TPP / CPTPP. Will consultation be better than the TPP National Interest analysis?

Trade Minister David Parker has taken up the opportunity to do what the Trade Ministers of TPPA countries agreed to at the APEC conference and offered New Zealanders the opportunity for a consultation and better understanding on the TPPA prior to it being signed.  He has said it is unlikely this will affect the outcome – that any analysis won’t demonstrate that the TPPA is other than advantageous to New Zealand now that Labour’s ‘5 bottom lines’ have been agreed. So what information will we be given to assess the changes to the TPPA agreement? Labour’s manifesto has included in its trade manifesto a statement to the effect that future trade agreements must

“Strengthen the quantitative analysis contained in National Interest Analyses required for Parliamentary Treaty ratification to ensure that best estimates of positive and negative impacts of any trade agreements are made”

Parker would have to do little to be an improvement on the original TPPA National Interest Analysis which was released for Select Committee examination in early 2016. Professor Jane Kelsey described the NIA as more of a “National Government cheerleading exercise” and says “The NIA [ ] talks up the supposed gains and largely ignores the huge downsides of the TPPA”.

The NIA is a document mandated by the Standing Orders and the Cabinet Manual when a treaty is signed and what is expected is outlined by treasury guidance. These are the criteria required for treaty examination which the NIA is expected to set out and they should be reflect Labour’s demand for qualitative analysis but they did not.  The guidance demands the NIA contain:

• the reasons New Zealand is proposing treaty action,
• the advantages and disadvantages,
• the nature of the obligations imposed,
• the nature of the expected effects and costs of compliance; and
• how the treaty would be implemented in New Zealand (which includes the nature of any legislation required).

Kelsey’s comments are pertinent. The NIA was one-sided and the analysis was limited. But just as important was the poor quality of the drafting and the missing information.

How could we assess the TPPA when there was:

• No comparison with alternatives to trade agreements
• No examination of the impacts of existing trade agreements.
• No responses to well-founded criticisms about the estimated benefits of the TPPA
• No responses to other criticisms from a variety of commentators.
• No mitigations for forecast job losses or new problems for small businesses.
• Missing information and problems with the structure and layout of the NIA.

This document outlines the problems with the NIA. Perhaps these might be the kinds of considerations that drafters of the consultation will take on when to identify what information would be useful as the CPTTP consultation takes shape.

 No comparison with alternatives to trade agreements.

In the TPPA’s NIA the options for maximising trade is not contrasted with other means of improving trade which do not also have the downside “the required policy space” being closed down by TPPA drivers that options that disallow governments from doing what is right for people.  David Parker himself has made the point that lifting the export sector of the economy instead of a system that supports speculative assets like housing is important. Training, improving the use of labour productivity and the move away from bulk commodities are more likely sources of improvements in trade and don’t come with the TPPA’s focus on putting people’s and environmental rights as secondary.  The TPPA NIA is clear that trade trumps other considerations in this section on regulatory coherence where it says: 

“that regulation is the minimum necessary to achieve public policy objectives, and that trade and investment liberalisation is taken into account when considering new regulation”

Additionally the impact of a “ratchet mechanism” allowing some protections to be weakened but never strengthened is not analysed”. If the approaches these concepts encode are really more useful for New Zealand than other trade maximisation approaches then those reasons should be explained.

Examining the experience of existing trade agreements

The China and Korea FTA could be analysed to see if more the same kind of change is desirable. The benefits in terms of quantity of trade were massively more than forecast but the direct and indirect side-effects of that China-NZ FTA are also considerable and perhaps should have been part of that analysis indicating any mitigations of the negatives. As well as the well-known impact of speculative investment in housing the impacts of the China FTA have included:

• Sovereignty concerns as Anne-Marie Brady’s research has identified the extent of China’s soft power as former Ministers take roles on the board of Chinese banks and so on.
• Chinese workers being paid under the minimum wage to work here replacing asbestos from trains despite a contract provision that asbestos not be used. This arrangement could continue for the 25 years of the contract, displacing NZ based workers. As a result commentators have speculated that tenders for contracts such as building infrastructure using Chinese workers based on off-shore boats (and therefore employed under Chinese labour rules) could be acceptable.
• Imports of wrongly labelled steel much of it manufactured and ‘tested’ in China now litters the Canterbury earthquake rebuild and some of the roads of national significance infrastructure where apparently no-one is yet facing legal consequences.
• The Dutch disease in the NZ economy as profits from dairy intensification and log export crowd out the development of high value products. The corresponding impact on industries which had become indebted (Fonterra / most dairy farmers) and dangerous (forestry) to deliver the commodity products.
• The corresponding negative externalities of intensive dairying which include at least three newly compromised aquifers (in Canterbury, Hastings and Wellington/Hutt) as well as the Selwyn River no longer flowing along its course and the suspension of democracy in Canterbury in the rush for irrigation

No responses to well-founded criticisms about estimated benefits.

The Tufts University academic analysis that shows that the TPPA could kill 3/4M jobs worldwide.  Geoff Bertram and others have shown that  ¾ of the calculated benefits come from rules reduction rather than trade. Bertram’s research has also shown that the TPPA’s economic models only work in one direction.  In the view of the TPPA any reduction of rules in the model automatically confers an economic benefit even though it can be readily demonstrated that often the opposite is in fact true. Regulation can build markets by holding companies to higher standards which then confer a trade advantage. (New Zealand’s firm anti-GM stance to date has been a case in point).

Other criticisms

There has been no response to the commentary by Alfred de Zayas, UN special rapporteur on democracy who says that the TPPA puts company rights ahead of human rights and that over the years ISDS decisions have “led to inconsistent, unpredictable and arbitrary awards contrary to national and international public order”.  There is no explanation for the absence of climate change references from the agreement and about the very real concerns expressed by Naomi Klein and the Sustainability Council amongst others that the rights accorded to business trump the rights of the environment and the TPPA provisions will  therefore prevent effective action to combat climate change. In fact the only financial downsides identified by the NIA analysis are a few million dollars each related to foregone tariffs, the costs of copyright extension and the administrative costs.

Mitigations for forecast job losses and problems for small business

The NIA did not take an holistic view by analysing whether the forecast job losses or downsides for small businesses were more than positively accounted for by other benefits advocating only that small businesses would be trained to present tender proposals in TPPA countries.  There was nothing to address the concerns about the unequal tendering opportunities where large countries have a far greater number of large companies across many sectors capable of tendering for work in NZ whereas New Zealand’s large companies are small in number and highly specialised.

The structure and layout of the NIA

Aside from these concerns the document was a poor democratic tool. I used the TPP NIA to prepare a Select Committee submission and I found it to be very poorly drafted. Here are some of the issues I found.

1. The format – a 277 page pdf files makes it hard to read, reference and navigate.
2. There is no sign-posting section, as part of the executive summary, along the lines “how to use this document” which is often included in long technical documents to help orient the reader.
3. There is no summary of the impacts from the perspective of different groups in society (such as employees, importers, exporters, small businesses or local authorities, workers, or the environment to contrast with the beneficiaries) in contrast to the equivalent document for Australia where the benefits are outlined for each sector and for small businesses.
4. Important information was missing for example:
   • the specific information that while water retains a ‘policy space’ bottled water is excluded. The information was in the NZ Annex ii but not in the NIA.
   • The actual TPPA investment chapter defines that a “covered investment agreement” is any previously existing contract with government but this is not in the NIA. This was surely material to the understanding of the impact of the agreement but was not part of the NIA. It says:

with respect to a Party, an investment in Its territory of an investor of another Party in existence as of the date of entry into force of this Agreement for those Parties or established, acquired, or expanded thereafter;

It’s apparently not a commonly used term in international trade. Apart from the investment chapter the only other reference to the term that I could find was someone else asking in a blog about what it meant. This makes the lack of a defintion from the NIA all the more concerning.

5. More detailed material was not separated out into appendices, as the Australian NIA has done, with the result that we are waylaid with the situation for growers of so-called ‘ice wines’ produced using artificial technology and other specific instances in material that purported to be scene setting.
6. Information related to complex structures and processes could have been presented as diagrams, tables, charts or maps. There are few. In fact information that is related is found in multiple locations for reasons that are unclear but which make it impossible to for even a close reading to map the inter-relationships, structures and processes described.
7. There is a glossary with definitions but it mostly consists of acronyms for international bodies. This is hopeless. Many terms that have TPPA specific or technical trade meanings are not included in the glossary. Examples are: certification, certificate of origin, cumulation are significant and other words are introduced and subsequently used interchangeably eg. “mitigations, safeguards, reservations (non-conforming measures) and exceptions” In other cases precise meaning cannot be gleaned.
8. The lack of a proper glossary has another important impact. The document contains no cross referencing in the text e.g. from a word or phrase to its definition and the layout of the document means that these new terms are met before they are defined. The word impartial is used 9 times to describe government obligations to businesses before its specific meaning is outlined on page 221. Other technical terms like investment agreement and investment authorisation are each used multiple times before they are defined in the text – not in a definitions section but in a random paragraph again, after they have been used without a defintion.
9. Pieces of text which appear to say one thing are expressed quite differently elsewhere. For example in the glossary most-favoured-nation (MFN) status is described as
   • ”a requirement that preferential treatment extended to one country (the “most favoured”) be extended to others (e.g. to other TPP Parties)”

whereas elsewhere in the text it is defined as

• “requiring a TPP country to extend to TPP Parties the best level of access it might offer in the future to any non-TPP country.”

Neither definition includes the information that existing free trade partners like China and Korea are also most favoured nations.

10. The NIA is full of expressions which leave room for doubt. The words “such as” are used frequently conferring doubt about what is excluded from the list that follows.

In summary if the CPTPP/TPPA is good for us, and to be honest it seems pretty doubtful, there are some easy ways to make a more convincing case.