What are the economic benefits for NZ of the CPTPP?

The basic premise of opposition to the TPPA and its descendant agreements is that the risks outweighed the benefits. With the CPTPP Agreement apparently now concluded but no available text, we’re left in a familiar limbo. Will the benefits of this new agreement be enough to offset the risks?

One of the main reasons TPPA proponents struggled to demonstrate the agreement’s was because most of the countries involved in the negotiation already had some form of preferential trade access with one another. For NZ the only TPPA countries which we didn’t have FTAs with were Mexico, Canada, Japan, Peru and of course the USA (whose 2017 withdrawal from TPPA created the devolution to CPTPP). The job of tariff reduction has largely been done already.

MFAT’s TPPA economic estimates – that by 2030 NZ GDP would increase by 0.9% – NZ$2.7 billion (47.9% growth as opposed to 47% without it) – were a conservative review of an economic modelling exercise that they commissioned in 2015.

There is some confusion about this figure. As prominent NZ economists suggested in the Law Foundation’s economic analysis paper, only $259 million of this figure (0.085% of GDP by 2030) was to come from actual tariff reduction, which one critic referred to as a case of beer per person per year. The rest of the purported benefits are little more than speculation.*

Before we continue, let’s take a moment to remind ourselves that in opposition the Labour Party had called for an independent economic analysis. Will we see one prior to the proposed signing ceremony on 8 March?

CPTPP benefits

CPTPP suffers from the same basic problem of TPPA in that most tariff reduction has already taken place. To my knowledge there is only one analysis of the liberalisation benefits of an 11-member TPP, undertaken by the right-wing Peterson Institute for International Economics (PIIE). They argue that the vast majority of income gains for all countries are wiped out without the exclusion of the US – down from $US492 billion to $US131 billion by 2030 (the date by which all tariff reductions will have been implemented). For New Zealand, they suggest that incomes gains will be halved, from a 2.2% increase by 2030 ($US6 billion) to a 1.1% increase ($US3 billion).

Applying the PIIE suggestion that NZ incomes gains are roughly halved under the 11-member arrangement to MFAT’s TPPA figures, tariff reductions look to reach around $130 million – around 0.04% by 2030, or rather half a case of beer.

MFAT appears to be aware of popular skepticism about non-tariff benefits; on its info page about CPTPP it notes that the deal, “has the potential to deliver an estimated $222 million of tariff savings annually, with $92 million of those [potential] savings starting as soon as the CPTPP enters into force.” Using the same basic modelling as commissioned by MFAT above, this looks to be around 0.07% of GDP by 2030.

That page also notes that while tariff reduction benefits with China were initially estimated at $115 million a year when we concluded our FTA, NZ exports have since quadrupled, suggesting that CPTPP benefits could grow dramatically. This is true, however it is not a fair comparison – in recent decades China has probably been through the most significant demographic transition seen anywhere across the planet. The same cannot be said about our CPTPP trading partners, and certainly not on the same scale.

It is also important to note that this increase cannot be reliably attributed to our FTA with China; Australia, whose trade with China increased at essentially the same rate as ours since the NZ-China FTA in 2008, only signed a FTA with China in late 2016.

Therefore, using the available estimates from MFAT and PIIE, it appears that NZ exporters stand to potentially achieve tariff reductions of between 0.04-0.07% from the CPTPP by 2030. While this appears small, indeed the benefits to working people themselves could be even smaller.

A paper from Tufts University, for example, argues that standard economic modelling trade agreement assumes full employment and a constant income distribution. Using a different modelling approach (the UN Global Policy Model), their TPPA economic analysis suggests that all countries (including New Zealand) will experience modest increases in unemployment and income inequality.

Further, as Hazeldine suggests in his 2015 commentary on the commissioned economic modelling, whether the exporter or importer pays the tariff determines our ability to actually capture that benefit.  He suggests that “real-world conditions of demand, costs, product differentiation and competition are such as to vary the likely burden of the tariff”, noting that a reasonable assumption would be that the burden of tariffs is roughly halved. Halving our window of benefit from tariff reduction means we are looking at around 0.02-0.035%.

And, as Bertram and Terry argue, other provisions covering issues like ISDS and intellectual property impose a series of potential costs themselves. While these may not be easily quantifiable, it does not make them any less real.

There’s no doubt that economic modelling is an extremely unpredictable exercise at the best of times. I would expect that before signing a new set of glittering figures will be produced to entice exporters to leap to the defence of CPTPP. However a brief look at the available data would clearly bring them little joy. Unless the Government can sell a convincing story on how their changes have radically minimized the agreement’s risks, a core section of its constituency will find this dead rat a particularly tough one to swallow. Until we see the independent economic analysis that they have previously demanded, this agreement will appear as unnecessary as its predecessors.

*The remainder of the $2.7 billion is largely attributed to the removal of ‘non-tariff barriers’ (accounting for $1.7 billion, despite extremely limited analysis of what these barriers were and a professed skepticism by the author of the report itself, and trade facilitation (allegedly accounting for US$374 million, but simply attributed to a 25% customs clearing time reduction).