Friday, 10 October 2014

Why the TPP is NZ’s best hope

Most trade deals pass under the public radar for good and obvious reasons. They’re generally as complex as a spiders’ latticework, entirely unsexy and often last much longer than a typical news cycle allows.

But the Trans Pacific Partnership (TPP) bucks this trend. More people around the world appear to be interested in these negotiations than even the more impactful World Trade Organisation talks. People really seem to care about this deal.

The TPP gives New Zealand access to free trade with markets this country could never negotiate with bilaterally. And it’s an agreement which, if it works, could attract many more countries into its embrace.

The partnership has taken more than five years to complete, far longer than any of the members ever thought it would. US President Barack Obama is pushing to close the agreement by the end of the year, but even now the TPP teeters on the edge of history’s dustbin.

Trade is never a particularly exciting subject for most governments. They can lose votes easily and it’s very hard to win votes based on trade. Yet the single thing which would make the most difference for the TPP is if Mr Obama embraces the agreement in a way he is yet to do. Especially when HSBC predicts TPP-like deals could create 10 million jobs for the US over the next decade.

If it the TPP pass before early 2015 it may not be signed until 2017. For the TPP’s detractors that’s music to their ears. Then again, most of those critics are opposed to free trade agreements in any form. And there’s no talking someone out of a position with logic if they never arrived at that positon using logic in the first place.

But the TPP is far from only a nice-to-have for New Zealand. In 100 years’ time, we’ll look back and be very grateful our ancestors spent so much political capital on this family of free trade deals.
There’s a lot to like about the TPP, and not really much to hate. It’s not going to be like the Second Coming of Christ, but it’ll be an important agreement nonetheless.

From New Zealand’s perspective, the TPP is probably the best opportunity this country will get to cook itself into a truly massive trade agreement with meaningful openings into key markets, like Japan and the US. This really cannot be overstated.

New Zealand exporters and service sector will be huge beneficiaries, since the economy is so heavily built on exports. By being part of the TPP, New Zealand can overcome some of the challenges of being relatively small and geographically isolated.

And for consumers the benefits are even bigger. They’ll have access to goods and services that will be cheaper and higher quality. And businesses looking to expand offshore will be better protected.

Of course, New Zealand has two problems. One is that, on its own it isn’t the most powerful player in the room. Getting its most cherished objectives on dairy, for instance, is problematic given its size and economic strength.

But the second big problem is that dairy happens to be the most sensitive protectionist area for most of the other players.

New Zealand is at the ground floor, and the TPP is only going to get bigger. If the rumours are in any way true, the current 12 TPP members could leap to 19 countries by 2020. That’s enormous.

By then, even China could be ready to join the agreement, especially since Beijing is looking for ways to pull closer to the United States and reform its own economy. Both of which could be achieved by negotiating itself into the finished TPP.

Most people say China could never join the agreement because the intellectual property protections are too strong. But China is increasingly producing its own intellectual property. Their firms are creating new ideas, designs and inventions.

And the more that a country participates in creating intellectual property, the more they have to care about protecting it. By 2020 China will likely be deeply interested in protecting this IP, even while joining the deal might begin to look like a China/US FTA.

Perhaps China is a bit worried about joining an agreement it had no part in structuring. But they’d find it increasingly difficult to stay out of the TPP, especially if South Korea joins a completed partnership.

New Zealand is blessed with excellent trade negotiators who look out for New Zealand’s interests. If they thought this agreement was in any way detrimental overall, they simply wouldn’t sign it.

Then looking further out into the century, any plans about creating a larger free trade area in the Asia Pacific can only really begin once the TPP concludes. Once it closes, the TPP will be a very attractive platform with countries probably lining up to join it. Hopefully the various members will work out their differences in a timely fashion later this month in Sydney.

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