Gains of CPTPP Trans-Pacific trade deal yet to be seen, say economists

Companies like Cookie Time Limited are doing well out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), but substantial gains are still to be felt, according to leading commentators and economists talking in the latest "On the Map" podcast.

There are positive signs that the CPTPP, one of the largest free trade agreements in the world, covering nearly 14 per cent of global GDP, will deliver gains in the long term.

New Zealand's trade grew 3 per cent in January, compared with the same month the year before, and this was largely due to a reduction in Japan's agriculture tariffs, particularly in beef.

But without the United States on board, the gains will be less for countries like New Zealand. Any future benefits could also be undermined by trade wars, the rise of nationalism, and attacks on the international rules of trade.

"This looks like a long-haul event that will distort trade for years to come … The short-term effects can be managed. The biggest cost for a country like New Zealand are in the long term. Uncertainty has a cost," says Jeff Schott, Senior Fellow at the Peterson Institute.

Countries like New Zealand have to recalibrate their investment and trade strategies to survive, he says.

"Companies have to invest in redundant inventories, find alternative supply chains to avoid tariffs … That cost is born for years and years to come."

Pattrick Smellie, who took part in a Ministry of Foreign Affairs and Trade (MFAT) funded visit to Japan, had expected tariff-free access to the Japanese market, thanks to CPTPP, to be a huge boom more quickly.

"I was surprise by what a small hill of beans it was."

Japan, a leading member of CPTPP, is the third largest economy in the world (by GDP).

CPTPP has been good for companies like Cookie Time because it no longer has to pay 25 per cent tariffs on cookie dough.

But the real value to New Zealand of these big trade deals will come only when we successfully move from volume to creating more value. We need dozens of Cookie Times.

Economist Peter Fraser says we've kidded ourselves for years that we're a "super exporter", when we're actually terrible at it.

"It's not about adding value, it's about creating value ... that's hard to do. If it was easy we would have done it. We're just not very good at the creation process."

The recommended global average is 3 per cent of turnover for research and development.

"Fonterra spends only 1 per cent," says Fraser.

Trade has delivered historic levels of progress since World War II. Globally, exports today are more than 40 times more than in 1913.

In the 1980s, roughly 40 per cent of people lived in extreme poverty. That figure is now only 11 per cent.

But the politics of trade are more volatile than ever, especially with the recent rise in nationalism.

Some people have been left behind, and feel like they're going backwards.

New Zealand Council of Trade Unions secretary Sam Huggart says that's why nearly 20,000 people turned out to protest against the Trans-Pacific Partnership trade deal (TPP) when it was on the table.

"Trade went from being a concern for just trade people, to being a concern from a whole bunch of civil society groups because trade deals had become about a whole lot of other things apart from trade."

People were worried that you might not be able to regulate a future labour market, for example, when you don't even know what the future looks like yet, says Huggart.

The global trading system was part of a much bigger project than just trade. After the horrors of two world wars, it was about keeping the peace and avoiding another depression.

Smellie points there hasn't been a third world war, and people seem to have forgotten that's where many of the trade agreements came from.

His prognosis for the future of trade isn't hopeful.

"I worry that things have got to fall apart before they get put back together again. People have got to see what they've lost before they care."