John Ballingall: TPP's legacy goes beyond tariffs

New Zealand firms and consumers will benefit from the impetus TPP gives to trade liberalisation on a global level. Photo / Greg Bowker

Opinion

Accord shows gains political will can bring, writes John Ballingall.

As the dust settles on the Trans-Pacific Partnership negotiations, much attention will now turn to analysing the full text of the agreement and better understanding its costs and benefits.

Based on first impressions, the New Zealand Institute of Economic Research (NZIER) believes the agreement to be an impressive one.

But among the analysis of benefits to Kiwi firms through better market access, and potential costs to households due to the extension of copyright terms from 50 to 70 years, it's important not to lose sight of the bigger picture.

The true significance of the Trans-Pacific Partnership (TPP) is not the reduction in tariffs on New Zealand's exports and improvements in behind-the-border barriers to trade and regional integration, although these are of course very welcome.

We think there are two bigger stories that will be the true legacy of this deal.

The first and most important aspect of TPP's conclusion is the message it sends to the global economy about future prospects for trade liberalisation.

Outside bilateral free trade agreements, there has been precious little in the way of concerted plurilateral or multilateral liberalisation of trade and investment over the past 20 years.

This matters for New Zealand because the largest economic gains - especially for our primary sector - have come from multilateral liberalisation, including the major boost provided by the 1994 WTO Uruguay Round.

And it is widely accepted and empirically proven that the larger the club of economies liberalising, the larger the economic benefits.

It's no accident that world poverty reduction has been driven by countries which have engaged more and more with the rest of the world.

Yet, because it is a consensus decision body, the World Trade Organisation (WTO) remains largely moribund in terms of opening up new market opportunities and removing distortions from the global trading system.

Given the WTO's struggles, the conclusion of TPP provides a hugely positive demonstration effect.

It shows that a highly diverse set of economies at varying stages of economic development can nut out their considerable differences and deliver outcomes that cover trade liberalisation in all goods and services.

Even though TPP was not as ambitious as New Zealand would have liked on dairy and beef into Japan, no product was excluded from liberalisation of some form.

Given the domestic sensitivities around agricultural production in Japan, the US and Canada, for example, this is no mean feat.

The TPP's second lasting contribution is to show that with a bit of polishing and adaptation, the methods that have been used since the early days of modern mass mutual trade liberalisation still can be effective.

They can even accommodate the "new" trade issues that matter enormously to global integration with its spinoffs for consumers.

We know that enhancing the quantity, quality and diversity of goods and services available for consumers depends on easing the restrictions on businesses, such as clamps on inward and outward investment, limits on people flows, restrictive rules of origin, behind-the-border and non-trade barriers and overly restrictive government procurement, competition policy and intellectual property rules.

TPP has managed to include these in the negotiations, and they are at the core - as they have been for years - in other regional integration processes such as the Asean+6 Regional Comprehensive Economic Partnership.

The precise extent of these chapters is yet to be seen, but their mere inclusion shows that modern negotiators can improve regional integration beyond removing tariffs.

The game now is much more about progressively removing grit from the engine of regional production networks and reducing transaction costs along supply chains.

A vital part of this expansion of the coverage in the TPP is that negotiators have confronted delicate matters like transparency, sovereignty and the extension of trade negotiations into areas directly affecting households, such as copyright issues and the cost of medicine.

In short, the direct benefits to us from the TPP stem from the boost it will give Kiwi firms in terms of medium- to long-term competitiveness and enhanced participation in regional production networks in the Asia-Pacific region.

But more widely, New Zealand firms and consumers will benefit from the impetus this deal gives to trade liberalisation on a global level.

An enormously complicated deal was pulled and pushed into being. It shows what can be done to promote regional and global economic integration if the political will is strong enough and sufficiently long-sighted.

That is likely to be TPP's enduring legacy.

John Ballingall is deputy chief executive of the New Zealand Institute of Economic Research.