From Our Blog
Trade Promotion Authority - so far so good
After weeks of political and procedural wrangling the United States Senate has finally approved (22 May) a bipartisan bill authorising the President to conduct trade negotiations and complete the Trans Pacific Partnership (TPP) as well as the Trans Atlantic Trade and Investment Partnership (TTIP). This is welcome news as far as it goes. The bill now proceeds to the House of Representatives where the political debate mostly within the Democratic Party will continue. President Obama faces an uphill battle to convince his own party of the merit of these initiatives. He can count on the support of the larger part of the Republican Party but some protectionist-minded Republicans will also oppose the legislation. In the Senate the TPA largely survived the mark up process and most attempts to add extraneous provisions or “killer amendments” that would have ensured the bill would be dead on arrival either in the House or on the President’s desk. Some complicated provisions remain however – some language on currency manipulation and a potentially poisonous pill aimed at Malaysia’s human rights record. Both elements present challenges for TPP and can hopefully be worked out as the House considers the bill and any differences are ironed out.
TPA matters because it is an essential pre-requisite to completing TPP. The other twelve participants will not be prepared to make their final offers on market access (or in Canada’s case any offer at all on dairy products) without knowing whether the US can commit fully to the negotiation. Resolution of the market access issues is also necessary for the participants to show flexibility in the remaining trade rules issues including intellectual property and investment. However you look at it no TPA means no TPP, at least not for now. The Senate TPA vote probably comes too late for this week’s proposed TPP Ministerial in Guam. Even if Ministers decide to make the trip, there remains too much uncertainty to bring TPP to conclusion.
The clock is ticking on this complex and controversial process. The US risks ceding its traditional leadership on trade to others, especially as APEC meets this week in Boracay and considers next steps towards the Free Trade Area of the Asia Pacific (FTAAP).
This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum (www.nzibf.co.nz)
Trade debate takes off in US - and NZ!
On a rare day in Washington recently it looked as though the Congress and Administration could finally agree on something. Congressional leaders from both sides released for discussion a draft ‘fast track’ trade bill to authorise the President to conduct and complete trade negotiations including TPP. Subsequent wrangling revealed the limits of bipartisanship as the President fought hard to convince fellow Democrats and the Republican leadership sought to placate Tea Party protectionists. The debate was as much about the roles and responsibilities of legislative and executive branches as trade itself. It revealed however an extraordinary scepticism, if not downright hostility, about the effects of trade on the US economy. Offshoring and job losses are routinely raised while little attention is paid to increasing productivity at a time of economic downturn – this essentially means American workers are producing more with less but there is less demand. What to do if not trade more, ie grow demand for American goods worldwide by reducing costs and increasing efficiency in supply consumers’ needs. That debate continues as the renamed ‘Trade Promotion Accountability” bill makes its way through Congress as an essential pre-requisite for concluding TPP.
Trade is also increasingly under scrutiny in NZ as TPP gathers momentum and the NZ Korea FTA is debated by the Parliamentary Select Committee (so much for the accusation that these things are done in secret!). The Korea FTA is not a perfect agreement (some tariffs will remain even after a lengthy implementation period) but it was important to be concluded to ensure NZ was not discriminated against in the Korean market where a number of competitors already have FTAs. The public debate is more about the investment provisions of the FTA, which are seen as a stalking horse for TPP. In fact the Korea FTA goes further than previous FTAs in maintaining a balance between investor protection and the right to regulate. There is little risk to NZ from this agreement.
This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum www.nzibf.co.nz
TPP - Fact and Fiction
The wildest speculation and misinformation is being spread about by those opposed to the Trans Pacific Partnership (TPP).
It is claimed TPP is not a trade agreement. TPP is about trade - and investment and jobs and everything else that impacts on the way business is done. The final agreement will have a market access schedule setting out reductions in tariffs for all members and a set of negotiated rules to govern a range of other issues.
It is claimed TPP will allow multinational companies to sue governments for loss of profits. The recently leaked text includes a process for investor state dispute settlement but shows that governments will retain the right to regulate by placing their reservations in an annex to the investment chapter. Other exceptions in the final agreement may (or may not) apply to the investment chapter. The leaked text shows that compensation will be required not when profits are threatened but when property rights are confiscated. Proving the latter is a higher threshold than simple policy change. Such provisions already exist in New Zealand’s FTAs with China, ASEAN and Korea – and for good reason. They protect New Zealand investors abroad. Governments can act against investors as Portugal has done recently to the NZ Super Fund.
It is claimed TPP will prevent the Government from regulating in the national interest. The Government has already said there will be safeguards to enable it to promote public health, the environment and the Treaty of Waitangi. TPP seeks to promote best practice when it comes to setting regulations. New Zealand has a strong record in this regard.
It is claimed TPP will undermine environmental and labour standards. Unlike most FTAs TPP is likely to contain specific undertakings on these issues. The United States is pushing hard to make these binding and enforceable. WWF and Oceana have come out this week in support of TPP leading to new commitments to end fishing subsidies and to protect threatened wildlife and natural resources.
It is claimed TPP will result in higher prices for medicine. The Government is already on record as ruling out major changes to Pharmac. The Government has a strong fiscal incentive to be very wary about costs. In the United States there are some federal and state programmes (although not Medicare) that operate in similar ways to Pharmac.
It is claimed TPP will undermine New Zealand’s intellectual property legislation. There are some risks to New Zealand policy settings but earlier leaks of text show our negotiators are leading the charge against any massive increase in rights for IP holders. Any change to New Zealand’s legislation in respect of patents or internet file downloading has to be done by Act of Parliament.
It would be beneficial if there was more background information made available by the Government about TPP - if only to end this wild speculation.
This post has been prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum (www.nzibf.co.nz). It is based on an article published by NBR On Line.
Korea FTA done, now on to TPP
The signing of New Zealand’s FTA with Korea is another “brick in the wall” for New Zealand’s FTA coverage in Asia. Now only Japan and India are missing. But that analogy is not quite right – FTAs are meant to break down walls aren’t they? The agreement with Korea largely does this over time but the end result is not as ambitious as other FTAs we have signed. That’s because our Korean friends proved extremely reluctant to open their market completely. They accepted however that they needed to ensure that New Zealand was not disadvantaged in the Korean market compared to competitors like Australia and Chile who have already secured FTAs. That means that the deal gets a pass mark in terms of major exports beef and kiwifruit and dairy (including milk powder, where a small tariff rate quota was granted). Some useful new access was achieved in wine, mussels, salmon and squash. Even so the deal disappointed in a few areas (two lines of processed wood, frozen deer velvet, squid and some horticulture products). Hopefully we will have another crack at Korean protectionism when Korea seeks to join TPP – that’s if TPP can be concluded satisfactorily. From Washington this week Minister Groser was reported as warning that the stand-off in Congress over Trade Promotion Authority (TPA) risked turning TPP into another Doha. In an interview with Inside US Trade he said that the US, Japan and Canada had so far not made “serious offers” to New Zealand on dairy products and this also risked slowing down the process. TPP has been from the beginning promoted as an “ambitious, high quality and comprehensive” deal. It’s good to see the Minister calling others to account on this. The Korea FTA meets expectations in terms of leveling the playing field in Korea and not creating unhelpful precedents in advance of TPP. As such Minister Groser and his officials deserve congratulations for another step forward in creating a more favourable environment for business in the Asia Pacific region.
This post was written by Stephen Jacobi, Executive Director of the NZ International Business Forum www.nzibf.co.nz
TPP Investor state - keeping governments honest
Those concerned about investor rights in trade agreements might well reflect on the appropriateness of the New Zealand Super Fund seeking to sue the Government of Portugal about retrospective regulations it has made to protect the interests of a government-owned bank.
Of course this is not the same as investor-state dispute settlement (ISDS) through UN-mandated arbitration as is provided for already in New Zealand’s FTAs with China, ASEAN and Korea and is proposed in TPP. The Super Fund is seeking redress through domestic courts, as a major Japanese corporation did recently (unsuccessfully) in respect of New Zealand’s earthquake compensation legislation. In the case of Portugal and New Zealand it is to be hoped that the courts in question will decide impartially and without undue influence of governments. Such independence of the judiciary is not always the case especially in developing countries which are often out to attract foreign investors. That is why ISDS is important, particularly in an age where trade is giving way to investment – not unduly to restrict government actions but to ensure compensation to foreign companies is made available when governments expropriate property rights.
The question remains whether sovereign governments should be able to be sued at all? Surely the answer is yes. In fact principles of independent arbitration and compensation are not all that foreign to many jurisdictions, including here in New Zealand.
As it is, New Zealand’s existing FTAs and we expect TPP also have safeguards to lessen the risk of adventuresome litigation and to prevent the ‘freezing out’ of government action. No government should be prevented from taking action to protect public health, the environment or in New Zealand’s case, the Treaty of Waitangi. The grounds under which ISDS can be taken need to be carefully prescribed and negotiators need to be very aware of the risks to legitimate government policy making in this area.
Those opposed to TPP claim ISDS provides “for foreign investors to sue our government in overseas tribunals if their profits are cut by legitimate government actions”. No New Zealand Government would be foolish enough to sign up to something so ill-defined and open-ended, without necessary protections. Meantime go ask the Super Fund if the Government of Portugal can be trusted at all times to do the right thing by foreign investors.
This post has been written by Stephen Jacobi, Executive Director of the New Zealand International Business Forum (www.nzibf.co.nz)
Welcome to the TPP negotiators.
New Zealand has been a key player in the Trans Pacific Partnership agreement. Given the potential benefits of TPP for New Zealand in terms of economic growth and job creation, it is good to see that negotiations are being held in Auckland between 3 to 12 December. As such, the representatives of some major New Zealand businesses and business organisations have written to Government endorsing its current approach to TPP negotiations. They note that there are complicated public policy issues involved in negotiating such an agreement, and that solutions need to be sought that are in New Zealand's overall interests. They also welcome the hard working negotiators.