TPP hopes still alive despite loss of US
New Zealand has become the second country to ratify the Trans-Pacific Partnership trade deal. But with the United States pulling out, is it really worthwhile - and what are the chances of getting it across the line? Sam Sachdeva reports.
The endurance of the TPP could be likened to a scene from The Terminator - or, if you were feeling less charitable, Night of the Living Dead.
The 12-nation free trade deal was seemingly struck a fatal blow when Donald Trump withdrew the US on his first day in office, meaning it could not meet the requirement to have 85 per cent of GDP of the original countries.
Yet it has shrugged off the setback and carried on.
Ministers from the 11 remaining countries will meet in Vietnam later this month to continue discussions about what a revised deal could look like.
Prime Minister Bill English has said he will discuss the TPP during his trip to Japan next week, while the Government announced on Thursday that it had formally ratified the agreement.
Trade Minister Todd McClay dismisses any suggestion the move is symbolic, saying it is a chance for the country to take a leadership role in forging ahead with a deal.
“We had finished all the work we needed to, it makes sense to ratify and at the very least sends a very clear signal of our intent.”
McClay says it is also a chance to “stand shoulder to shoulder” with Japan, which became the first country to ratify the deal earlier this year.
Japan seems to have had a change of heart regarding the deal: while Prime Minister Shinzo Abe said last November the TPP would be “meaningless” without the US, the country has recently taken on more of a leadership role in pursuing a “TPP11”.
Value without the US?
Auckland University business professor Natasha Hamilton-Hart, director of the New Zealand Asia Institute, believes Japan’s newfound support is as much a strategic consideration as a sign of possible success.
“It’s no secret they're concerned about competition with China, therefore it’s important to Japan - they see something that can potentially help their bargaining position if they keep the US option alive as a counter-balance to China.”
She argues the withdrawal of the US means the deal is beyond salvaging, given the country was a major reason for the “very long, very complex and very contentious” nature of the agreement, which now lacks access to the world’s largest economy.
“If you take the US access out, I think most signatories would be thinking, ‘Well why did we sign up for all of these things, many of which we have significant reservations about, if that pay-off is no longer there?’”
However, McClay says it is wrong to characterise clauses like the investor-state dispute settlement mechanism as being at the behest of the US.
“There’s a suggestion out there that New Zealand only did things in TPP because we were forced to, and actually we were a willing party - it is a high-quality set of rules.”
While each country will have to make up its own mind about the value of a TPP without the US, he says it made sense for New Zealand to formally push ahead with the deal and other countries have indicated it still has merit.
Fiona Cooper, associate director of the NZ International Business Forum, argues there is significant value for New Zealand in a TPP11, with access to Japan alone making it worthwhile.
Cooper says there is “safety in numbers” for a country like New Zealand, given we are often the smallest partner in any bilateral negotiation.
John Ballingall, deputy chief executive of the NZ Institute of Economic Research, agrees a deal is still valuable, given the limited chances to sign FTAs with countries like Japan and Canada.
To date, the financial benefits to New Zealand of a TPP11 deal are yet to be quantified.
According to the Government’s original TPP national interest analysis, the US would have accounted for almost one-fifth of the $274 million in annual tariff savings once fully implemented.
An MFAT spokesman said its TPP economic modelling “does not readily provide for a way to extract the results for a given member after the model has been run”, although new modelling on a TPP11 will take place if there is more progress.
However, economic modelling carried out by academics suggests the net benefit to all members of a TPP11 would be 0.4 per cent of their combined GDP - less than the Government’s TPP estimate of 0.9 per cent for New Zealand (although a World Bank study of the original deal estimated we would gain more than the average member).
McClay says that while having the US in the TPP would have provided extra and better access, the country is still New Zealand’s largest beef and wine market, and second-largest dairy market - all without a trade deal.
Ballingall says one way to resolve the negatives caused by the US withdrawal could be to remove or renegotiate some of the more America-centric clauses, although he acknowledges that would be a significant undertaking.
“This isn’t the sort of thing where you’d just say, ‘Let’s just delete the US from all pages in the agreement and tweak this clause and delete this clause’, because without the US there, the fundamental negotiation dynamics change.”
Could US rejoin?
An added complication is the hope that the US has a change of heart and re-enters the fold, with Cooper saying too many changes could undermine its “future-proofing”.
“The problem is everybody says, ‘I just want to take that little bit out because it’s a bit sensitive’ ... there’s a risk that the thing unravels, so where do you draw the line to stop the whole thing falling apart?”
While Trump has taken a strong stance against the TPP, Cooper says US exporters who stand to lose if a revised deal proves successful could yet change the political calculus.
“You could imagine that the American government could come under quite a lot of pressure from farmers and other producers and other exporters to get back into TPP so that they don’t miss out.”
Hamilton-Hart believes the TPP is too “tainted” in the US for it to rejoin the fray.
“It’s hard to see that most political representatives in the US would gain political capital by championing this...even pro-trade politicians are going to find that it’s more attractive to champion the bilateral deals where they can claim victories that appear to channel benefits to particular US firms and constituencies.”
She believes it could make more sense to work on a less ambitious deal, rationalising and simplifying the “noodle bowl” of bilateral trade agreements in the region.
“If you follow the TPP back to its origins, that was what the TPP was meant to be - it wasn’t something that was initially meant to include the US at all.”
However, Cooper says renegotiating a new deal would take some time, while the current agreement is sitting there, ready to be ratified with just a couple of tweaks.
As she says: “A TPP in the hand is worth two in the bush.”
McClay says it’s far too soon to expect any final decisions, with “many many months” needed to understand the implications of the US’ departure, hammer out legal positions, and hold ministerial meetings.
There is still a ticking clock, in the form of a February 2018 deadline for ratification which he says New Zealand is keen to meet.
“That timeframe remains important...this can’t go on forever, we’ve reached agreement, we know there’s value there, we now need to evaluate what it means without the US involved and that can’t take years.”