Utopia, you are standing in it!

Despite all the passions about the TPPA, the correct starting post for an economist on regional trade agreements is lukewarm opposition. That is the position of Paul Krugman. Paul Krugman summarised the TPPA well recently from a standpoint of a professional economist:

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.

The correct economic name for free trade agreements is preferential trading agreements. These agreements give tariff and other preferences to some countries over others.

Tariffs are lower for the members of the agreement, creating more trade, but there is also trade division.

CER offers a neat example of trade diversion. Instead of buying cars from the cheapest source and collecting tariff revenue, the hopelessly inefficient Australian car industry did not have to pay tariffs so it made New Zealand into a major export market until tariffs were abolished in 1998.

Less tariff revenue because of CER but we still paid way over the odds for Australian instead of Japanese cars. We were worse off. Less tariff revenue but car prices pretty much as high as before.

New Zealand tariffs are minimal these days. The TPPA reduces the key tariffs on our exports at an excruciatingly slow pace.

There is no discussion of trade diversion in the National Interest Analysis before this committee. For that reason alone, the National Interests Analysis is inadequate and should be returned to the Ministry for further work. Right now, it would not pass a first semester test in a basic international economics course because that most basic risk from trade agreements is not discussed.

Most of the TPPA is not about tariffs. Many of these other chapters are suspicious add-ons to trade talks.

Developing countries rightly regard trade and environment clauses in any trade agreement as a new form of colonialism.

Unions, the Labour Party and Greens happily demand these intrusions into the regulatory sovereignty of developing countries to protect special interests against import competition.

The sovereignty objections to trade agreements are no different to those that can be made to climate change treaties and International Labour Organisation conventions. It is all in the details – what do we get in return?

Consistency would help too. Trade agreements should not include labour or environmental standards as they, for example, limit our right to deregulate our labour market. Be careful for what you wish for when you oppose international agreements on sovereignty grounds.

The intellectual property chapters of the TPPA are truly suspicious. With each new day, the case for patents and copyrights is weakening in the economic literature. Some have made powerful arguments to abolish patents and copyrights altogether.

There are modest extensions of the term limits of drug patents and much more mischief on copyright terms. These should be watched carefully in future trade talks and one day will be a deal breaker.

Good arguments can be made against investor state dispute settlement provisions even after the carve-outs. These provisions have no place in trade agreements between democracies.

Foreigners can take their chances in democratic politics like the rest of us. They might occasionally get a short deal because of left-wing or right-wing populism but these gusts of xenophobia are mostly an occasional irritant in the rich fabric of Western democracies.

Developing countries sign-up to investor state dispute settlement to signal they are open for business. Foreign investors do not have to put up with their corrupt courts and bureaucracies and hopelessly venial politicians.

The logic of regional trade negotiations is we cut tariffs we should have cut long ago in return for others cutting their tariffs which they too should have cut long ago.

Much is made of the cost-benefit analysis of the TPPA. All the critics are really saying is cost benefit analysis is really hard and often imprecise.

If the econometric estimates were not in doubt in this or any other public policy field, the academics are simply not trying hard enough to win tenure and promotion. Academics make their careers by being contrarian.

For this lukewarm opponent of regional trade agreements, the TPPA is a so-so deal with small net gains. There is no harm in signing it.