TPP — can’t get something for nothing

12/02/2014 § Leave a comment

I have avoided discussing the Trans-Pacific Partnership (TPP) trade negotiations, because it’s complex and secret and yet to be decided. But a statement from Tariana Turia, Associate Minister of Health, leads me to comment. Turia’s plain packaging for cigarettes bill just passed its first vote. The bill is intended to reduce the sale of cigarettes by making the packaging less attractive. A challenge to a similar Australian law is before the WTO, and the bill raises questions about the TPP.

The question is whether New Zealand will have the latitude to pass such laws should it sign the TPP. Just to stress, until the language is finalised, it’s all speculation. This legal post on investor-state arbitration is an example. But, Turia’s statement suggests a certain naivete about the negotiations. She said:

While the tobacco industry may have laid down a threat that if this legislation is passed [it will be challenged] my message to them is that our country has a sovereign right and a legal right to protect its citizens.

The point of these sorts of negotiations, though, is the give-and-take. New Zealand gives up a bit of its sovereignty to make laws within its own borders in exchange for consistency across borders.

One lesson from the analysis of international trade — the one that gets trumpeted — is that free trade makes countries better off. It lowers prices, increases the amount of products, increases product variety, leads to greater uptake of technology, and promotes innovation. Another lesson from exactly the same analysis is that there are distributional impacts from free trade. Some people within a country can be made worse off. This result arises either from the supply or demand side — either individuals’ resources fall in value or their consumption bundles become more expensive. The now-richer country can moderate the distributional impacts, but it isn’t a requirement of the models.

So back to New Zealand. Let’s stipulate that TPP will lead to economic benefits for the country as a whole. The same analysis would also tell us that there are likely to be winners and losers. Given that much of the negotiation has happened out of sight of the public, and that the Government won’t even let the people’s representatives see the text, one does have to wonder who those winners and losers will be.

Also, the cigarette companies have a very good legal argument on their side. The products are legal and their brand image is valuable. Quoting ACT MP John Banks:

I don’t believe the State should seize property rights from legitimate companies selling legitimate products.

So we have two opposing legal rights — the country’s right to protect its citizens, and the property right of companies. In the future, TPP will end up being a thumb on the scales. Turia may find that the balance has shifted.

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