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US return to Trans-Pacific trade deal would open large can of worms for NZ

photo: domhartnett / CC BY-NC-ND 2.0

Newsroom | 7 May 2021

US return to Trans-Pacific trade deal would open large can of worms for NZ

by Jane Kelsey

As a professor of law at the University of Auckland, Dr Jane Kelsey has specialised in international trade.

The account of “chatter” about the US acceding to the (misnamed) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) shows why “chatter” is also defined as “gossip” and”chitchat”.

The US would never be a supplicant to negotiations in which existing parties could demand it makes additional concessions as the price for accession. And legally, the US doesn’t need to join the CPTPP. The Biden Administration can simply reactivate the original Trans-Pacific Partnership Agreement (TPPA).

How come? It is true that President Trump instructed the US Trade Representative to withdraw the US signature from the TPPA. But the Trade Representative’s actual communication to the TPPA parties, dated 30 January 2017, deliberately did not do that. Instead, it says the US does not intend to become a party to the TPPA and that consequently there are no legal obligations arising from its signature.

That means the US is still a signatory to the TPPA. The US Trade Representative can say the US has changed its mind and notify its ratification without needing consent from the other parties. The Agreement would then come into force once six or more parties comprising 85 percent of the gross domestic product of the signatories ratify. At present, only Japan and New Zealand have ratified the original TPPA, so four more are required. Under the formula for calculating relative GDP, the US (59.7 percent) and Japan (18.3 percent) together comprise 78.4 percent of the signatories’ GDP. New Zealand adds 0.67 percent.

Who else might make up the numbers? Canada constitutes another 6.57 percent, bringing the total to 85.28 percent. Canada has agreed to more extensive obligations than the TPPA in the revised NAFTA, so that is quite possible. Other countries might also ratify, given the rationale for suspending rather than removing items from the CPTPP was to provide an incentive for the US to re-engage.

That would open a large can of worms for New Zealand.

The National Government ratified the TPPA, even though Labour, NZ First and the Greens opposed ratification at the select committee. If the TPPA now enters into force, New Zealand will be stuck with the original deal, including the items suspended under the CPTPP, such as extensive intellectual property rights over pharmaceuticals, an annex that gives Big Pharma more leverage over Pharmac’s processes, and investor-state dispute settlement with the US.

Given that Biden, like Trump, is not an investor-state dispute settlement fan, the US Trade Representative may be prepared to sign a side-letter, but at a price.

Is the Biden Administration likely to take that step? Currently, no.

Biden was deputy to Obama who oversaw and tried, but failed, to sell the finished TPPA to Congress and the public.

While Obama played the China card as hard as he could (“the US, not China, should write the rule-book for the global economy”), that was never enough to convince Republicans who wanted even more benefits and Democrats who were sceptical of the prevailing free trade paradigm. That equation is largely unchanged.

Several other factors are also in the way. First, the Biden Administration clearly signalled before the election that its initial priority was to sort the domestic economy. US Trade Representative Katherine Tai repeated that during her confirmation hearings.

Second, fast track authority that would prevent Congress picking apart the deal expires on 1 July 2021 and agreement must be notified three months before. That door has closed.

A future fast track would be hard to secure and look very different. It might require stronger labour and environment rules and exclude investor-state dispute settlement , which the Labour Government would support but other parties would oppose. But the current disagreement in Congress over the waiver of intellectual property rules at the World Trade Organization during the Covid-19 pandemic suggests those TPPA rules would remain intact.

What might New Zealand gain if the TPPA was revived?

The impressive-sounding numbers that National relied on to sell the original deal are numbers from an economic report that the Labour Opposition described as flawed, inaccurate, misrepresenting benefits to foreign consumers as flowing to New Zealand, based on wildly optimistic scenarios and implausible assumptions, and using assumptions on unemployment that were “not credible”.

The modelling was not a basis “for any reasonable government to proceed in signing an agreement with consequences so far reaching as the TPPA”.

Now in government, Labour can hardly proclaim the economic benefits of such a deal.

Might the strategic argument of balancing the US and China be enough to salvage the original TPPA?

Again, the “chatter” fails the reality check. Were China to look at acceding to the CPTPP, it would only do so from a position of strength, demanding concessions in its favour rather than paying the price through additional obligations.

The obstacles for China are not just the CPTPP’s chapters on labour and state-owned enterprises. The most sensitive “trade” issue at present for China is digital. That is evident from the electronic commerce chapter in the recently signed Regional Comprehensive Economic partnership between China, Japan, South Korea, Australia, New Zealand and the 10 ASEAN countries.

That chapter omits several key provisions from the equivalent TPPA chapter, has a comprehensive security carve-out and is unenforceable.

China is equally cautious in plurilateral negotiations on e-commerce at the World Trade Organization.

In the current climate, China is not going to sign up to the CPTPP e-commerce chapter that was largely dictated by the US on behalf of its Big Tech corporations.

If all these barriers are overcome and the US decides to reactivate the TPPA, would there be another groundswell of opposition?

You betcha. It might take a different form, but even the Ministry of Foreign Affairs recognises there is no social licence for such deals.

The Labour Government faces more than enough vote-losing challenges without adding the TPPA.

Its dilemma is that, thanks to National’s ratification of the TPPA, how this plays out is not in the Government’s hands.

To preserve the CPTPP compromises, the Government could notify itself as the TPPA repository that New Zealand was revoking its ratification of the TPPA, which would not trigger the procedure for withdrawal from the Agreement as the TPPA is not yet in force.

But would it have the guts to do that?

 source: Newsroom