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What leverage?

Rob Salmond makes a bit of a silly argument about New Zealand’s participation in the TPP, but it’s one that I often hear from the left. I’d described it as follows when I saw it from Brian Easton a couple weeks back (this is my paraphrase):

Because New Zealand unilaterally did away with just about all its tariffs some time ago, the only negotiating chips it has left on dairy access are copyright and IP provisions. So because we did away with tariffs, we’re stuck having to take on IP provisions we don’t like in the TPP.

Now that argument never made much sense to me:

I could understand this argument if we were talking about bilateral trade deals. But, New Zealand is only one of many countries in the TPP. Whatever deal comes in applies to all of them. If one gets crazily long copyright duration, they all do. If one gets a longer period before generic drugs can be used, they all do. And it will be interesting to see whether the final copyright provisions are that different from those in the US/Australia trade agreement, where Australia still got stuck with a pile of copyright nonsense despite having a pile of tariff barriers up for negotiation.
I just can’t see how New Zealand’s tariff status affects things. We’re a small enough country that, even if we had crazy high tariffs, no US domestic industry would care enough about getting access to the NZ market to outweigh US dairy wishes to keep NZ out. This is just standard Mancur Olson stuff: the costs of free trade with NZ, in the US, are concentrated; the benefits are diffused. And that would be true no matter New Zealand’s tariff status.
Salmond argues that New Zealand has no leverage because we have no particular tariffs to concede. I just cannot see what coalition, in any of the TPP trading partners, cares enough about getting access to New Zealand markets in particular to get into a fight with their counterparts in their domestic dairy industries.
Salmond reckons further that New Zealand will sign onto whatever deal comes, even if it doesn’t provide any meaningful dairy access:

That’s what is going to happen. Groser’s going to cave on our behalf, and New Zealand’s going to suffer as a result. His supremely arrogant idea that New Zealand can defy the will of Canada, Japan, and the US on this is about as laughable as his pathetic bid to become top dog at the WTO.

And, thanks to Groser’s “emotional space” at the moment, we’re going to end up saddled with a bad TPP deal anyway.

We’ll give way on healthcare costs. We’ll give way on our right to legislate in our own public interest. We’ll give way on our ability to restrict foreign land ownership. And, in return, we won’t get any new meaningful dairy access. Heckuva job, Timmy.

Anything else we do get will be scraps, falling off the plates of countries blessed with proper negotiators.

All that is because Tim Groser spent the last 20 years getting naked before stepping out to play strip poker, and had nothing credible to say when the global A team said “or you’ll do what?”

Rob seems pretty certain that this is what’s going to happen, so I’d like to offer him a bet on it.

$100 stakes, 5:1 odds in my favour (because he’s the one making the strong claims about what’s going to happen). The bet resolves in my favour, with Rob paying me $500, if any of the following happen:

  • New Zealand declines to join the TPP. I think this is very likely if the dairy provisions are as advertised here;
  • The TPP fails with at least two major media outlets citing New Zealand’s unhappiness with the deal;
  • New Zealand signs onto the TPP and, five years later, New Zealand’s dairy exports to TPP countries have increased by 20% relative to export growth to non-TPP countries.
    • For arbitration purposes, “five years later” means “five years after TPP dairy access provisions kick in fully, which can be no later than 5 years after the deal is ratified in the partners’ respective parliaments/legislatures”. If dairy access starts more than 5 years after ratification, the bet instead resolves in Salmond’s favour.

The bet resolves in Salmond’s favour, with me paying him $100, if any of the following happen:

  • New Zealand signs onto the TPP and I reckon dairy access to be terrible, or not worth the costs on IP or other fronts (I’m more than happy to say so);
  • New Zealand signs onto the TPP and dairy export growth has not proceeded in the way set out above;
  • New Zealand signs onto the TPP and the US blocks NZ dairy exports to the US using antitrust action as trade barrier. I’m worried that this could happen, but I think it’s at least 20% likely that the negotiating team is smart enough to can a deal where they expect the Americans would do that.

I put reasonable odds on that the deal is in fact currently dead and that the automobile issues between Japan and NAFTA are intractable. In that case, the bet is simply off as the deal’s failure would have had nothing to do with New Zealand’s negotiating position.

I’m happy to entertain counterproposals from Rob. My basic position is that New Zealand’s negotiators likely aren’t idiots and that there’s reasonable chance that they’d walk away from a bad deal. If there’s a better way of specifying that, I’m happy to hear it. But I’m way more uncertain about it than Rob is: no way I’m going to make hard claims about what’s going to happen.

I wish there were some way instead of betting on whether NZ would have had a better negotiating position if it still had tariffs as I’m really pretty sure it wouldn’t have made a whit of difference. But that’s a counterfactual that can’t be observed.

About Eric Crampton (88 Articles)
I'm Head of Research with the New Zealand Initiative.

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