Free trade for the Pacific

A couple of weeks ago, one of the NZ student delegates to the US NZ Future Partners Forum popped in asking about the Trans Pacific Partnership. Since he offered me a decent beer, I was happy to have a chat.

In 2005, New Zealand joined with Brunei, Singapore and Chile in a free trade zone called the P-4; this supplements New Zealand’s tight market integration with Australia and its more recent free trade deal with China. Now Australia, Malaysia, Peru, the US, and Vietnam are negotiating to join in with the P-4 as the Trans Pacific Partnership. There’s some chance Japan joins up down the track; they’d need to open up their agricultural markets.

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. I’d expect Vietnamese catfish farmers would sympathise. I don’t much agree with New Zealand leftist political commentator Gordon Campbell on the overall merits of free trade, but I don’t think he’s wrong on the US political situation.

Even if he wanted to – and he shows no sign of such a desire – Barack Obama is simply not able to steer through Congress a trade deal that would be meaningful to New Zealand exporters, and certainly not a bilateral trade deal worth anything like “the billions and billions” of dollars that [New Zealand Prime Minister] Key was burbling about in Singapore. There is a new and strong mood of protectionism in Washington – and any deal that would further jeopardize American jobs or markets would be dead on arrival in Congress.

Last year, Tim Watkin on Pundit offered a thorough analysis of US press reaction to the free trade stance with the Pacific region that Obama briefly enunciated at APEC, and it should have been sobering news for exporters. We’re simply not on the US radar for a bilateral deal. Even within any multilateral arrangement, the chance of meaningful concessions to our exporters on agriculture is a pipe dream.

Is it better to have a serious free trade deal among a smaller set of countries, or a weaker deal that brings in the States?

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. Never mind that Fonterra has to rely on farmers voluntarily choosing to supply it with milk rather than supply one of its competitors, and that it’s legally required to supply some of its milk to some of its competitors, while the US dairy compacts and market orders are state-enforced cartels that do everything but shoot potential competitors. If the United States was happy to continue trade action against imports of Canadian softwood in the midst of Hurricane Katrina rebuilding, despite NAFTA, why ought we expect any better for New Zealand dairy?

In exchange for the illusion of access to American dairy markets, we’d likely get some pretty restrictive copyright and intellectual property rules. The hubub over investor protection provisions don’t much worry me – odds are that such provisions would only give a slap to the parts of our Overseas Investment Act regulations that need the slap.

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.

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.

That’s what I suggested to the student delegate. Any Americans more optimistic about the potential for getting a substantive trade deal including agriculture through the Senate? If the ultimate goal is the greatest reduction in trade restrictions over the long term, I think it’s better to have a small group with a deeper commitment to free trade, which then adds on others as they’re able to make the same commitment, than to have a weak agreement that includes more countries. But I’d be happy to be wrong.