The Economic Case

- Bill Rosenberg

Reproduced, with permission, from CTU Monthly Economic Bulletin 175, January 2016. Bill Rosenberg is Economist and Policy Director of the NZ Council of Trade Unions. Ed.

The Trans Pacific Partnership Agreement (TPPA) was signed by the Trade Ministers of 12 countries in Auckland on 4 February 2016. So this is a good time to look at the economic evaluations of the Agreement. There are now several to choose from. It’s important to be aware that the act of signing is more symbolic than real: it simply signifies an intention to ratify the Agreement, which is the formal and legal commitment to it. But for at least the US which requires it to be passed in Congress, ratification is anything but certain. None of the candidates in the November 2016 Presidential election who are polling more than 5% currently support it, according to Lori Wallach from the US Public Citizen organisation. Support for it is toxic for many members of Congress hoping to be re-elected.

It’s Not Over Until The Fat Lady Sings

Until the US ratifies it, the TPPA will not come into force because it requires at least six countries, representing at least 85% of the production (gross domestic product, GDP) among the 12 countries, to ratify it and the US represents almost two-thirds of the total (62% by my calculations based on International Monetary Fund data), so the US effectively has a veto on it. More of that below. We now have lots of economic evaluations of the TPPA to choose from. Politicians and the lobbyists of industries which stand to gain from the Agreement use these to throw around large-sounding numbers and this commentary will take a look at these numbers. When hearing them, you need to turn on the same garbage filter you use whenever a door–to–door salesman knocks.

But it is vital to remember that these cover a very small part of the Agreement. There is much else in the Agreement that must be put in the balance, and it is those things that make many people – unions, all the Opposition political parties, large parts of the health sector, many Māori, and many others – oppose it. For a prosperous, fair and environmentally sustainable society, New Zealanders need good industry development policies that nudge the economy in the high value, sustainable direction producing full employment and good jobs.

We need an enabling State that provides a strong welfare system that helps people when the constant change brought by globalisation (intensified by the TPPA) throws them out of work or destroys their livelihoods, provides the education and training, health and other social services they need to thrive, and effective regulation to protect the environment, health, safety and people’s physical and financial security from powerful corporations. We need effective unions and other advocates for people’s rights who ensure a fair share of the economy’s income flows into the homes of working people. All of these are made much more difficult by other aspects of the TPPA. It cements us into the failed neoliberal policies that got us where we are today.

A Very Small One-Off Gain

Firstly the gains even according to these estimates are very small. The official one commissioned by the Ministry of Foreign Affairs and Trade (MFAT) estimated that New Zealand’s production – our GDP – would by 2030 increase by up to 0.9% above the 47% they assume it would grow anyway. That is, it would grow by 47.9% instead of 47%. A recent World Bank evaluation estimated almost 3% by 2030 compared to how much it would grow anyway – much less for Australia and the US – and that it would hurt the rest of the world. There will be others. Let’s be clear what this means. It is as if your employer came to you and said “I’ll give you a 0.9% pay rise in 15 years time on condition I have a lot more control over your life from now on”. Note that this is 0.9% once off, perhaps accumulating gradually over 15 years. It’s not a 0.9% rise each year, year on top of year. It’s a one-time-only increase.

Actually, even that is not the whole story. The economy is estimated to grow by 0.9%, but that doesn’t mean each of us will share equally in that growth. We won’t.  But the models used for these estimates assume that it won’t lead to greater inequality – that is, it will be shared equally – and that it will have no effect on the number of jobs, on employment. You need to remember this when politicians say “TPPA means more jobs”. That is pure hocus-pocus. The models they quote assume there will be no more jobs. So I was very pleased to see that the Global Development and Environment Institute at Tufts University in the US came out in January 2016 with an alternative evaluation, using a different economic model. This model does not assume zero effect on inequality, nor does it assume zero effect on employment. Instead it estimates the effect of the TPPA on these highly important social and economic outcomes. It estimates that New Zealand’s GDP will grow by only 0.8% by 2025 (and shrink in the US and Japan).

Working People Will Be Worse Off

But more importantly, it estimates that the share of the income from our economy that working people get will reduce by 1.5% of GDP – in other words, inequality will increase because in net terms, all the benefits of the higher production of the economy – plus some – will go to investors. Again, it is the corporations who benefit at the expense of working people. The Tufts University study also estimates that employment will actually fall by 2025 compared to its expected growth without TPPA. The estimated fall is not large for New Zealand – 6,000 jobs – (and 448,000 jobs in the US) but the important point is that increased employment cannot be assumed. In addition, other people will lose their jobs – but eventually find new ones. We have to make sure the new ones are at least as good as the old ones and that they are looked after during the traumatic process. That’s the first thing to remember about these evaluations: their estimates for growth are tiny, far into the future, and mostly assume that some of the things we are most worried about won’t happen when we know that they will. That’s why we need to have social protections to counter them.

The second thing is that even these numbers are boosted by controversial assumptions about the way the Agreement works. Removing tariffs (taxes on imported goods) is the basic action to free trade. Economists can model this reasonably well, but the numbers come out even smaller – 0.01% increase in GDP for New Zealand according to a US Department of Agriculture study, 0.2% (compared to 0.9%) in the MFAT-commissioned study. Most tariffs went years ago, and the supposed gains are now from so-called non-tariff barriers and opening up services to international competition. These so-called barriers to international trade can be things we value: food safety regulations, labelling requirements, country of origin labelling, training and qualification requirements, Government provision of services, State-owned enterprises, restrictions that ensure services are provided by local not for profit organisations, standards of service and many more.

Getting rid of these so-called barriers is familiar to us as deregulation – think leaky homes, our terrible record of workplace injury and death, the finance company collapses. Some of the so-called barriers may be less desirable – for example an importer who has to put a new label on its product even though it contains the same information as when it is sold in another country – but if we agree that all countries will have the same labelling requirements we have to be very sure that it doesn’t lead to everyone having to put themselves at risk because it is the lowest standard – the lowest common denominator or race to the bottom. It mustn’t make it difficult to make needed changes such as warnings or medical information or controls on alluring design about sugar or alcohol content like the ones attacked by the tobacco companies.

So while these economic models treat the removal of these so-called non-tariff barriers as a boost to production, in fact the removal of them may have a real cost in safety, quality of food, quality of services, sovereignty or quality of life which is never taken into account in the models because it is contentious and very difficult. MFAT, having commissioned its modellers to do make these estimates just said “ok, we’ll halve the benefit we estimate from the removal of non-tariff barriers on goods”. Half is just plucked out of the air. They did nothing to recognise the problems with removal of regulation of services – such as health, education, architecture, postal services, telecommunications – which are even more contentious. So “benefits” in these models are from a commercial point of view – not from the point of view of people who care about our health, society and environment.

Costs Aren’t Counted In Models

The third point I’d urge you to remember about these models is that none of them count the costs. The economic and social costs of higher-priced medicines, books and music; the higher risk of financial crises which could more than reverse any small economic gains; the cost of corporations suing the Government through investor-State dispute settlement (ISDS) provisions – both legal costs and the impact on our future choices; the cost of remaining in a low value economy; the increased difficulties in putting public health measures into place to combat excess alcohol use and obesity.

Finally – they are only estimates. Estimates of the Australia-US Free Trade Agreement before it came into force in 2005 proved to have greatly over-sold it. The New Zealand government claims that its agreements have always turned out better than predicted (yeah, right) – yet most of them haven’t been properly evaluated. But in any case they are acknowledging this modelling is only as good as the assumptions the modellers make – and that is all-important as we have seen. In early 2016 Nobel Prize-winning economist Joseph Stiglitz described the TPPA as “what may turn out to be the worst trade agreement in decades”.

Perhaps if you were from the ACT Party you would be delighted that your policies were being made virtually irreversible – almost constitution-like – in this way. But perhaps even then, unless you were totally dogmatic and beyond reason, you would be concerned that they could not be reviewed and changed if future events – such as a global financial crisis – showed them to be wrong headed policies, as they have been. No future election, no future government could change them without withdrawing from the whole Agreement in the face of the powerful vested interests that will benefit from it. Truly this is Taking People’s Power Away. 


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