[This post was first published at http://www.interest.co.nz on 6 August 2015]
The failure to reach closure at the recent TPP negotiations in Hawaii may be a blessing for New Zealand. It may give some time for our negotiators to reflect on what we hope to achieve and what we are prepared to concede.
Most farmers will be supporters of the TPP. They will be working on the apparently reasonable assumption that more free trade has to be good value.
However, the TPP is something different. It does send shivers up my spine. It is much more than a free trade agreement in goods. It is also about the power of international corporations to operate the way they wish to operate across the world. The devil will indeed lie in the detail.
It is insightful to note how the American Government portrays the TPP to its own people. The argument presented by The White House to the Congress is that it is of fundamental importance to America’s role in the world. It is all about writing international trade rules to America’s advantage, and it is about constraining the influence of China as a Pacific and global power.
My own concern has been that our Government over-estimates the benefits that are to be gained, and will therefore give away too much in terms of our sovereignty, and hence our ability to regulate these international corporations.
The notion that New Zealand is somehow going to benefit from Canada de-regulating its dairy industry leaves me shaking my head. It is true that Canada has quotas on production and that farmers are well paid.
However, the rest of the supply chain through to consumers is very efficient, and so consumer prices are reasonable.
If Canada does deregulate its dairy industry, then initially it will be the USA that benefits. They can shift cheaply-produced milk across the border.
Once the quotas are removed, the Canadians themselves will quickly restructure their own industry to mimic the American environment. It is no more difficult to produce milk in Ontario than it is in the American Midwest, where production is booming.
I also find it unlikely that we will sell a lot more milk to Mexico. The Americans are the big suppliers there, particularly of cheese, and we New Zealanders will struggle to compete. To the extent that Mexico is important to us, then I would much prefer we focus on a bilateral arrangement where we know exactly what each side is giving up.
The prospects of dairy in Japan are more difficult to read. Maybe we will benefit from product into the food service industry, but we are not well set up to provide consumer products.
Overall, Japan is a shrinking market with the population now in decline. Birth rates are so low that Japans population is likely to reduce from the current 127million to about 87 million over the next 45 years. Currently, the population is decreasing by about 250,000 each year and that will soon accelerate. As their population declines, so will their need for imported food.
Yes, Japan will gradually restructure its agricultural industries as the old style farmers retire. Given that the average Japanese farmer is now more than 65 years old, this has to occur. But assuming that somehow we will benefit from tariff reductions is a big leap of faith.
Overall, I see little benefit for dairy from the TPP. Our opportunities lie elsewhere. Fifteen years ago when the USA was internationally non-competitive it could have been a different story. It seems that in relation to dairy our negotiators have got locked into old-style thinking.
Improving the beef access into Japan could bring some benefits to New Zealand. But once again there has been a tendency to over-estimate those benefits. For example, I heard a Beef+ lamb executive recently expounding the potential for reducing Japanese tariffs. But the assumption was that producers rather than Japanese consumers would be the beneficiaries.
The economics of who finally bears the cost of a tariff is situation dependent. It can be the producer or the processor or the consumer. In relation to prime beef, my assessment is that the main beneficiary will be the processors but that some of this could flow through to farmers. But in relation to cow and bull beef, there are minimal Japanese tariff benefits that will come from the TPP. Any benefits that do accrue will be to the Japanese consumer.
In relation to lamb, I see almost no benefits of the TPP. We already have free access to the USA for lamb, despite the efforts of President Clinton to constrain that ability in the late 1990s. We won that dispute through the WTO.
For Mexico, our lamb is currently taxed 10% and that could change under TPP. But my assessment is that it is the Mexican consumer that bears most of that cost. New Zealand also periodically supplies live sheep to Mexico, ostensibly for breeding. However, most of these end up on the barbeque.
So the real question has to be, how will New Zealand really benefit from the TPP? And how will those benefits balance the costs in relation to Pharmac and other aspects of sovereignty that will effectively be ceded to the big international corporations?
Our Prime Minister has said that it will be the Government and not the consumers who will pay the extra costs of Pharmac. Surely he must have meant taxpayers will be the ones who pay.
My own sense of events is that the momentum of public opinion is now shifting towards opposition to the TPP. Until recently, it was something that was too abstract for most people to bother about. The problem for our Government is that it has got locked into a position where, if other countries do finally agree to dairy restructuring, then the politicians will find themselves praising a dead rat.
The way I read the situation is that it is the USA which is going to come out as the TPP winner. They will still have to manage some internal opposition from their blue collar organisations, but the pathway to fast track Congressional approval has now been cleared. However, with the presidential election looming, time is now the essence.
The key problem with the TPP negotiations for New Zealand is the fundamental power imbalance between ourselves and the USA. And the dispute mechanisms within the TPP will reinforce that imbalance. Our business leaders will say that we cannot afford to be left out in the cold, but I would prefer a much more measured approach based on bilateral negotiations. Big is not always beautiful, especially when you are small.
Earlier posts on the TPP are can be found here: