Jim Rose: Correct economic stance on TPP is lukewarm opposition

Protesters walk down Queen St, Auckland, over the government's TPPA trade deal. Photo / Dean Purcell
Protesters walk down Queen St, Auckland, over the government's TPPA trade deal. Photo / Dean Purcell

Despite all the passions about the TPP, the correct starting position for an economist on regional trade agreements is lukewarm opposition.

That is the view of Paul Krugman. He is lukewarmly opposed to such deals but open to persuasion that a particular agreement is worth signing.

The correct economic name for free trade agreements is preferential trading agreements. These agreements give tariff and other preferences to some countries over others.

Tariffs are lower for the members of the agreement, creating more trade, but there is also trade division.

CER, between New Zealand and Australia, offers a neat example of trade diversion. Instead of buying cars from the cheapest source and collecting tariff revenue, the hopelessly inefficient Australian car industry did not have to pay tariffs so it made New Zealand into a major export market until tariffs were abolished in 1998.

Less tariff revenue because of CER but we still paid way over the odds for Australian instead of Japanese cars. We were worse off. Less tariff revenue but car prices pretty much as high as before.

NZ tariffs are minimal these days. The TPP reduces the key tariffs on our exports at an excruciatingly slow pace.

Most of the TPP is not about tariffs. Many of these other chapters are suspicious add-ons to trade talks.

Developing countries rightly regard trade and environment clauses in any trade agreement as a new form of colonialism.

Unions, the Labour Party and Greens happily demand these intrusions into the regulatory sovereignty of developing countries to protect special interests against import competition.

The sovereignty objections to trade agreements are no different to those that can be made to climate change treaties and International Labour Organisation conventions. It is all in the details - what do we get in return?

Consistency would help too. Trade agreements should not include labour or / and environmental standards as they, for example, limit our right to deregulate our labour market. Be careful what you wish for when you oppose international agreements on sovereignty grounds.

For this lukewarm opponent of regional trade agreements, the TPP is a so-so deal with small net gains. There is no harm in it signing it.

The intellectual property chapters of the TPP are truly suspicious. With each new day, the case for patents and copyrights is weakening in the economic literature. Some have made powerful arguments to abolish patents and copyrights altogether.

There are modest extensions of the term limits of drug patents and much more mischief on copyright terms. These should be watched carefully in future trade talks and one day will be a deal breaker.

Good arguments can be made against investor state dispute settlement provisions even after the carve-outs. These provisions have no place in trade agreements between democracies.

Foreigners can take their chances in democratic politics like the rest of us. They might occasionally get a short deal because of left-wing or right-wing populism but these gusts of xenophobia are mostly an occasional irritant in the rich fabric of Western democracies.

Developing countries sign up to investor state dispute settlement to signal they are open for business. Foreign investors do not have to put up with their corrupt courts and bureaucracies and hopelessly venal politicians.

The logic of regional trade negotiations is we cut tariffs we should have cut long ago in return for others cutting their tariffs which they too should have cut long ago.

Much is made of the cost-benefit analysis of the TPP. All the critics are really saying is cost-benefit is really hard and often imprecise.

If the econometric estimates were not in doubt in this or any other public policy field, the academics would simply not be trying hard enough to win tenure and promotion. Academics make their careers by being contrarian.

In the end, does the TPP pass the sniff test? For this lukewarm opponent of regional trade agreements, the TPP is a so-so deal with small net gains. There is no harm in it signing it.

• Jim Rose is an economic consultant based in Wellington. He has worked at the Ministry of Business, Innovation and Employment, the Department of Labour, Treasury, the Australian Productivity Commission and the Australian Prime Minister's Department.

Debate on this article is now closed.

- NZ Herald

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