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TPP explained, part 1: How does NZ benefit from the TPP?

Helen Clark caused some controversy but undoubtedly hit the nail on the head when she said of the Trans Pacific Partnership (TPP) – “of course New Zealand has to be in on the action with the TPP and go for the very best deal it can.”

The former Prime Minister was no light touch when it came to trade agreements.  Her Labour Government and especially its Alliance coalition partner required some convincing when my former boss Trade Minister Jim Sutton in 2000 concluded the Free Trade Agreement (FTA) with Singapore, the first signed since CER in 1983.  Helen Clark’s government went on to conclude the precursor agreement to TPP with Singapore, Chile and Brunei and later the FTA with China.  In each case the Government was convinced it had achieved “the very best deal”.

Is this the case with TPP?  This FTA between 12 partners has been a long time in the making, precisely because of the complexity of issues under negotiation.  Now the 6000-page text has been released, attention will turn to the fine detail of what has been negotiated.

On the numbers alone, completing TPP is a singular achievement: a new set of rules applying to 36% of the world’s GDP, including the first and third largest economies; 812 million people within its scope; It affects 40% of New Zealand goods exports, 47% of New Zealand’s services exports and 75% of New Zealand’s foreign direct investment; It covers $28 billion worth of New Zealand trade; TPP delivers an FTA with five partners with which we don’t already have agreements (US, Japan, Canada, Mexico and Peru) and enhances our relationship with the remaining six.

TPP may not have met all our aspirations particularly in dairy but improved market access in some sectors will open up new areas of trade.  In other sectors, such as in the critical beef market in Japan, New Zealand will be on the same footing as other exporters who already have FTAs. Even in dairy market access arrangements will be better than previously. In any event TPP should deliver tangible export gains as tariffs are eliminated on 93% of New Zealand exports amounting to savings of $259 million each year. This is not new business, just money saved, which can be used to lower prices to customers or to use for market promotion.

New Zealand’s negotiators would appear to have secured the TPP deal without major adjustment required for New Zealand. Not a bad achievement for a small economy with little to offer bigger trading partners.  What we also know is that FTAs deliver benefits from day one (and even from before as the market readies itself for implementation), but their effects tend to accelerate over time.  We saw this with the NZ China FTA, which gave rise to an extra-ordinary increase in two way trade, due as much to the ‘dynamic gains’ as to the progressive elimination of tariffs and other barriers. We saw the same thing earlier with CER.

The Government says the TPP is worth $2.7 billion to the economy by 2030.  Whether this figure holds when the fine detail is analysed, the analysis above suggests TPP will meet the Helen Clark test and that New Zealand, as the proud instigator of the TPP enterprise, should follow through, sign and ratify this significant new agreement.

Read part two here.

Stephen Jacobi is Executive Director of the NZ International Business Forum www.tradeworks.org.nz

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