Top 5 questions over TPPA

Geoff SimmonsEconomics

The Trans Pacific deal is done and the negotiators are heading home. The Government is now beginning a charm offensive to convince us that it is a good deal, but a lot of uncertainties remain until we see the full text. Here’s the top 5 questions the government needs to answer.

1. Will Pharmac be compensated? 

The Government claims that Kiwis won’t have to pay more for their medicines, but this is just sophistry. In the next breath, they admit that the costs to Pharmac will rise by $4.5m initially and $2.5m per year thereafter. So Kiwis will be paying more, through our drug buying agent Pharmac. If we don’t pay more at the counter then Pharmac will have less money to spend, which means fewer lifesaving drugs.

The question here is will the Pharmac budget be shored up to compensate for this? If the deal is as good as the Government suggests, there should be extra tax revenue floating around to cover the cost.

2. Big Tobacco are out of the dispute settlement, but what about Big Food and Alcohol?

Apparently tobacco companies will not be able to benefit from the Investor State Dispute Settlement – the dreaded provision that allows businesses to sue governments for loss of profits.

That begs the question – what about other businesses? If a government chose to increase taxes on alcohol, soft drinks and junk food for example in order to protect our health would those industries be able to sue New Zealand? This is a crucial impact on our sovereignty which needs to be clarified. It may not be important to the current government, but it why tie our hands in the future?

3. Why didn’t we hold out over dairy? 

Fonterra are apparently very disappointed with the deal on dairy. Dairy was one of the key exceptions to the deal, so given it is our largest industry it seems strange we signed up. The Government is arguing that once we have signed the deal, we might be able to progress dairy negotiations over time. This doesn’t seem realistic as we won’t have a lot of bargaining power once we have signed. The answer might be that it was now or never for the TPP, with elections looming in Canada, and next year in the United States.

4. Can we regulate land sales to foreigners? 

Labour’s big concern was the ability to regulate future land sales. It seems that the TPPA is headed in the other direction, pushing up the threshold for the Overseas Investment Office to review property sales to $200m. Labour may well balk at this, although it is unclear whether the deal would prevent them putting a levy on foreign buyers.

Regardless, this sort of regulation is a second best answer to simply sorting out the tax loopholes on property and housing – we are only worried about foreigners buying our property because they will beat us to those loopholes.

5. Is the deal really worth it? 

Apparently tariffs will be removed for 93% of our exports, although it isn’t clear how that figure is measured – industries, value, weight, or units? Most crucially our largest export dairy will not see the full removal of protection, thanks to farmers in the US and Canada digging their heels in. Instead, industries like beef, fruit and wine will be the big winners.

The other major downside touted by opponents were changes to copyright, but that doesn’t seem to have eventuated. The length of copyright has been pushed out from 50 years to 70, but unless you were hanging out for the Sound of Music or Doctor Zhivago to come off copyright, it is unlikely that you will care.

So, overall is the deal worth it? Freer trade will certainly bring economic benefits, but are they as large as the $2.7b that Key is suggesting? We’ll have to wait to see the modelling to know for sure, and lets hope it is more robust than the data released for the climate change target. Regardless, we have to ask ourselves what bribe we are prepared to take for any reductions in sovereignty created by the Investor State Dispute process.

Top 5 questions over TPPA was last modified: December 15th, 2015 by Geoff Simmons
About the Author

Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.