Utopia, you are standing in it!

The op-ed by Tim Hazledine today made a poor case against the Trans-Pacific Partnership agreement (TPPA). A much better case could be made but for his still fighting the 1990 election in New Zealand, which was about the future of economic reform.

He starts off strong by saying that the agreement is a mixed bag. I am of the same view. The TPPA is a so-so deal with small net gains.

Economic stuff the PM DIDNT mention #TPPANoWay @ItsOurFutureNZ @etangata @Mihi_Forbes @FoxMarama @grantrobertson1 https://t.co/L9rtd1dXvp—
Moana Maniapoto (@moanatribe) January 26, 2016

The TPPA and other trade agreements have dubious chapters such as the trade and environmental clauses, the intellectual property chapter and investor-state dispute settlement. Good arguments can be mounted against all of them, especially the inclusion of trade and environmental clauses into trade agreements.

Hazledine makes few of these points of mine, preferring instead to start with a rant against economic reform in New Zealand:

One of the more gormless of the 1980s “Rogernomics” economic policy experiments was to slash tariffs on imports without seeking equivalent concessions from our trading partners.

That didn’t do us much good then, but means now that matching reductions under the TPP is relatively painless for New Zealand, because our tariffs are already so low.

He wants to put tariffs back up again so that the poor pay well over the odds to import goods that are often not made in New Zealand and when they were they were very expensive.

Henry Simons argued that economics and in particular applied price theory is most useful both to the student and the political leader as a prophylactic against popular fallacies. Paul Krugman explained the twisted logic of trade negotiations well in this tradition when he said:

Anyone who has tried to make sense of international trade negotiations eventually realizes that they can only be understood by realizing that they are a game scored according to mercantilist rules, in which an increase in exports – no matter how expensive to produce in terms of other opportunities foregone – is a victory, and an increase in imports – no matter how many resources it releases for other uses – is a defeat.

The implicit mercantilist theory that underlies trade negotiations does not make sense on any level, indeed is inconsistent with simple adding-up constraints; but it nonetheless governs actual policy.

The economist who wants to influence that policy, as opposed to merely jeering at its foolishness, must not forget that the economic theory underlying trade negotiations is nonsense – but he must also be willing to think as the negotiators think, accepting for the sake of argument their view of the world.

The logic of trade negotiations is they are about cutting tariffs we should have cut long ago in return to others cutting their tariffs which they too should have cut long ago if they had any concern for the welfare of their own country rather than special interests.

Tim Hazledine swallows the logic of trade negotiations hook, line and sinker with all the enthusiasm of a non-economist but he is a professional economist. Professional economists laugh at the mercantilist logic of trade negotiations.

Paul Krugman summarised the TPPA well recently from a standpoint of a professional economist, which occasional he still is:

I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things, not good, even from an efficiency standpoint….

What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Republicans in general are mad because the labour protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer.

Krugman then reminded that a trade agreement is most politically viable when it is most socially harmful. This is the point that the opponents of the TPPA miss. They will not want to discuss how some trade agreements are good deals but others are bad. That would admit that trade agreements can be welfare enhancing, and sometimes they are but sometimes not.

Hazledine’s op-ed improves noticeably when he talks about sovereignty but this will backfire on him as I will show shortly:

what perhaps most concerns TPP doubters is possible loss of sovereignty – control by legitimate New Zealand governments over New Zealand policies and institutions: Pharmac, mining, greenhouse gases, fracking, biomedical patents, the Treaty of Waitangi and others have been raised as being at risk. TPP supporters have attempted to soothe such concerns, but I’d say they should come clean. Of course the TPP will weaken New Zealand’s sovereignty. That is what these things are supposed to do!

The fundamental idea or ideology behind the TPP is that national governments cannot be trusted to act independently on many issues, because they will inevitably succumb to local vested interests. Only the cleansing discipline of untrammelled global free-market forces will deliver efficient outcomes.

I fully understand the economic logic of this position, and could easily myself compile a long list of harmful effects of local vested interests, at the top of which would actually be those Canadian etc dairy and other agricultural policies.

But the basic premise is flawed. Most of the sovereignty we are giving up is not ceded to the invisible hand of free, competitive markets. It is not even handed over to larger sovereign states, such as the United States. It is largely to be conceded in the cause of making the world a safer place for huge, stateless multinational corporations to roam. Are we sure this is what we want?

I agree that treaties reduce sovereignty. That is what they are about. I am particularly concerned about treaties that reduce New Zealand’s sovereignty over its greenhouse gas emissions. These sovereignty arguments against trade agreements apply equally to climate treaties.

Likewise, trade agreements should not include trade and environmental standards as they limit the right of New Zealand to deregulate its labour market.

What's in the #TPP? Robust enforceable environmental protections. Get the facts ustr.gov/tpp #LeadOnTrade http://t.co/hzapJwGaCa—
USTR (@USTradeRep) October 05, 2015

What's in the #TPP? Protections for American workers. Get the facts: ustr.gov/tpp #MadeInAmerica http://t.co/VPeV70zaPT—
USTR (@USTradeRep) October 05, 2015

All too often unions point out that this or that International Labor Organisation convention signed decades ago conflicts with labour market deregulation. That undermines the sovereignty of New Zealand regarding the regulation of the economy just as much is the TPPA.