The Trans Pacific Strategic Economic Partnership Agreement

Few people are more enthusiastic advocates of free trade than me. I basically want to see a world without trade barriers.

The path to free trade is difficult due to entrenched interests. The best path is a multi-lateral agreement such as the GATT agreement which set up the WTO. Failing that, bilateral trade deals are worth pursuing. The China-NZ FTA, for example, has already led to a huge increase in exports to China. And CER with Australia is part of our economic DNA.

Personally I think bilateral free trade agreements are far too complex. My ideal FTA would be as follows:

1. Country A agrees that the businesses and residents of Country B can sell any goods or services they like to the business and residents of Country A, so long as they are legal in Country A.
2. Country B agrees that the businesses and residents of Country A can sell any goods or services they like to the business and residents of Country B, so long as they are legal in Country B.
3. There shall be no duties, tariffs or other barriers on exports or imports between Country An and Country B
4. ENDS

NZ is currently negotiating a free trade agreement, called the Trans-Pacific Strategic Economic Partnership Agreement, or TPP.

The TPP is now a brand new agreement. It is an extension to an existing agreement between Brunei, Chile, Singapore and NZ called the P4. Five additional countries are seeking to join it – Australia, Malaysia, Peru, Vietnam and the US.

Now New Zealand would gain immensely from free trade with the United States. One study estimated our exports to the US would increase by 51%. That’s an extra $2b a year approx.

So free trade with the USA would be great. But sadly free trade agreements are not as simple as the one I wrote above. They include areas which are not about reducing tarrifs, such as intellectual property laws. The United States wants New Zealand to agree to change our intellectual property laws, as part of any TPP agreement.

Top IT lawyer Rick Shera, has done a guest post at Public Address on what the US is asking for. I highly recommend you read his post in full. A summary is:

• Rights holders would be allowed to prevent parallel imports
• Massive extension of copyright terms, from life of author plus 50 years, to 70 years
• Circumventing a Technological Protection Measure (TPM) will to be a criminal offence even if the work it protects is in the public domain or you want to exercise fair dealing rights like educational use or current affairs reporting
• The return of guilt upon accusation three strikes Internet termination laws
• Forcing us to reverse the decision recently taken to exclude software from being patentable
• Introducing statutory damages (which give rights holders windfall damages up to 3 times their actual losses)
•  ISP policing of IP rights including a requirement for ISPs to give up their customers’ identities when they receive a mere allegation from a rights holder
• Criminal liability even where the infringement has no commercial value at all
• Pushing Courts to impose imprisonment as the default sentence for infringement even where no monetary benefit is obtained

Bloody nasty isn’t it. And it is not as if NZ is a country with weak copyright laws. The Property Rights Alliance do an annual index of property rights. Their 2010 report for New Zealand ranked NZ the 4th best country (out of 125) in the world for (lack of) copyright piracy.

The New Zealand Government position has been to reject these provisions, which is good. But at some stage, there will be some calls to be made and compromises to occur to get an agreement.

This will pose a challenge for free trade advocates such as myself. Is allowing the United States to rewrite our copyright laws, a price worth paying?

Well if it was a true free trade deal, where the United States agreed to phase out all (or at least the vast majority) of its tariffs, then yeah it might be. An extra $2b a year of exports would create a lot of extra jobs, extra investment, extra wealth and extra tax revenue.

But what if we don’t get the US to agree to let in our lamb, our beef, our wool, our milk, our fruit without restrictions? What if the lowering of trade barriers is modest at best? This can not be ruled out – the US/Australia free trade agreement was very modest in terms of lowering trade barriers.

Eric Crampton has blogged on the TPP agreement. I know Eric well enough to confidently say that he is probably just as big a fan of free trade as I am. However he is pessimistic about the TPP:

I suggested New Zealand might do best by sidelining the US for now. The biggest potential gains to New Zealand from a free trade deal with the States would be an opening of American dairy markets to New Zealand dairy products. But that won’t happen – a trade deal that would actually open up American dairy markets to New Zealand product would never make it through the Senate.

The actual economic impact on the US of allowing dairy competition would be minor overall. But it would create a political fuss in certain states which would make it very difficult for Obama to ignore.

Eric continues:

I’d put decent money that, if America signs onto the deal, there’d be years of costly arbitration before New Zealand had any kind of increased access to American dairy markets. For starters, American dairy farmers would argue that failure of the New Zealand competition authorities to prosecute New Zealand dairy cooperative Fonterra as a monopoly constituted a subsidy under US law and justified counterveiling duties. …

I don’t think the United States has any credibility on free trade when it comes to agricultural products. They can’t make time-consistent pledges. At point of signing it’s all friendly, then you’re straight into arbitration over whether you’re hurting US domestic competitors – never mind the benefits to American consumers who are paying double what Kiwis are paying for baby formula.

His solution:

And so it’s better that New Zealand sidelines America in the Trans Pacific Partnership negotiations so the rest of us can have a serious free trade zone. Get a serious free trade zone, then look to widen it by inviting China. The threat of a Pan-Asian free trade zone that includes China is about the only thing I can imagine that would bring the States around on agriculture. Since New Zealand already has a free trade deal with China, it’s not implausible that China could someday join the TPP.

The idea of a TPP without the US may sound implausible, but I think it is more important to have a high quality agreement that actually reduces trade barriers and doesn’t force IP law changes on us, then a free trade agreement that is more symbol than substance. John Key I believe wants this too – he basically told Japan to stuff off from the TPP negotiations, unless they were seriously willing to commit to a “high quality” agreement.

The same attitude should apply to the US. If at the end of the day we can’t get decent lowering of trade barriers, and they insist in trying to force draconian IP laws on us, then we should be willing to say that we’ll go ahead with Australia, Malaysia, Peru, and Vietnam joining the P4 – and leave the US for another day.