Swiss or Swedish owners of property on the same terms as it helped its own citizens.   Sometimes that might be appropriate or prudent, but probably not always, and why should it be subject of a binding international treaty, unable to envisage all contingencies.

It isn’t clear how New Zealanders –  or, indeed, citizens of most of the other parties to the new deal –  are going to benefit from the new agreement, which seems to extend the regulatory net even further, and further reduce the ability of citizens/voters to direct and control the activities of their own governments.

Among US commentators who were in favour of TPP it was common to talk of TPP as some sort of instrument in the rivalry with China; that TPP would somehow ensure that “we” would “write the rules of trade for the 21st century etc”.  I’m not sure these “rules of trade” look particularly attractive anyway, and of course if TPP were in any way a threat to China one could be sure that our craven governments (past and present) would not be in such a hurry to sign.

And, of course, if the government was really seriously about free-trade –  itself, a lofty and generally beneficial vision –  it could now unilaterally remove the remaining tariffs New Zealand keeps on imports from other countries; imposts that may benefit a few New Zealand firms, but almost certainly at the detriment of the New Zealand population as a whole.

10 thoughts on “Trade agreements and the new TPP

  1. Free trade is nothing more than reduction in the tax take on imports to the detriment of the citizens and the benefit of business owners. What happens when majority of countries have no import duties? No country will have a competitive advantage over another but the tax take in all countries would have decreased which will affect health, education and all other services. This seems a bit like having 8 loyalty cards in my wallet and actually paying for the “free” points in the price of the goods. Just a transfer of wealth from the public to the capitalists nothing more and nothing less.

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    • Given that we have hardly any duties on imported goods. It would be certainly a good idea that we get others to stop taxing our exported products as it crosses their borders. Therefore free trade for us works out well.

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  2. The problem with our agricultural exports is that we are subsidising the food production of other countries by not ensuring that the agricultural industries pick up the full costs of the Paris Agreement rather than giving them a free ride with taxpayer subsidies.

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  3. These agreements are more a matter of religious belief than practical measures to facilitate trade in goods and services. They are ideologically driven and usually designed to the detriment of working people who have no voice in their creation.

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  4. Michael – a balanced discussion of the labour chapter of the TPP must include the measures to combat human trafficking, combat slavery, and permit the formation of independent unions. Sadly, the US was the main country enforcing these provisions. The minimum wage provision was effectively meaningless: IIRC these could be set arbitrarily low.

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  5. Yes, and I certainly wasn’t attempting that sort of comprehensive discussion. My point re the labour chapter (for example) isn’t that I necessarily disagree with many of the individual policies, as that I think it is wrong for these agreements to be reaching behind borders into area of domestic regulation (I point that I see Brian Easton – keen to claim a very different take on CPTPP – and I largely agree on).

    But I’m not sure even provisions that look formally meaningless necessarily are, as they can become a lever for lobby groups and then govts to exert pressure over time.

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    • But the human-trafficking, slavery and right to form a union provisions were very much reaching behind borders into areas of domestic *legislation*. Malaysia, for example, had to pass anti trafficking laws prior to signing the TPP, IIRC. Is that a bad thing? Or in some instances is it right to “reach behind borders” – when it comes to human rights, for example?

      Regarding your point on lobby groups. These sorts of environmental and labour provisions have been part of US trade policy since the May 10 2007 bipartisan accord. Lobby groups have since come to see these provisions as largely ineffectual, since the are subject to state-state dispute settlement. And they have a point. IIRC there has been no challenge to flouting of environmental provisions in Latin America.

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      • I’m a Westphalian so don’t approve of reaching behind borders. Even if the individual specific results you mention might be worthy, there will be pretty of cases where the pressures is for results that are anything but, and I don’t see there is much of offer that benefits NZers as a whole to make paying that potential price worthwhile.

        I guess much depends on the balance one sees between the benefits of globally-standardised rules, vs decisionmaking being done close to home and responsive to domestic preferences (flawed as they may well be at times). I’m wary of the global rules model.

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