Ten or so TPPA Deep Cuts

Society

12.11.2015

Ten or so TPPA Deep Cuts

The text of the Trans-Pacific Partnership Agreement (TPPA), an unprecedented 12-country free-trade agreement that doubles as New Zealand’s first free-trade agreement with the United States, got released in its entirety at the end of last week. Various draft portions of the agreement have leaked over the past couple of years, but the whole thing hasn’t been available until now. When negotiations were concluded last month, our government spruiked it as a chance to improve access to international markets, support our exporters to grow and create new jobs, and diversify NZ businesses overseas.

Meanwhile, activists, labour unions, and public health experts had been clamouring for an earlier release – and until now, got accused of a whole lot of crying wolf by government ministers, who argued they hadn’t even read what they were complaining about. Not that they could.

So the thing’s out – what’s the impact? At 6,000 pages plus, the finer assessments (which will involve a bunch of comparative study of previous FTAs the United States have set up) are still a couple of weeks off. But heroic all-nighters by academics and NGOs here and abroad, combined with a decade’s hard graft until now, mean there’s already a lot of literature around.

From my own (very minor) involvement in research and logistical support with some of those academics and NGOs in the past, I’ve had a chance to follow it unfold. So here’s ten personal takeaways from and for a NZ perspective at this stage. It’s not legal advice, so law clerks shouldn’t treat it as such when they’re googling for their work dads in big glass-tower firms (you’d be surprised).

1. New Zealand won’t have to reduce as many tariffs as you’d think when you read the words “trade agreement”.

Import tariffs are a tax on imported goods which are generally used to protect local production and industry, and doing away with them is theoretically meant to usher in a level playing field between countries. This forms a big part of what trade agreements were traditionally about, and there’s still a popular assumption that this is what trade agreements turn on for wee countries like New Zealand.

The Beehive’s briefing on TPPA promises that we’ll only have to remove a scant $20 million of import tariffs. Which would make us crack negotiators on the world stage, were it not for the fact that New Zealand  already started pursuing a unilateral reduction of all its import tariffs from 1987 onwards (as of 2010, we had an average weighted tariff weight of around 2.2%).

The jury is out on whether the good effects of this self-inflicted cold shower outweighed the bad, but speaking pragmatically, we gave up all our bargaining chips when it came to trade in real goods. Coming to the TPPA table, NZ really wanted other countries like the US, Canada, and Japan to ditch their subsidies and tariffs when it came to our dairy, beef and lamb. Trouble was, we didn’t have any notable subsidies and tariffs to give up in exchange.

This means we have to agree to a bunch of harder stuff that goes beyond conventional trade, and there’s a lot less we can say about it. This didn’t exactly amount to a bigger win in terms of gaining access to other countries’ markets. US website Politico identified our dairy industry as one of the losers in the final negotiations, quoting Fonterra as being disappointed at the result.

In other words, I have no idea what it’s like versing Roger Douglas or Trade Minister Tim Groser or any of these bad dudes in a poker game but I’m guessing they immediately show all of their cards, fold their arms and go “I look forward to other players following suit in this open market.”

2. Our government can get owned by overseas corporations.

Investor-state dispute settlement (ISDS) is the great big bugbear with TPPA and other US free-trade agreements. Thanks to the leak of the investment chapter, we’ve already known for a while the agreement would make it compulsory.

Writing for this site in July, Rose Archer described the extra-national tribunals the TPPA would establish as:

“A mechanism by which companies can sue governments for passing laws that might reduce their profits. For the purposes of democratic lawmaking, ISDS is possibly the most damaging form of provision within modern Free Trade Agreements…in fact, examining the history of Free Trade and Investment Agreements we see a surfeit of cases in which democratic, progressive and humanitarian law making has been undermined by ISDS tribunals.”

Drilling down, what ISDS does is provide an enforcement mechanism outside of a state’s domestic legal system for a private corporation established in a TPPA participant country. For example, a US corporation could take the NZ government to one of these tribunals, arguing that they have acted in breach of the TPPA and the privileges it accords foreign investors.

The US is actually a great example in this scenario, because A: it’s more litigious (pre-TPPA, it’s had the highest frequency of claimants using ISDS systems under other agreements) and B: it’s better at winning (a Canadian study in 2012 found claimants with a US nationality had a 98% chance of securing a favourable resolution at arbitration).

The original idea behind ISDS was a way of dealing with ‘unreliable’ states that might expropriate private and foreign-owned assets without compensation – banana republic kind of stuff, with an assumption that the expropriating state’s courts wouldn’t help out the person on the receiving end. That’s expanded somewhat, to the point that the TPPA’s text empowers investors to demand compensation for “indirect expropriation”. At the ISDS level, that’s been interpreted to include ordinary regulation and government action that merely reduces the value of someone’s foreign investment.

Domestic businesses anywhere are already used to the possibility of regulation or government action that reduces the value of their venture. Stuff like improvements to employment law, health and safety requirements, or environmental regulations. That’s the nature of risk (or, better yet, life) – yet the international companies that use these tribunals feel they shouldn’t have to put up with these obstructions.

3. There’s an exclusion for governments to act in the public interest, but it’s cackhanded.

The draft investment chapter that leaked included a proposed clause letting governments implement “non-discriminatory” action “designed and applied to achieve legitimate public welfare objectives, such as the protection of public health, safety and the environment” without incurring the wrath of the ISDS process.

As US watchdog Public Citizen explains, this survived to the final TPPA, but with a caveat that public interest policies could be challenged as expropriation in “rare circumstances”. And in an interview with the Guardian, international arbitration expert George Kahale III warned that all such measures are restricted by the condition that they be “otherwise consistent” with the TPPA’s investment chapter.

Once you’ve driven the SUV of your choice through these loopholes, you find a range of ISDS cases in which governments have been sued for (among other things) fracking moratoriums, developing public insurance programmes, imposing research-spending requirements on producers, refusing or revoking mining permits, and closing plants or factories for sustained lack of compliance.

In other words, acceptable government action under the TPPA regime threatens to become a limited matter of rearranging the deckchairs. In this sense, developed country governments who support the agreement and accuse opponents on scaremongering on ISDS aren’t wrong - because rearranging the deckchairs is exactly what most of them already do.

But it sets off a ratcheting effect for anyone who aspires to radical change in the face of 21st century challenges that cannot be addressed any other way. Is the current status quo the one you want locked into place?

4. New Zealand opted to let ISDS claimants double-dip for that sweet public cash.

An annex to the agreement shows us that four countries signed up to the TPPA – Mexico, Peru, Chile and Vietnam – have made foreign investors decide where they’re going to seek a remedy and stick to it. If you choose to sue the Mexican government in a Mexican court, you can’t pursue them under ISDS later on. This kind of protection against “forum shopping” is consistent in most well-developed legal systems you’ll find.

So why has NZ left both options on the table – especially given that we have a strong domestic legal system in place already?

5. New Zealand’s retains an initial right to approve foreign investment, but your racist Uncle Bevan will still have a bone to pick

The NZ government confirms the continued role of our own Overseas Investment Office in screening foreign investment in significant business assets and in foreign purchases of sensitive land (including farmland). This puts in place a few tests, including whether the investor can meet business experience and good character tests, and whether or not the investment is of benefit to New Zealand. How much difference this actually makes depends on your view of the effectiveness of the OIO as it stands (all 189 applications for overseas ownership of NZ land in 2013/14 were approved).

Note that this exemption doesn’t apply to the much-trod issue of house sales to foreign buyers, though our TPPA negotiators secured the right for a future NZ government to impose some taxes on these purchases. It would preclude Labour’s policy, reaffirmed at their annual conference this month, of restricting the sale of housing to non-resident foreigners. Expect considerable to-do re: what’s “just not on” in coming weeks about TPPA and “Chinese buying up houses” (China is not a party to the TPPA).

6. I don’t want to keep coming back to this point, but current ISDS tribunal arrangements are bad.

Historically, the tribunalists appointed to ISDS tribunals have been private sector attorneys with expertise in international trade regulations, who moonlight as panel judges when they’re not actually acting for the companies that bring ISDS claims. Beyond a proposed “Code of Conduct” for arbitrators that hasn’t been released to the public yet, the TPPA retains these problems. There is no specific requirement for tribunalists to be independent or impartial in the agreement itself, no requirements to follow precedent, and no right of appeal.

As Bloomberg's Andrew Martin reported in 2013, the consequences of this are real. The Argentinian government was stung for $105 million in 2007 by French company Vivendi for reversing a failed water privatisation. Argentina later learnt that one of the arbitrators who ruled against it was simultaneously on the board of a bank that was one of Vivendi’s shareholders. The country’s attempt to have the judgment overturned failed.

For those involved, ISDS are big business – to the point that specialised investment funds are now offering credit to claimants wanting to sue governments.Based on these patterns, it's hard to see how these systems are going to be used sparingly, or how arbitrators will use their decisionmaking powers to make the threshold higher for investors.

7. The TPPA’s provisions on labour rights are about as strong as a wet origami dick.

The possibility that TPPA will mean higher minimum labour standards (including the freedom to form independent trade unions) in places like Vietnam, Malaysia and Brunei has been one of the carrots the Obama Administration holds out to Democratic faithful in the States.

Which is fine – better labour standards in developing countries improve the quality of life for virtually all of us – but TPPA doesn’t immediately demand countries commit to high labour standards in order to reap the rest of the deal’s benefits. So there’s a lot of aspiration, but no incentive for change.

Cole Stangler and Maria Gallucci of the International Business Times profiled Guatemala last week, seeing how the labour standards touted in 2006’s Central America Free Trade Agreement were working out. They’re not: employees are fired, or simply wind up dead, for organising unions and speaking out about their working conditions. Domestic and international unions are locked out of ISDS, unable to use the same sweeping provisions to enforce the TPPA’s labour commitments.

8. Environmental protections under TPPA are well-tailored for this depraved world destined for the fire.

In 2007, Congressional Democrats extracted a commitment from the White House to ensure that future FTAs the States negotiated would require all partners to adopt, maintain and implement laws that would fulfill their obligations under seven core international environmental agreements.

As the Sierra Club notes, the TPPA only beds in these requirements around one of those seven agreements (the Convention on International Trade in Endangered Species of Wild Flora and Fauna, if you were wondering). Elsewhere the language is piping-hot grade-A waffle: countries should “endeavor not to undermine” existing trade documentation on illegal overfishing, and aspire to “promote the long-term conservation…of marine mammals” (Japan opposed any stern anti-whaling language, so here’s to lots more of those big tight dudes of the sea getting killed).

Best of all is the insulting climate change stuff: “the (TPPA) parties acknowledge that transition to a low emissions economy requires collective action” and “shall cooperate to address matters of joint or common interest”. Some pretty thin but essentially admirable statements on how non-market approaches can achieve climate change objectives and should be recognized didn’t even make it past the draft. No one really believed the TPPA was going to be some world-shaping climate change accord, but looking at the final result you’d rather they didn’t even bother at all.

9. Pharmac is potentially a bit rooted, whether or not those costs get passed on to us everyday medicine-takers.

Pharmac, the Crown entity that decides which medicines and pharmaceutical products are publicly subsidised and how, has been recognised internationally for its success in managing NZ’s expenditure on pharmaceuticals. By tendering out the right for a pharmaceutical product to be the sole subsidised brand of its kind, and by setting fixed subsidy amounts on widely used medicines, it makes pharmaceutical companies compete to drive their prices down. It’s this one crazy trick, and Big Pharma hate us.

The final agreement doesn’t dismantle Pharmac like some commentators worried it would. One thing it does is threaten a growing administrative burden that may not directly make lifesaving medicines pricier, but will make the system more expensive. For example, a new review procedure will let international pharmaceutical companies challenge Pharmac’s decisions on what it does and doesn’t fund in the name of ‘transparency’. To what extent this delays access to certain medicines, and exactly how much it winds up costing, remains to be seen.

10. The TPPA doesn’t have anything to do with the flag referendum so shut up

When I first had to bone up on the TPPA about five years ago, it was in the knowledge that it was a lonely old topic – very hard to explain in 30 seconds or less, and pretty technical in ways that don’t really go for our guts the way other issues do – though of course, it could potentially affect a bunch of environmental and social things we do have visceral feelings on. Doesn't go down well at parties.

Now if you try to talk about it you’re hemmed in alongside a small army of anti-vaxxers, New World Order conspiracy theorists, and dudes who have theorised extensively about how our current awful flag is some sacred covenant to prevent the TPPA’s passage. As I understand the plan, the referendum to select our new awful flag is part of an endgame to end our sovereignty forever.

I’m not a big fan about gabbing about sovereignty in the context of this stuff, because sovereignty is already a vexed issue in a colonial state like NZ. You can talk in concrete terms about the possible impacts the agreement will have on a small country like NZ (who and what is affected, and how) without appealing to abstract higher rights. But the flag stuff has never been in issue. It’s frankly embarrassing, and the discussion would be healthier (wouldn’t everything?) without the pervasive influence of Big Guy Fawkes Mask.


More substantial assessment of the TPPA can be found here:

Public Citizen’s collated assessment of its investor-state provisions

The Sierra Club on TPPA’s environment provisions

Professor Jane Kelsey’s sober reflections on the TPPA ‘snow job’

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