Ryan Greenaway-McGrevy says the economic reforms of the 1980s have NZ well placed for the freer trade of the TPPA

This is the ninth in a series of articles Interest.co.nz has commissioned reviewing the key chapters and issues for New Zealand in the Trans-Pacific Partnership Agreement (TPPA). Links to all the analysis in this series are below.

By Ryan Greenaway-McGrevy*

With provisions spanning everything from labour and environmental standards to government procurement, it is easy to forget that the TPPA is primarily a trade agreement. And like all trade agreements, it requires signatories to lower barriers to trade.

The second chapter of the TPPA (National Treatment and Market Access for Goods) addresses how many of the conventional restrictions on trade will be removed once the agreement comes into force. 

The core of the chapter is the elimination or reduction on tariffs and import quotas within the TPP. Ninety-five percent of our exports to TPPA countries will eventually be duty free, and MFAT reckons that exporters will save $274 million per year on tariffs. And that is based on the assumption that current trade volumes will remain unaffected. Tariff reductions can pass through to lower prices for consumers, meaning that export volumes are likely to increase. Meanwhile, eliminating our import tariffs will only cost the government $20 million in revenues

The chapter contains various other protocols and regulations that are designed to facilitate trade, such as prohibiting agricultural export subsidies (Article 21.2.2), requiring transparency in import licensing (Article 2.12), and prohibiting so-called performance requirements (Article 2.5), which impose prerequisites on exporters for market access (such as the use of domestic goods and services). 

Food security safeguards also feature in the chapter, with parties permitted to restrict exports to “prevent a critical shortage of foodstuffs” (Article 2.24). And the contentious issue of GMOs is touched on with a commitment to transparency in biotechnology trade measures (Article 2.27). It also states that “Nothing in this Article shall require a Party to adopt or modify its laws, regulations and policies for the control of products of modern biotechnology within its territory”, ostensibly suggesting that the chapter will not interfere with domestic legislation relating to GMOs.

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Not quite free trade

While the main text of the chapter is only sixty-six pages, it is accompanied by forty-one country specific annexes containing the lengthy nitty-gritty of tariff and quota reduction schedules and special agreements. This minutia reflects the fact that, despite all the grand oratory from politicians regarding the benefits of free trade, it is damn hard to get them to actually agree to it. During the negotiations many countries fought hard to protect certain sectors and special interest groups. And many prevailed. 

The industrialised nations of the TPPA are quite intent on protecting pockets of their agricultural and manufacturing sectors. The end result is a complex arrangement of tariff and quota reductions, often phased out over periods spanning up to thirty-five years. And some countries sought and attained caveats to ensure that the protections can be re-established should the domestic producers be subjected to too much competition too early. 

For some countries and products these arrangements are bilateral. For example, the US and Canada both have separate tariff agreements with Japan on motor vehicle trade, while the US also has a separate earned import allowance program with Viet Nam. New Zealand, on the other hand, is taking a multilateral approach, and eliminating what remains of our import tariffs for all TPPA countries. 

The upshot is that this was not a complete win for our exporters. Japan has remained fervently protective of its farmers, while Canada fought hard to protect its dairy industry. But our other exporters will enjoy unhampered access to markets in eleven other countries once the tariff and quota eliminations are fully phased in. 

Based on current trade volumes, MFAT estimates that meat exporters will enjoy $84 million in savings annually once the TPPA is fully implemented. Most of these benefits – $72 million – will go to our beef exporters. Tariffs on beef exports to the US will be eliminated within five years. And although our beef exports will attract substantially lower tariffs in Japan, other protections will prevent export volumes from increasing all that much in that market.

Tariffs on our Japanese beef exports will be reduced from 38.5% to 9% over sixteen years. But Japan also retains a so-called “snapback”, so that if beef imports exceed a certain level, they have the right to impose prohibitively high tariffs on the excess. The snapback is initially set at 590,000 metric tonnes (MT), and it is permitted to grow at 1 to 2% a year. To put that figure in perspective, Japan's total imports from TPP Parties were 518,871 MT in 2014, of which we supplied 29,433 MT. 

Dairy also missed out on a clean sweep. This is a bit of a deflating outcome, given that dairy directly accounts for about 3% of our GDP and a significant chunk of our exports (estimated to be about 30% by those in the sector). But our dairy exporters will still have significantly better access to some of the biggest consumer markets in the world, and the sector still stands to gain substantially from the relaxed restrictions over the long run. 

The US will remove tariffs and import quotas on many of our bulk dairy commodities, such as whole and skim milk powder, as well as some retail products, like infant formula and some cheeses. The catch is that many of these reductions will be phased in over a long time period, ranging from ten to thirty years. Japan is removing tariffs on cheese over the next sixteen years and will relax quotas on milk powders.

Meanwhile the fortress around Canadian dairy will remain largely intact. Canada is eliminating some tariffs on products like infant formula and relaxing import quotas, but it will reserve the right to auction off the quotas for the first seven years. Na Zdorovie, Canada. Nonetheless, these complicated arrangements will eventually add up to significant savings for the dairy sector. Based on current trade volumes, MFAT estimates the initial tariff savings to be NZ$28 million per year, growing to NZ$50 million after five years. After thirty years those savings will reach NZ$96 million. That’s more than a third of the country’s total tariff savings of $274 million. 

The benefits to our fruit and vegetables exporters have largely flown under the radar. As it turns out, this sector will be one of the biggest beneficiaries of the agreement. All tariffs with our trading partners will be eliminated, resulting in an immediate savings of $27 million per year for the sector, which grows to $34 million once the agreement is fully implemented. More than half of these benefits will accrue to kiwifruit exporters alone. 

Forestry will also have all tariffs eliminated, resulting in $11 million in tariff savings per year. Wine exporters should also see some big gains. Tariffs on wine exported to the US, Japan, Canada, Mexico, Peru, Malaysia and Viet Nam will be completely eliminated. This will allow wine exporters to seek out new markets, such as Mexico and Viet Nam, which currently impose prohibitively high tariffs on our wine. Our wine exporters should also be able to increase their market share in their traditional export markets. The US is already our largest destination for wine exports, despite the fact that our wine is taxed on the way through customs. All things considered, MFAT estimates these will add up to annual savings of $16 million once the TPPA is fully implemented. 

Although our seafood exports already enjoy duty-free access to the US and Canada, the TPPA will see all remaining tariffs eliminated, with the majority of these eliminated upon ratification. MFAT estimates $9 million of annual savings for the sector. 

Our comparatively small manufacturing sector also stands to benefit. Ninety percent of tariffs will be eliminated once the agreement comes into force, including the tariffs on motorboats exported to the US and Canada. All remaining tariffs will be phased out over a period of eleven years, ultimately resulting in $9.6 million in savings per year. 

There are also less tangible benefits beyond these simple savings on import duties. That the agreement grants our exports access to new markets allows us to further diversify our export base. Diversification is a valuable form of insurance should some of our trading partners face a severe recession or cut economic ties with us. We learned that lesson the hard way when Britain decided to join the European Economic Community in 1973. 

Quid pro quo 

The flipside of these benefits is that we will have to offer our trading partners enhanced access to our domestic market. 

But we did that already. New Zealand abolished import controls and substantially reduced many of our import tariffs as part of the economic reforms of the 1980s. Since then many tariffs have been altogether eliminated, and the tariffs that do remain on the books are quite low (less than 10%). If the agreement is ratified, we will be eliminating these remaining tariffs for our TPPA trading partners. 

Annex 2-D outlines New Zealand’s Tariff Elimination Schedule. Motorboat imports currently attract a 5% tariff, but this will be phase out over two years. Amongst other products, ground nutmeg, coconut and palm kernel oil, margarine, chewing gum, soya sauce, gloves and mittens, coats and jackets, some yarns and fabrics, and wool carpets will have import tariffs phased out over five years. Meanwhile, the current 5% tariff on toilet seats will be slowly phased out over seven years. Yes, you read that right. The government has been cosying up to our loo seat manufacturers. A writer wittier than myself would insert a colourful observation right about here. 

Removing these remaining tariffs for our TPPA partners will not put much of a dent in the government’s coffers. This is why the direct benefits of the chapter to exporters (estimated to be $274 million) far outweigh the direct loss of revenue for the government ($20 million). But the fact that we opened up to trade decades ago entails even greater benefits.  

The future we have been preparing for 

Opening up to trade is painful. Less efficient firms and industries face increased competition, and must either shape up or go under – both of which result in job losses. Those people who lose employment must be retrained in order to win decent jobs in other sectors of the economy. That takes time and money – if it happens at all. 

Trade agreements like the TPPA will force many countries to embark on this kind of structural transition. But New Zealand will not be one of them. 

We started making these changes a long time ago under the economic reforms of the 1980s. Those reforms made sweeping changes to almost all aspects of our economy and society. For many families and communities these changes were painful and protracted. A lot of jobs were destroyed, whole towns were shut down, and many people left the labour force, never to return. 

We are still arguing over the merits of that transition. And we can argue over whether the transition could have been implemented in a better way. But those changes did happen, and ultimately prepared the country to compete in the global market place. 

Unlike many other developed nations, what remains of our manufacturing sector does not face the threat of cheap imports from emerging economies. The manufacturing firms that survived the 1980s and 1990s did so by learning to compete. And of course, the great success story of those reforms is the fact that our agricultural sector learned to stand on its own two feet after the abolishment of generous subsidies. We now have a dairy sector that is the envy of the world

We have been preparing to compete in the global market place for a long time now. That our TPPA partners remain so defensive ultimately reveals that they are not as ready as we are.

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*Ryan Greenaway-McGrevy is a senior lecturer at the University of Auckland in economics. Prior to that he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.

Amber Carran-Fletcher contributed to this article.

The series so far:

Investor-state dispute settlement

Labour standards

Settling disputes

Intellectual property

SOEs and designated monopolies

Environment

Government Procurement

Sanitary and phytosanitary measures

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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24 Comments

As many suspected, while our Government falls over itself opening doors to foreign companies, their countries are hardly reciprocating. this is where my primary concern lies. What is our Government doing to protect our businesses in international business, and encouraging new ones?

Seems an odd conclusion to draw. Annual merchandise exports are at an all-time record. Annual service exports are at an all-time record too. And we now have the most companies incorporated ever. Where is the evidence NZ companies are failing in their (majority) share of this trade?

Try this "The industrialised nations of the TPPA are quite intent on protecting pockets of their agricultural and manufacturing sectors. The end result is a complex arrangement of tariff and quota reductions, often phased out over periods spanning up to thirty-five years.And some countries sought and attained caveats to ensure that the protections can be re-established should the domestic producers be subjected to too much competition too early." and this The upshot is that this was not a complete win for our exporters. Japan has remained fervently protective of its farmers, while Canada fought hard to protect its dairy industry. and this"The catch is that many of these reductions will be phased in over a long time period, ranging from ten to thirty years. Japan is removing tariffs on cheese over the next sixteen years and will relax quotas on milk powders" While we are just opening the door. the rest is just positive spin - all sunshine and roses, will smoke gets blown up our ass. Being "positioned to take advantage" is vastly different to "having access" to those markets NOW. This is mostly just spin IMHO.

But they are not "opening the door" as you say. The Lange govt opened the door a long time ago. Did you read that part?

The article is basically saying this is a 274 million give away to our exporters. If you think that deserves a negative spin, please have a crack at it.

'The end result is a complex arrangement of tariff and quota reductions, often phased out over periods spanning up to thirty-five years.'

All one need do is be aware of the local and global trends to realise it is perfectly obvious there in no 'thirty-five years'. The entire US-dollar-based globalisation project, held in place by military domination, is falling apart right now, and the global environment that made civilisation possible is collapsing at an ever faster rate.

Some scientists are talking about extinction of the human species within 35 years, and it is perfectly evident that even if extinction is avoided in that time frame, the world of 2050 will be drastically different from that of today.

That bureaucrats and politicians can still indulge in off-the-planet fantasies which are entirely disconnected from reality is a sad indictment of our political system.

Let's face it, we cannot even sure the Northern Hemisphere will survive the summer of 2016 intact. In fact we can be sure a lot of it will go up in flames.

Fantasies of increased trade and increased prosperity at a time when energy supplies are constrained and planetary meltdown is underway takes the expression 'tell the orchestra to keep playing' [on the Titanic] to a new level.

"Some scientists are talking about extinction of the human species within 35 years"

Please name three of them.

How about ten that quickly come to mind.

Probably most notable at this point is Guy McPherson, emeritus professor of natural resources and conservation biology, Arizona State University, who is adamant that we won't survive beyond 2030 because of positive climate feedbacks and loss of habitat.

http://guymcpherson.com/

Paul Beckwith (climate researcher at the University of Ottawa).

Kevin Andersen of the Tyndall Centre

http://www.tyndall.ac.uk/users/kevin-anderson

John Nissen

http://ameg.me/

Malcom Light

David Wasdell

http://ameg.me/

James Hansen.

Natalia Shakova

Jeremy Jackson

Charles Moore

And, of course James Lovelock pointed out decades ago that if humanity did not change course we would be in a terminal predicament, which we are.

I'm not sure that you would classify Robert Scribbler as a scientist but he is well know for his climate research and has become increasingly vocal about planetary meltdown and the prospect of extinction over the past year:

'We should be very clear. There is no way to save the beautiful and majestic coral reefs of our world without a rapid cessation of fossil fuel burning. And, if we continue burning fossil fuels, we will not only lose the reefs and corals — we will also turn the world’s oceans into a mass extinction engine.'

https://robertscribbler.com/2016/05/12/the-killer-seas-begin-mass-marine...

A few problems there bro.

1. A word search on that link reveals the phrase "35 years" is no where included.

2. The second link is a BIO and does not include any such claims (extinction event within 35 yrs).

3. The third link is a joke, these people are obviously not serious, did you read their conclusion?
".. therefore calls for the immediate setting up of a task force, specifically mandated to ensure that the Arctic is cooled as quickly and safely as possible." Task force is modern code of committee. Sir Humphrey would be proud.

4. The fourth link goes way off tangent claiming he knows for certain what caused an extinction event 250 million years ago. Something other scientist say is not as clear cut and simple as he suggests:
"Pinpointing the exact cause or causes of the Permian–Triassic extinction event is difficult, mostly because the catastrophe occurred over 250 million years ago, and much of the evidence that would have pointed to the cause has been destroyed by now or is concealed deep within the Earth under many layers of rock."
https://en.wikipedia.org/wiki/Permian–Triassic_extinction_event

Odd that truthie included Lovelock on that tedious list of gravy train activists.
"Is climate change going to be less extreme than you previously thought?

The Revenge of Gaia was over the top, but we were all so taken in by the perfect correlation between temperature and CO2 in the ice-core analyses [from the ice-sheets of Greenland and Antarctica, studied since the 1980s]. You could draw a straight line relating temperature and CO2, and it was such a temptation for everyone to say, “Well, with CO2 rising we can say in such and such a year it will be this hot.” It was a mistake we all made.

But being an independent scientist, it is much easier to say you made a mistake than if you are a government department or an employee or anything like that."

http://www.nature.com/news/james-lovelock-reflects-on-gaia-s-legacy-1.15...

I have no doubt about the reality of human related climate change, but your apocalyptic ravings are not helpful. For starters, James Hansen makes no such predictions and I read his material.
I suggest that you lie down in a dark room till you recover some sanity.

It's really in the numbers of what is to allegedly be gained for NZ. Over 30 years it's equivalent to chump change! Luckily the whole thing is not happening, and that is a big thanks to the U.S. Taxpayers who also realize the deal is nothing more than a corporate reenforcement of monopolies and their IP protectionism. Trump won't sign it, Bernie won't sign it, and Hitlery is never going to win over anyone being the establishment lacky that she is. The deal is a dead duck thank goodness. "Swallowing dead rats" doesn't sound like a winner for NZ.

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TPPA looks bugged mate. Just look at the circus in the States, the required votes are simply not there.
High marks for trying to screw the average Joe and nearly making it, better luck next time but the rest of us could/should be more organised and awake to the thread from big business..

I don't know how much more organised you could be. The itsourfuture.org.nz website is pretty amazing in that regard. We had multiple nationwide protests with academics like Jane Kelsey putting in a huge effort. Here's Noam Chomsky talking about the TTIP and TPPA 12min30Sec. I guess no amount of public sentiment will sway a sufficiently determined politician.

Twist, Lick, Dunk a worked example from the Fortune 500 play book

Even Kraft set aside its initiative to fight obesity and got caught up in this fervor in 2003 when Hershey began cutting into its share of the cookie aisle. Hershey was famous for its chocolates, but to expand its sales it introduced a new line of products that combined its chocolate with wafers to create chocolate cookies like its S’more product. The company’s chocolate already had lots of fat, but the S’more took the allure to new heights by adding more sugar and salt to the mix. Each of these mega-rich cookies weighed less than two ounces and contained five teaspoons of sugar. Alarmed by this incursion, Kraft responded with force. Daryl Brewster, who ran the Nabisco division at the time, told me that Hershey’s move “put us in one of those interesting squeezes that big companies can find themselves in.
To be competitive, we’ve got to add fat.” Its biggest seller, the Oreo, got a slew of rich, fat-laden variations, from Banana Split Creme Oreo to Triple Double Oreo to Oreo Fudge Sundae Creme. Kraft then went out and acquired its very own chocolate maker, Cadbury, one of the world’s biggest confectionaries. It would use Cadbury’s marketing arm to spread this new lineup to places like India, where, starting in 2011, the country’s 1.2 billion people got hit by Oreo ads that caught them up on some of the American processed food industry’s most compelling eating instructions: “Twist, Lick, Dunk.”
As in slam dunk, for Kraft.

http://scalar.usc.edu/works/uiuc-food-networks/media/MichaelMoss_SaltSug...

now we understand the why and what of the Tim Tam
and the concept of Oreo flavour

In our day a Snax with a lick of butter and slice of cheese was the treat of choice.
https://www.youtube.com/watch?v=mdBQ7uuIQYA

Although the imagery from this one appears to becoming true. Just wonder what Hugos up to now.
https://www.youtube.com/watch?v=hdA2Z6xMres
so its not like they haven't tried.

If the president/presidentess of the USA says no deal do the other bits with the other countries still come into effect or is it collapse.
And does anyone care.

Congress has to vote on it. If they say no deal, then it will collapse.

Thank you, i guess that demonstrates that it is a US centric agreement.
Personally I think the GFC spelt the end of the globalisation dream.
We should stop trying to ram our produce down other peoples throats and just go where we are welcome.
Our veggies and fruit seem to be welcome most places....ummm...not apples

Envy of the world with a cost structure higher than market price :)

The future shouldn't be just exporting primary goods. The future NZ should be striving for technology based firms exporting over the Internet.

This would require significant startup and incubator funding and tax incentives. Also government policy is required to reduce the demand by investors on exiating housing stock to free up money for areas that can increase the gdp per capita of nz ($stamp duty $). Money thrown into pushing up existing housing stock and changing ownership type will never do that.

Try and make Auckland the San Fran or Austin of the South Pacific. A tough ask however that is the forward thinking we need. Think Big.

"Think Big". LOL. that's what got us into this neoliberal mess in the first place.

Who would you nominate to lead this forward thinking project? Winston peters? John key?

One thing the americans can do is sell a vision.
And I mean usefull visions like the moonshot and i think there is some like sunshot at present driving solar research. It focuses direction and justifies funding.
On those lines perhaps we could nationally fund a drive into organic farming or for the technologists materials technology.
But if we do nothing we will be fine and progress at the current rate, until the resources run out.

No profits for corporation in truly organic farming, so they will vigorously oppose it, as has been the case until now. Indeed, the strategy is to try to persuade consumers that naturally produced food is unsafe. It's all Orwellian now.

As for the Moonshot, I suggest you consider why the Russians, who were way ahead of the Americans in rocket technology (and still are), never attempted it:

It's all smoke and mirrors.

The russian rocket technology is good, stocks surplus engines were cheap, and behind that they managed to kidnap more german scientists after the war.
Non of which denies what you say.
Could we talk about the advances in solar technology?
On the organics front there are premiums that will offset the effort, not enough to save us in the end but we may learn some tricks along the way, like A2 milk.
Oh, I shouldnt have mentioned that...

If you REALLY want to know about solar technology I suggest you watch this:

https://www.youtube.com/watch?v=--OqCMP5nPI

The brief answer is that solar is a subset of the globalised fossil fuel economy and cannot function without it.

it support his view that the solution is to consume less and that is my strategy along with being self sufficient.
I see retirement as being crunch time and that will arrive before the apocolypse.