New Zealand and the TPP: Thanks, Obama
As Trump continues to haunt the news, I thought I’d try to make something positive out of it and take his announcement about quitting the Trans-Pacific Partnership and educate myself about a boring trade deal. Because, although these things to be honest don’t interest me too much, I still think it is important to know at least a little bit abobut them. So here goes nothing.
So, if Trump makes good on his promise and pulls out of TPP, what would it mean for New Zealand?
I’m trying to make it as least boring as possible, but I can make no guaranties. So, let’s start with a quick overview of New Zealand’s economy:
Although there are few high-earning industries, New Zealand has a high living standard. The service sector accounts for most jobs, outweighing farm or factory work. Farming was important between the 1850s and WW II, but by the turn of the millennium it was less important. Tourism (mainly from Australia, the UK, the US, and China) is a main earner, as well as jobs in manufacturing or building. In recent years, film-production and wine-making have also become significant.
Since exports account for roughly 30% of the GDP, trade is important for New Zealand. Major exports are agricultural products (meat, dairy, fruits, vegetables), but wood, paper, and chemical products are important as well. In turn, New Zealand imports considerable amounts of refined and crude oil, machinery, and vehicles, among other products. New Zealand’s chief trading partners include Australia, China, the US, and Japan, all countries of the Pacific region. Free trade agreements (FTAs) exist with Australia (CER), China, Hong Kong, Malaysia, Singapore, Thailand and South Korea. Another major FTA, the AANZFTA (quite a mouthful, isn’t it?), connects New Zealand and Australia with the Association of Southeast Asian Nations (ASEAN). Additionally, the P4 (Pacific four) agreement links New Zealand with Brunei Darussalam, Chile, and Singapore. The latter is further generally considered the predecessor of the TPP.
So, if New Zealand is already part of so many trade agreements, why is the TPP so special?
On the one hand, it isn’t. It does what an FTA is supposed to do: liberalise trade and investment between the 12 Pacific rim countries New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, Vietnam, and the United States of America.
Deepening economic ties and fostering trade is mainly accomplished by eliminating tariffs. In all, some 18,000 tariffs are going to be affected, although not all are going to be removed immediately, since some countries have especially protected industries. What is special about TPP is its sheer size: it covers 40% of the world’s trade and all participating countries combined have a population of about 800 million people, which is approximately double the population of the EU, currently the world’s biggest single market. Fashioning a single market is also one potential of the TPP, and it would thus surpass the EU. However, the economic strength as well as the principles of the economy of the partners varies significantly. This remarkable on the one hand, but is also met with concern about plummeting wages should production move away from higher paying countries and into countries with lower wage standards. And here we are already (haha, I know…) with TPP’s potential effects on New Zealand: While the government estimates an extra NZ $ 2.7 billion per year in GDP by 2030 and $ 274 million saved by exporters per year, thus generally promoting the benefits of the agreement, critics have pointed out that the gains are modest, potential benefits exaggerated, and the sovereignty of New Zealand threatened by TPP.
However, the whole debate may be in vain, because of Trump’s announcement to pull out of the deal. To enter into force, the agreement has to be ratified by February 2018 (i.e. 2 years after being signed in Auckland) by at least 6 countries that account for 85% of the group’s economic output. Thus, Japan and the US will have to be on board. Japan is still in favour of the TTP, but does not see much sense in participating without the US. The Trump administration wants to quit the agreement on the first day in office because it is “pushed by special interests” and the US should “take back control”. Don’t ask me for more details (as if anyone would), I don’t have them and I doubt Mr. Trump has them. Let’s just move over to Mr. Key and his position on the TPP. To pacify the president-elect, he has jokingly offered to rebrand the Trans-Pacific Partnership as Trump Pacific Partnership. And if that master plan doesn’t help, Key is open to going on without the United States, saying that the TPP would still be a good deal for New Zealand, although this would mean only two thirds the benefits. Another alternative according to Key would be China filling the void left by America.
And what do the Kiwis think about TPP? No, not the birds. Also not the fruit. The people of New Zealand. There has not been an official referendum as far as I know, but there has been some concern expressed. Maori are worried that the TPP would infringe on the Treaty of Waitangi, making it difficult for the government to uphold the Treaty. Although trade minister Todd McClay denies that TPP will have any negative impact on the Treaty of Waitangi, pointing to a special provision preserving its pre-eminence, critics are not convinced. Another major opponent of the TPP is the Labour party, criticising that TPP would undermine New Zealand’s sovereignty. The signing of the agreement on February 4, 2016, was met by several protests throughout New Zealand and when the NZ Herald asked “Do you support NZ’s involvement in the TPP agreement?”, 87 readers replied with “yes”, while 1541 replied with “no”. Although this seems to point towards a rather negative attitude towards the TPP in New Zealand, there is the theory of the “silent majority”. After all, if things are going your way, why speak out publicly? For me as an outsider, it is therefore hard to tell if Kiwi opinion is pro or contra TPP and, as mentioned above, the whole discussion may be futile anyway.
Well, this was a harder piece of work than I’d thought. Thanks, Obama. If you stuck with me until now, please accept my apologies and have a cookie.
