Prof Jane Kelsey: Labour must address its own criticism that the TPPA lacks evidence of benefits to New Zealand

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Opinion by Prof Jane Kelsey: Labour must address its own criticism that the TPPA lacks evidence of benefits to New Zealand

‘Before the new government can decide its position on the Trans-Pacific Partnership Agreement (TPPA), including whether it would genuinely boost exports and provide a net benefit to the country, Labour needs to address its own criticism that there is inadequate evidence to support even the original deal’, says University of Auckland law professor Jane Kelsey.

Labour’s minority viewpoint in the select committee report on the TPPA (set out below)said: ‘the modelling as presented is not sufficient for us to be confident benefits proposed in the National Interest Analysis will eventuate. … Questions about whether the deal might secure just an additional nine jobs for the industry went without compelling answer from Government officials’.*

Elsewhere, Labour noted that international academic studies showed there could be job losses to New Zealand from the deal.

To remedy these defects, ‘Labour joins calls made by submitters calling for further modelling of the TPPA’s impacts on employment and wage distribution. We also join submitters calling for a related public health analysis of the TPPA impact.

Labour’s criticisms related to the original agreement, which included the purported economic gains from access to the US market.

Since the US withdrawal, there has been no update of the flawed National Interest Analysis in relation to the TPPA-11, let alone a proper robust cost-benefit analysis across the agreement’s 30 chapters.

The only research cited by former Trade Minister Todd McClay was a Japanese study that was based on the same flawed modelling and ignored all the costly downsides.

Professor Kelsey cautions the new government that, if its position on the TPPA is to have any integrity, the first step must be to commission a new independent economic analysis that addresses all the costs and benefits, as well as the public health analysis it said was required.

    International treaty examination of the Trans-Pacific Partnership Agreement 

    Report of the Foreign Affairs, Defence and Trade Committee

    New Zealand Labour Party minority view 

    The first Labour Government pushed for market access improvements in Europe, and the Party has continued to push for free trade since. Yet, the Labour Party wishes to protest in the strongest terms at the Government’s failure to effectively represent the long-term interests of New Zealand in the Trans-Pacific Partnership negotiations. As it stands, we cannot support the ratification of the-Trans Pacific Partnership Agreement.

    Sovereignty concerns 

    The Government’s Chief Negotiator indicated to the committee that the Government had given a clear negotiating mandate for Trans Pacific Partnership Agreement (TPPA) negotiations. Unfortunately, and under repetitive questioning, the Chief Negotiator could give no assurance that that mandate encompassed preserving the right of future New Zealand governments to ban the sale of residential housing to non-resident foreign speculators.

    Locking in the status quo and weakening the right of future sovereign governments to ban foreign speculators is foolish. Countries as varied as Singapore, Vietnam, and Australia sought and received wide-ranging powers in the TPPA to bolster their economies against the negative effects of foreign speculation in their housing markets.

    A climate that favours investment in the speculative sector over the productive sector generates a less secure prosperity, and puts New Zealand at the mercy of the vagaries of investor confidence. The Government’s ongoing failure to quell distortions in our economy risks eventual capital flight. The current laissez-faire economic approach to economic management speaks to a level of resignation about an expected long-term decline in our nation’s financial security.

    The Labour Party believes the ability to act in the interests of New Zealand residents and citizens is a principle that builds faith in participative democracy. Unnecessary weakening of sovereign State powers achieves the opposite.

    Inadequate modelling 

    Flaws in the TPPA National Interest Analysis modelling were brought to the committee’s attention. In one case, value calculations were out by a factor of 300 due to simple arithmetical error. No analysis has been conducted into where the benefits of increased trade might be expected to fall―which is central to the desirability of the TPPA. For example a standard economic approach would suggest that the benefit of tariff reductions on New Zealand exports flows to overseas consumers. Yet the current analysis has this benefit accruing to New Zealanders.

    Traditional economic theory would also suggest that the benefits of the trade deal’s increase in dairy output (equivalent to the output of three large dairy farms by 2030) would accrue also entirely to consumers abroad. Questions about whether the deal might secure just an additional nine jobs for the industry went without compelling answer from Government officials.

    Uncertain gains 

    The estimated economic advantage to New Zealand of the TPPA is expected by the Ministry of Foreign Affairs and Trade to be around 0.9 percent of GDP by 2030. Fifteen percent of this will come from tariff reductions―and this is more likely to accrue to foreigners than New Zealand residents. As one commentator noted, in a wildly optimistic scenario that assumed half of the benefit of tariff reductions accrued to New Zealand exporters: the total value of that gain by 2030 would equate to 0.05 percent of GDP.

    Unfortunately the modelling as presented is not sufficient for us to be confident benefits proposed in the National Interest Analysis will eventuate. An example is instructive: the analysis shows that 14 percent of the proposed economic gain is likely to come from reductions of 25 percent attributed to improved trade facilitation. The modelling in the National Interest Analysis only refers to Customs clearance times. This analysis is not New Zealand specific―it is based upon all goods traded within the TPPA region. The modelling says that the average current time spent in port for all goods traded in the TPPA is 1.6 days, so the reduction is equivalent to nine hours. It seems unlikely that currently efficient New Zealand port processes could be curtailed by this amount without compromising on quality of service and therefore we have no certainty that this proposed benefit will genuinely accrue to New Zealand.

    The magnitude of the 0.9 percent GDP change forecast by the Government as a result of TPPA implementation by 2030 contrasts sharply with an expected “business as usual” GDP increase of 47 percent over the same time period. Given this knowledge, the proposed benefits fall well within the margin of error for most credible long-term economic forecasting models. It is likely that exchange rate fluctuations and measures to remove distortions (such as those that promote speculation in the housing market) will have a significantly higher impact on New Zealand’s economic growth over the same forecast period.

    Omissions in modelling 

    Crucially, the modelling does not try to make any attempt to understand what the likely employment consequences of the TPPA will be. Nor are there any employment figures given within the 273 pages of the National Interest Analysis. Heavily redacted analysis provided through OIA requests shows that the Government’s preferred analysis has as a central assumption “labour is fully employed, and is fixed at each baseline year”. The preferred analysis therefore assumes no unemployment, nor any labour force growth. These assumptions are not credible, nor are they a basis for any responsible government to proceed in signing a binding agreement with consequences as far reaching as the TPPA.

    Analysis from Tufts University has shown that there could be job losses from the agreement as employment is offshored into lower cost centres. Their analysis suggests that a figure of 6,000 jobs could be lost as a direct consequence of the agreement by 2025. Their analysis of the agreement suggests that the GDP gains from the report are also likely to be limited, with an increase of 0.77 percent of GDP forecast. Significantly, they also forecast that the labour share of output (i.e. wages and salaries) will see a fall of 1.45 percent over the period.

    Labour joins calls made by submitters calling for further modelling of the TPPA’s impacts on employment and wage distribution. We also join submitters calling for a related public health analysis of the TPPA impact.

    Conclusion 

    The Labour Party is the party of free trade. As a party, we have always sought to deliver the benefits of free trade to New Zealand, and to reduce the barriers to growth for our firms and workforce. In doing so, we have been mindful of the constitutional convention that governments should not seek to bind the hands of future governments, unless there is a clear and bipartisan agreement to do so.

    The Labour Party has sought to deliver economic agreements with other countries that promote and support economic growth, and deliver new and improved working opportunities for our residents. The failure of the Government to preserve New Zealand’s ability to legislate in its future interest, and the inadequacy of modelling supplied to the committee means that we cannot be confident that the TPPA agreement put before the committee meets these objectives. The best available analysis suggests that it is likely to lead to a reduction in the number of jobs. The proposed gains are marginal, if they even exist.

    It remains to wonder whether with better political leadership, an agreement with more clearly demonstrated benefits to New Zealand might have been offered up to the committee for consideration. Had the Government through the five year negotiating period adopted a model of rigorous consultation with opposition parties, academia, unions, and business―as has been done in New Zealand in the past―a clearer and more informed negotiating mandate might have been gathered. Equally, and in response to the questions such consultation inevitably raises, the Government might have commissioned modelling and developed policy responses to address concerns about employment, income distribution, and public health impacts. Sadly this was not done. Certainly, in those other TPPA countries where fuller and wider consultation was undertaken, public backlash to the agreement finally reached appears more muted.

    The TPPA will have ramifications for generations of New Zealanders. For their sake, we should not so lightly enter into an agreement which may exacerbate long-term challenges for our economy, workforce, and society.

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