Address to NZHIT Networking Event, 21 April 2016
Stephen Jacobi, Executive Director, New Zealand International Business Forum
It’s good to be with you today and my thanks to Scott Arrol both for this invitation and for the way he engaged with us over the last few months as we have explored the sector’s increasing internationalisation.
I’m speaking to you on behalf of the NZ International Business Forum, which is a group of business leaders drawn from some of our largest companies and the peak business organisations.
I come before you tonight with a simple goal – to convince you – if any need convincing – that the Trans Pacific Partnership is not just about selling more butter, logs and kiwifruit (though it is about those things) but is also of key importance and relevance to the health IT sector.
At its simplest level, TPP is really a debate about how New Zealand connects with the rest of the world – how, and under what rules.
That has to be of importance to a sector that derives such a lot of income from international markets and that sees its future in a global context.
When it comes to economic integration between economies some larger countries have choices in this that smaller ones do not.
The United States, for example, with its huge domestic market can possibly – at least for a time, though not forever – ignore trading with the rest of the world.
That’s not the case for New Zealand.
Trade is our lifeblood, as the next Secretary General of the United Nations Helen Clark once reminded us.
All of us benefit from trade regardless of what sector we are employed in.
We depend on trade and investment for our economic security and social progress.
We can’t eat all we produce, we can’t make all we use in everyday life.
Trade brings you the car you drive, the medicines you take and the clothes you wear.
If we want to see more money spent on a world class health system such as the one described in the New Zealand Health Strategy, then trade is the way to pay for it.
TPP once implemented would link New Zealand to the eleven other member economies representing 36% of the world’s GDP, markets taking 40% of our exports of goods, 47% of our exports of services, 75% of foreign direct investment and 812 million consumers.
Some of these markets we already have good trade arrangements with; others like the United States and Japan, we do not.
To come into effect TPP requires members representing 85% of the area’s GDP to ratify – these means both Japan and the United States.
The key point is this: if New Zealand were to decide not to ratify, but TPP came into effect with the others, you can be sure of one thing – it would proceed without us and our competitors would for a moment pause to wonder and then carry on to occupy the place we ceded to them.
Of course we would not be excluded immediately from trading with those markets, but over time the combination of a tilted playing field and changes to rules which are made without us at the table would leave us increasingly on the outside.
That’s why a lot of business interests in New Zealand support TPP.
Because, like the world as a whole, business is also becoming increasingly inter-dependent and integrated.
Your sector more than most knows how business is changing.
The weightless economy is a fact of life.
A new world of e-commerce and digital technology is upon us.
In past years the scope of the term “free trade” has gradually been extended – from the free flow of goods, to the free flow of services to capital and investment, even to labour: now we have to get used to a new idea – the free flow of data.
It’s not just the technology sector that is caught up in this.
Manufacturers and agri-business are adjusting to this new paradigm of business – it’s the new world of global value chains and networks – it’s the environment of what we call “intermediate goods” trade, where services are increasingly embedded in goods trade and where investment and innovation power the development of new types of business.
Today more than ever before doing business needs to be faster, lower cost and seamless across multiple economies and jurisdictions.
That’s an interest your sector shares with the other more traditional industries.
That’s also the 21st century agenda that TPP tries to advance.
So how does this agreement stack up for your sector and for New Zealand as a whole?
I want to focus here on the big picture and am happy to discuss the detail in the Q&A to follow.
First, TPP advances New Zealand’s economic interests by opening up new markets for goods and services especially in the five economies with which we do not already have free trade arrangements – the United States, Japan, Canada, Mexico and Peru.
Some improvements are also made to existing FTAs with Brunei, Malaysia and Viet Nam – that includes in relation to medical devices which may open up new business in expanding markets.
Over time tariffs are reduced and eliminated on New Zealand’s key export products – dairy, meat, horticulture, wood, wine, seafood, manufactured products.
But TPP is not just about tariffs.
TPP also includes disciplines relating to non tariff barriers which today, as tariffs come down, are even more problematic.
Identifying and addressing NTBs is not easy, but TPP helps this process by improving the implementation of processes to address technical barriers to trade and promoting sound regulatory practices.
A particular win from TPP for New Zealand is an annex on medical devices which relates specifically to the medical technology industry.
The annex should assist in preventing non tariff barriers in the sector by aligning regulatory processes amongst the twelve parties.
Another annex deals with ICT products, committing the parties to accept a declaration by suppliers that goods meet an electro-magnetic compatibility standard.
All this is positive, but you’ll be pleased to hear TPP is not just about goods – a range of measures to open services markets and are designed to assist our services exporters in sectors like yours.
New Zealand sold $8.3 billion worth of services to TPP markets in 2014.
TPP provides for better conditions for services trade including the right to establish operations in other markets, to obtain visas to visit the market and to engage in cross border e-commerce.
So TPP above all is about market access – for services as well as goods.
A second advantage of TPP lies in the detail of those rules for trade and investment that TPP puts in place.
The rules cover all aspects of business including things like intellectual property, the role of state owned enterprises, customs co-operation, e-commerce and the digital economy and issues relevant to small and medium sized business.
Most of these rules codify existing WTO disciplines and provide for better implementation especially by TPP’s developing members.
A number of these rules are directly relevant to your sector.
I’ll talk more about investment and intellectual property and investment in a moment but TPP’s provisions on the digital economy are of particular interest.
TPP seeks to promote cross border data flows by providing for paperless trading, requiring non discrimination between local and offshore suppliers in tendering for government contracts, ensuring that duties (as opposed to GST/VAT) cannot be applied to the products of e-commerce and, most significantly, restricting the ability of governments to require data to be stored on local servers (except in one sector – the finance industry).
That last provision – restricting localisation – is a big one for cross border data suppliers.
A number of provisions also commit governments, including here in New Zealand, to work with the SME sector to increase the utilisation of e-commerce and digital technology and to address any barriers that apply.
These provisions will require sectors like yours to engage with government agencies to ensure maximum benefit is derived from these opportunities.
For the more progressively minded among you, I should also note that TPP, for the first time in a plurilateral agreement, contains enforceable disciplines on the environment and labour, which should improve sustainable development and good work-place practices again especially among TPP’s developing members.
The environmental disciplines contain a commitment to better conservation practices and to the elimination of fishing subsidies.
The labour disciplines uphold worker rights enshrined in a number of ILO conventions.
So, there is advantage for New Zealand and for your sector in the rules established by TPP particularly related to the digital economy.
The third big advantage of TPP is that it provides better protections for foreign investors while preserving governments’ ability to regulate in important public policy areas.
There has been extensive discussion about TPP’s provisions on investment.
But here’s the thing – New Zealand needs more, not less, foreign investment to expand the capacity of our domestic industries to develop world class enterprises of scale, to harness new technology and to move up the value chain.
And, consistent with the new business paradigm I mentioned earlier, those same New Zealand enterprises also to need to invest more overseas to get closer to their customers and to connect to global value chains and networks.
So much as in all the other FTAs New Zealand has signed in recent years including with China, ASEAN and Korea, TPP seeks to ensure a minimum standard of treatment to foreign investors and the right to seek compensation when investors’ property is expropriated.
The latter of course is the investor state dispute settlement or ISDS that often figures prominently in criticisms of TPP.
ISDS is not about suing the government for loss of profits.
ISDS is not about overturning regulations or usurping the role of governments or legislatures.
ISDS cannot force a government to change a regulation or a law.
ISDS is about arbitration and compensation.
In fact New Zealand- with a history of fair dealing with investors – has little to fear, but everything to gain, from these provisions.
Investor state dispute settlement has been seriously miscast by those opposed to TPP, but the agreement significantly improves on past practice by raising the threshold for taking cases, creating a clear set of exemptions for public policy and increasing the transparency of the process.
Actions to protect public health, the environment, the Treaty of Waitangi and a range of other public policy measures are all clearly safeguarded.
Tobacco control measures such as plain paper packaging are also excluded.
ISDS will not apply between New Zealand and Australia, excluding from coverage the largest part of foreign investment to this country which will continue to be governed by the CER Investment Protocol but without a means to resolve disputes.
The important thing is that TPP will not undermine our sovereignty but will make it make it safer and more predictable for New Zealand companies to invest overseas.
The fourth and final advantage from TPP I want to highlight is that very little policy change will be required in New Zealand to implement this agreement and this includes intellectual property.
Most of TPP’s disciplines already form part of the policy approach in New Zealand.
There is no requirement to introduce patents for software “as such” – I’m sure this audience understands the nuance of this language.
There is no change to parallel importing or use of the Internet.
There is minor change required to patents for medicines where in some specific cases, where approval processes have been slow, patent term extensions will be required.
The Government has been quite clear that there is no change required to the current data protection term of 5 years for biologic medicines, but, as there is a requirement to provide further market protection through “other measures”.
The implications of these other measures continue to be disputed by some medical professionals but the Government is clearly on record as saying this can be accommodated under existing policy settings and practice.
There is minor change to Pharmac’s operations, but not to the model of public purchasing as we know it currently and it is not subject to dispute settlement.
The disciplines do not apply to the medical devices industry and I note that MTANZ made strong representations on this to the Select Committee.
Since there is no major change to Pharmac or to patent or data protection terms, it is really difficult for a lay person like me to understand why the cost of medicine should increase under TPP, although this too is contested.
In one area – copyright – major change is required: the copyright term will be extended from 50 to 70 years after the death of the author or first release of a movie or song.
There are also new rules about the circumvention of technological protection measures.
This brings New Zealand practice into line with most other economies and there are potentially advantages for you in a more seamless application of copyright amongst the twelve economies.
To recap then, the benefits of TPP are four-fold:
- TPP conveys measurable trade advantages for services as well as goods for New Zealand
- TPP puts in place an updated and extensive set of rules which will enhance the digital economy
- TPP improves the climate for inward and outward investment
- TPP requires little change to the intellectual property regime in New Zealand, with the major change being an extension to copyright term.
And what is all this worth?
Quantifying the expected benefits is notoriously difficult and there are a range of figures being quoted.
The Government puts the figure at an additional $2.7 billion being added to the economy by 2030.
Some say this figure is too high; others say it is too low.
Some argue that the risks of TPP outweigh the benefits.
We believe that the benefits are substantial and that any risks have been well and truly mitigated by the safeguards built into the agreement.
And we need to remember the counterfactual: can New Zealand seriously afford to stand aside from an agreement with eleven partners representing 36% of the world’s GDP, 47% of our services exports and 812 million consumers?
As I said earlier our competitors would only be too delighted if New Zealand were to decide not to ratify TPP.
TPP is about how New Zealand connects with the rest of the world – how and under what rules.
We benefit when we connect and when we have clear rules for that engagement.
That’s not just of interest to the “hewers of wood and drawers of water”.
It should be of direct interest to the technology sector and all of you here today.