Evidence should drive TPP not free market ideology

Gareth MorganEconomicsLeave a Comment

It’s exciting waiting to see what the plusses for New Zealand will be from the TPP plan that the negotiators will reveal in time. There’s been a lot of discussion and speculation on what the downsides might be, particularly from the ISDS aspects of the agreement. And on that we need to be clear as to what really is not acceptable.

The way I look at it is that trade is good – great really – and the more the better. But we know most of the tariff barriers have already been dismantled over the last 30 years, what really remains are the hidden non-tariff type barriers that often travel under the guise of something else. Think Australia and its attempts to prohibit imports from New Zealand of our apples on the grounds they pose a biosecurity risk. As we all know that went on for years until the WTO called Australia to account for disguising a trade barrier as something else.

Or think Japan and Korea who would never allow us to export process timber to their shores but have always been keen on our logs. And so it goes on.

So if the TPP can tear down more of these disguised trade barriers we face then all well and good. Indeed access of our agricultural produce to the US and Japan – the biggest markets in the TPP – are pretty well prohibited without the need for any disguise.

So we should all be happy with the potential for upside – presuming John Key’s government have managed to negotiate some.

But it’s the downside that we need to really think about. Will we be able to identify clearly what it is? Will it be a moving feast that might appear innocuous now but a few court cases on, turns out to really stack the deck in favour of the big global companies and their lobby groups who can afford protracted court cases and arbitration hearings? My suspicion is we won’t be able to tell until we’ve sucked the lemon and by then it might be too hard to pull back.

So a couple of bright line tests might serve to inform us properly as to whether TPP’s downsides are in fact likely to see us skinned. My concern with the way the negotiations have been conducted (and we outlined the necessity for secrecy in this blog here) is that we won’t be able – in the time available for our government to have a parliamentary yes or no vote – to actually tell. So if we have ready a series of questions that need to be answered clearly, with answers that have no ambiguity, then that at least should provide a level of comfort on which to endorse a yes vote.

In essence the overriding question has to be – does the TPP compromise the ability of a New Zealand government to legislate in the public interest? It’s a simple question but getting a clear feel for this will be anything but. So maybe a couple of illustrations might help draw out the issues.

Scenario 1: The government decides that our health policy needs to move to a more preventative footing and as part of that decides it will introduce corrective taxes to raise the price of energy-dense, nutrient-light manufactured foods. I know, I know, there’s not a chance in hell of this happening with Coca-Cola Coleman as Minister but bear with me – let’s assume he’s shed his inertia or climbed some learning curve for a minute. So the Ministry of Health makes the healthy star rating label system compulsory and introduces corrective taxes that align with those ratings (e.g. 20% or more for fewer than two stars). In addition it introduces a public education campaign and whatever other supportive policy it needs. The funds raised are used to fund the public health system and /or reduce the burden of that vote on the taxpayer. Think of it as a user pays scheme.

Now this is a policy clearly designed to address the diseases that arise from obesity and is in the public interest. The question insofar as TPP is concerned is whether Big Food (Kelloggs, Coca Cola etc…) can hold the government to account on the grounds of blocking market access? If they can then we cannot sign up to TPP as it is a breach of our sovereign right to implement policy in the public interest.

Scenario 2: Same gig really but this time to do with the government’s existing policies around smoking – corrective taxes, packet labelling, restrictions on advertising and selling locations. If Big Tobacco can, under the TPP hold government to account on those health policies because they restrict the sale of these products in New Zealand – then again we should have a problem, a major problem with that and reject a TPP that allows such influence.

Scenario 3: Pharmac. This organisation prioritises availability of drugs and the extent of the drug bills for the New Zealand public health system. Our governments have rejected the US insurance-led health model and instead had the taxpayer fund a public health system. Pharmac controls the national budget for drugs as part of that system. Without doubt as a result of that policy Big Pharma does not have the same access and pricing power in our market that it otherwise would. The question is whether that is a breach of the terms of TPP. If it is why would we want TPP – what upside outweighs this?

So for me these types of bright line tests need to be passed by the proposed TPP for us to consider it. To sacrifice your public policy at the altar of trade gains then you need to prove that the public benefit from that trade-off is net sum positive. I’m sure the private benefit will be – there’ll be greater returns for farmers say, a higher tax flow from them to government. But can the proponents prove that this greater tax flow can and will more than compensate for the reduced public good that has been sacrificed? We could be extreme and show that so many millions will flow into New Zealand that there is more than enough to cover the public benefit lost from the reduced services. But this proves nothing, you would have to prove that the distributional benefits from the status quo are at least replicated. I would really worry about that – it’s a long bow to suggest trickle down will work.

Finally a word to the opponents of trade agreements. I hear people saying we shouldn’t be concerned about being in the TPP because we can always find markets. That is an extremely naïve view of business and I defy you to find anyone actually running a significant business who would agree. If your competitors can get better terms of exchange they will be more profitable and in time you will be marginalised and an easy takeover target.

So that’s not an option. But still the government has a lot to prove in convincing the New Zealand public that it will be better off with this TPP. It’s an easy ideological leap for us market champions to favour TPP in principle, but when the sovereignty of your government’s public policy is at stake, suddenly that ideological faith is vulnerable – and the onus of proof required by the proponents far greater.

Or it should be. The public’s complacency will decide that.

Evidence should drive TPP not free market ideology was last modified: December 15th, 2015 by Gareth Morgan
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Gareth Morgan

Gareth Morgan

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Gareth Morgan is a New Zealand economist and commentator on public policy who in previous lives has been in business as an economic consultant, funds manager, and professional company director. He is also a motorcycle adventurer and philanthropist. Gareth and his wife Joanne have a charitable foundation, the Morgan Foundation, which has three main stands of philanthropic endeavour – public interest research, conservation and social investment.