TPP under threat from coalition talks

The TPP is set to be finalised at Apec, but New Zealand's uncertain election result has thrown a spanner in the works. Photo: Lynn Grieveson.

Long-running negotiations over the TPP free trade deal are close to a conclusion - but New Zealand’s election has thrown a spanner into the works. Will we sign on the dotted line, or could withdrawal be the price of coalition negotiations?

So close, yet so far.

After years of talks, the eleven countries that make up the Trans-Pacific Partnership are set to wrap up negotiations on the sidelines of Apec in early November.

Yet whether New Zealand will be able to sign off on the free trade deal it helped initiate remains to be seen, thanks to uncertainty over the shape of the next government.

While National has been a staunch advocate of the TPP, power rival Labour and kingmaker NZ First have both been outspoken critics of aspects of the deal.

What are their chances of making the changes they want, and could New Zealand’s involvement in the deal fall at the final hurdle?

Parliamentary majority gone

Stephen Jacobi, executive director of the NZ International Business Forum, puts it simply in saying that New Zealand has lost its parliamentary majority in favour of the TPP.

Labour, NZ First and the Greens are all opposed to at least parts of the deal, while National lacks the necessary support partners to win any vote.

Former trade negotiator Charles Finny, a partner at Saunders Unsworth, says a Labour/Greens/NZ First government would face the greatest difficulty in finalising a policy position on the TPP ahead of Apec.

“If National is there, I think it can proceed relatively smoothly - the challenge will be when it next comes back for ratification if it needs to, who’s going to support it?”

Stephen Parry, the spokesman for anti-TPP group It’s Our Future, is hopeful the change of government will also lead to a change of tack when it comes to the controversial deal.

“It’s hard for me to see any scenario where there’s not going to be a change, I guess it depends ultimately on which coalition manages to form a government.”

However, the deal is already morphing from the original agreement signed in February 2016, due primarily to US President Donald Trump withdrawing his country from the agreement.

At the last round of TPP negotiations in September, countries tabled about 50 requests to “freeze” parts of the agreement, stopping them from coming into force unless and until the United States rejoins.

The vast majority relate to clauses inserted at the behest of the US, particularly around intellectual property (such as extending copyrights to 70 years after the creator’s death); however, it’s likely that only five to 10 will actually be agreed to.

“There is ample scope to restrict and come as close as you could possibly get to a ban [on foreign buyers].”

So could Labour or NZ First win the changes necessary to secure their backing?

Labour’s concerns centre around the TPP impeding its ability to ban the sale of existing homes to foreign buyers, due to a non-discrimination clause.

Labour leader Jacinda Ardern has said she would attempt to renegotiate the deal to allow the ban, but Jacobi says that risks reopening old wounds from other countries, such as Japanese concerns around agriculture liberalisation, that could take “a month of Sundays” to resolve.

Instead, he and Finny argue a similar effect can be achieved through a restrictive stamp duty or other tax on foreign buyers, allowed within the existing terms of the agreement.

“There is ample scope to restrict and come as close as you could possibly get to a ban,” Finny says.

While NZ First has similar concerns around foreign ownership, another of its main issues appears to be with the Investor State Dispute Settlement mechanism.

The ISDS, which allows companies to sue countries for breaches of FTAs, has been described in the past by Peters as “an international corporate protection racket”.

In mid-August, Peters accused National of “scheming to present a fait accompli” on the TPP deal after the election without proper consultation following the United States’ withdrawal.

However, he later ducked the question of whether he would demand New Zealand’s withdrawal from an unchanged TPP when asked by the NZ Herald, saying only: "It is a package of rather lethal clauses that deliver for the international corporates at the expense of the New Zealand public."

It’s plausible that some amendments could be made to ease concerns over the ISDS clauses in the agreement, given they do not affect market access.

“I wouldn’t exclude that the ISDS provisions might be somewhat ameliorated contingent on the US withdrawal,” Jacobi says.

Changes 'could take edge off'

Whether sufficient changes could be made to win the support of Peters and other critics is another matter entirely.

Parry concedes the possible changes could “certainly take some of the edge off the agreement”, but questions the range and scale of any amendments.

“Were the agreement to fundamentally change, we would reconsider our position, but there’s nothing to indicate anything has changed in a real way.”

As to whether the TPP could form a dreaded “bottom line” during coalition talks, it’s too early to say.

Asked on Thursday about whether negotiations with NZ First would cover changes to the TPP or other FTAs to allow a foreign buyer ban, Ardern gave little away.

“We've set out some of our views for those negotiations. We've set out clearly that we maintain the ability to ban foreign speculators from purchasing existing homes in our residential housing market. Whether or not they will come up in our negotiations remains to be seen."

As for NZ First’s concerns about the ISDS mechanism: “That hasn't been our focus, but I don't want to presume what will come up in those negotiations and what priorities other parties will place when we come to the table.”

A TPP-10?

Finny’s “nightmare scenario” is the TPP-11 becoming a TPP-10, with New Zealand stuck on the sidelines and forced to attempt re-entry at a later date.

“The trouble is that we have no leverage at that point.”

Both Finny and Jacobi fear New Zealand being squeezed out of the Japanese market, with the other TPP countries benefiting from lowered tariffs and the EU recently sealing a deal of its own.

“There’s a big call to be made about whether New Zealand departs from literally decades of leadership on trade,” Jacobi says.

“If some captain has to make it, it would be quite a captain's call to do so.”

“I would have thought a Labour Party which has been supporting free trade agreements since the 1980s would be very reluctant to be the reason why an agreement that’s worth so much for the New Zealand economy falls over.”

He suggests it could be up to Labour, whether in government or opposition, to keep the TPP alive.

The last Labour-led government had to deal with support partners opposed to trade deals - the Alliance with Singapore and NZ First with China - relying on the votes of the National opposition to get the agreements across the line.

It’s likely pressure will come on them to support the deal either way, as Finny notes.

“I would have thought a Labour Party which has been supporting free trade agreements since the 1980s would be very reluctant to be the reason why an agreement that’s worth so much for the New Zealand economy falls over.”

Parry says his group has been disappointed by Labour’s ambiguity around the TPP, noting it “sat on the fence” regarding the deal until after it was signed and the damage was done.

However, he’s optimistic the influence of either National or Labour’s coalition partners will lead to a new approach.

Whoever does take up the reins of power will have little time to prepare themselves: there’s expected to be a final round of negotiations at the end of October, before talks in Vietnam on the sidelines of Apec capped by a TPP “summit”.