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Thursday, June 30, 2016
Jomo Kwame Sundaram was an Assistant Secretary-General responsible for analysis of economic development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.
- A new paper* on the implications of the Trans-Pacific Partnership (TPP) Agreement for New Zealand examines key economic issues likely to be impacted by this trade agreement. It is remarkable how little TPP brings to the table. NZ’s gross domestic product will grow by 47 per cent by 2030 without the TPP, or by 47.9 per cent with the TPP. Even that small benefit is an exaggeration, as the modelling makes dubious assumptions, and the real benefits will be even smaller. If the full costs are included, net economic benefits to the NZ economy are doubtful. The gains from tariff reductions are less than a quarter of the projected benefits according to official NZ government modelling. Although most of the projected benefits result from reducing non-tariff barriers (NTBs), the projections rely on inadequate and dubious information that does not even identify the NTBs that would be reduced by the TPP!
The main beneficiaries in NZ will be agricultural exporters, but modest tariff reductions of 1.3 per cent on average by 2030 are small compared to ongoing commodity price and exchange rate volatility. Extensive trade barriers to agricultural exports in the Japanese, Canadian and US food markets remain, and will be locked in under TPP. TPP has also failed to tackle agricultural subsidies that are a major trade distortion. Significant tariff barriers remain in some sectors in Japan, Canada and the US likely to be ‘locked in’ under the TPP that are almost impossible to remove in the future. TPP’s Sanitary and Phytosanitary Measures limits on labelling may also restrict opportunities for food exporters to build high quality, differentiated niche market positions.TPP has also been used to undermine negotiations in the World Trade Organization, the only forum for removing such trade distorting subsidies.
TPP’s investor-state dispute settlement (ISDS) provisions and restrictions on state-owned enterprises will deter future NZ governments from regulations and policies in the public interest, for fear of litigation by corporate interests. The threat, if not actual repercussions, are good enough to ‘discipline’ governments by causing ‘regulatory chill’. TPP is very much a charter for incumbent businesses, especially US transnational corporations. Thus, it inadvertently holds back the economic transformation the world needs. The agreement’s TPP’s benefits are likely to be asymmetric as it is more favourable to big US business practices and will deepen the disadvantages of small size and remoteness. Potential ISDS compensation payments or settlements could far outweigh the limited economic benefits of TPP. Even when cases are successfully defended, the legal costs will be very high.
TPP can both help and hinder ambitions to add value to raw materials and commodities, and to progress up value chains. However, it is likely to reinforce NZ’s position as a commodity producer and thus hinder progress up the value chain where greater economic prosperity lies. More analysis based on the actual agreement is required to ascertain the conditions for and likelihood of such progress. TPP will limit government’s ability to innovate and address national challenges and is likely to worsen rapidly escalating problems such as environmental degradation and climate change.
Furthermore, TPP is projected to reduce employment and increase income inequality in NZ. In its analysis, the government has not considered the likely costs, which are probably going to be very significant, and may well outweigh economic benefits.
TPP thus falls well short of being “a trade agreement for the 21st century”, as its cheerleaders claim. A more comprehensive, balanced and objective cost-benefit analysis on the basis of the October 2015 deal should be completed before ratifying the TPP.
*The report is available at: https://tpplegal.files.wordpress.com/2015/12/ep5-economics.pdf