Alan Oxley: Trade deals need to remain focused on trade

By Alan Oxley

Last week’s APEC Leaders’ Meeting in Beijing was more significant than many business leaders realise – and certainly more important than the anti-trade protests that gained headlines across New Zealand.

For the first time, there was a genuine agreement – and push — on  a broader Free Trade Agreement for the Asia Pacific (FTAAP).

The prime mover was China, which showed its support for FTAAP in May of this year. This was at first rebuffed by the US; however, they withdrew any opposition at the meeting in Beijing.

APEC leaders have asked for work to be completed on what FTAAP will look like.

The US will be pushing the Trans Pacific Partnership Agreement as a model.

The new Republican-controlled Congress has in theory thrown its support behind free trade deals.  The political process will be more complicated.

The current Bill that gives the White House greater authority to negotiate and sign trade deals was written in order to get Democrat support. It incorporates more stringent negotiating mandates on non-trade issues: labour, the environment and public health. These are the mainstays of protectionists and the Left when trying to block trade deals. Added to this is the new trade bogeyman – investor-state dispute settlement (ISDS) – which activists claim will erode the ability of countries to regulate on public health or environmental grounds. This is not true. It gives businesses confidence that investment conditions will not be arbitrarily changed, and if they are, there is an avenue for appeal.

Furthermore, the WTO recognises that governments have the right to protect public health and other related interests – and this is the same principle that can and should apply in the TPP Agreement.

The Republicans should in theory have no objection to an agreement once stripped of non-trade issues. A US Congressional push for TPP will give its negotiating partners greater confidence that any deal won’t be hampered by domestic US politics.

This prospect and – somewhat counterintuitively – that of an FTAAP means that TPP takes on a greater global significance.

The stakes could not be higher at a time when global growth appears anaemic. In New Zealand, as in other countries, there are two competing storylines.

The negative storyline of shrill activists has been loudest on intellectual property (IP) and ISDS.

On IP, the prospect of Pharmac having its access to generic drugs limited has been repreated. This is illogical. What government – particularly a conservative government – would agree to having its health budget blown out? Trade minister Tim Groser has publicly stated that Pharmac is off the table.

New Zealand has found IP negotiating allies in Chile, New Zealand, Canada, Malaysia and Singapore. In late 2013, they argued for an agreement on intellectual property closer to the TRIPS agreement, a global deal on IP struck in 1994.

On ISDS, New Zealand businesses should be buoyed at the additional security offered when investing in other countries.

However, New Zealand’s Greens Party recently said they hoped that FTAAP would stymie or stall the TPP – because of ISDS. Yet ISDS is already a part of the China New Zealand FTA.

The positive storyline has been carried by business groups, and is mostly concerned with agricultural exports.

New Zealand already has free trade agreements with both China and Australia, its two biggest trade partners. The most obvious prize in the TPP negotiations is access to agricultural markets in Japan and the US.

But trade in services is the other, hidden story.

Services make up around three-quarters of New Zealand’s economy.

Services exports make up just under half of New Zealand’s exports in value-added terms.

Agreement on trade in services was a critical part of the China New Zealand Free Trade Agreement; and it is a critical part of the TPP.

So, while the pessimistic headlines concentrate primarily on Pharmac, grocery prices and the supposed primacy of corporations in these negotiations, and the country’s agricultural exports are talked up, this key aspect is often overlooked.

New Zealand will never compete with Vietnam on manufactured goods or Australia on mineral resources, but it is a smart and innovative service economy. Business services are second only to travel in terms of services exports.

TPP is therefore vital to the broader economy.

My old friend Tim Grosser has been a commendable champion for TPP. The agricultural sector likewise has made its views very clear.

But there is only so much they can do.

When ANZCO chairman Graeme Harrison last week announced a ‘fighting fund’ in support of TPP, it could not have come at a better time. We have underlined the importance of TPP to Australian business groups in a recent report, but they do not yet appear to share his wisdom.

The anti-trade activists mentioned above will no doubt push back. But trade negotiations and the public debate around it – if they are to succeed – need to remain focused on trade. And that is the challenge that needs to be met as the negotiations conclude.

Alan Oxley is Chair of the APEC  Study Centre in Melbourne, a former Australian trade negotiator and principal of trade consultancy ITS Global.