Trade deal must be closely tested
Trade ministers from 12 countries around the Pacific have gathered in Hawaii this week to hammer out the last details of an agreement aimed at bringing freer trade to the region. It has taken more than five years and is three years behind its original target date for completion. But if, as is expected, the trade ministers reach a final deal they will create the largest such trade zone in the world, with its members representing about 40 per cent of the world’s economy. It will be the most important trade breakthrough since efforts to achieve a global trade deal collapsed more than a decade ago.
The agreement, known as the Trans-Pacific Partnership (TPP), began more than a decade ago with a push led by then Prime Minister Helen Clark that united just four countries, Brunei, Chile, Singapore and New Zealand. Within two years of the signing of that agreement, however, eight others – Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam – had signed on to try to negotiate a broader pact.
It is easy to see the attraction. By one estimate, the TPP will boost the wealth of the 12 partners by $285 billion by 2025. The partnership is also not expected to stop at 12 members – others, notably China which is not involved this time – are expected to sign up in future.
Even if the claimed estimate of the economic benefit may be not much more than an informed guess, the track record of trade deals shows that while they have often been fiercely opposed, once they are in operation they frequently perform far beyond predictions made for them. The classic example is the Closer Economic Relations treaty New Zealand signed with Australia almost three decades ago. Even Treasury at the time was sceptical about the direct economic benefit to New Zealand of that one, but it has become, with later expansions, the foundation of the vast increase in trade between the two nations in the last 30 years. An even more striking recent example is the deal with China, which multiplied trade five-fold in five years.
For New Zealand, any benefit is likely to come from the reduction or abolition of tariffs on dairy, meat and other primary product exports. These are being strenuously opposed by the likes of dairy farmers in Canada who are still swaddled in protectionist measures they are fighting to retain.
New Zealand critics of the proposed deal claim that New Zealand is unlikely to win much on that front and in the process will give up too much. They argue that extended protection for patented drugs could upset Pharmac’s finances and an independent mechanism for settling disputes could compromise New Zealand’s sovereignty in various ways. The problem with the criticisms is that, because the talks have necessarily been in private, they have been based on leaks from what has been a work in progress.
But the final deal is the only one that matters. Every nation in a trade treaty is working to increase its own self-interest. The TPP may involve trade-offs but to be worthwhile the overall deal must clearly benefit New Zealand. It will need to be closely scrutinised by MPs.