Let Productivity Commission test “blockbuster” TPP 2.0

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By Leith van Onselen

Here we go again. The AFR has penned another article hailing the “blockbuster” benefits that will flow to Australia from the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), dubbed by MB as TPP 2.0:

TPP 11 as it has become known, presents a blockbuster opportunity for Australian exporters who are better off without the participation of the United States in the trade pact.

From day one, the tariff on wine exported to Japan will fall to zero, creating an advantage for Australian producers at the expense of Californian wineries…

It does not end there, Australian companies will also be able to compete for government procurement contracts in all TPP 11 economies.

…trade expert Deborah Elms, the founder of the Asian Trade Centre… says there are only marginal negatives around what Australia is giving up. The 9.5 percent tariff on swimwear imports is one of them…

The kind of market access promised by TPP 11 has never been seen before, and that Australia would never have get on its own with bilateral projects.

“This includes zero tariffs on almost every single product, most of those zero tariffs will happen on day one. Some of those tariffs are huge,” the Singapore-based expert said…

The TPP opens up 160 services and investment categories and sub-categories. “This list of closed markets is vanishingly small,” Ms Elms said and it comes into force as soon as next year…

There is little doubt the TPP 2.0 will be better than the original. This is because it is likely to eliminate (or reduce) patent and copyright extensions signed into the original pact at the US’ behest, as well as exclude (or water down) the Investor-State Dispute Settlement (ISDS) provision, which would have opened the door to multinational companies suing the Australian Government for implementing rules against their interests (e.g. on environmental, health and safety grounds).

However, this does not mean that TPP 2.0 will be a “gamechanger” as argued by The AFR. Even the uber-bullish (and flawed) modelling by the Peterson Institute for International Economics, released last month, showed a TPP without the US would only boost Australia’s national income by a mere 0.5% by 2030, as well as lift exports by only $29 billion by 2030. That’s the cumulative gain over 12 years and equates to no more than a rounding error.

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In any event, if the TPP 2.0 is going to be so great, then why not get the Productivity Commission (PC) to assess the agreement? After all, the PC recently lamented that Australia’s trade negotiations have been “characterised by a lack of transparent and robust analysis, a vacuum consequently filled at times by misleading claims”, and called on the “final text of an agreement to be rigorously analysed before signing”.

In order to ensure that trade deals deliver net benefits to Australians (rather than only to certain narrow sectors, like wine makers), the Government needs to implement proper processes around negotiations, including engaging the PC to analyse trade deals for their broad equity and efficiency impacts.

Forging ahead with trade deals in an ad hoc, evidence free, manner for political rather than economic reasons, and without due regard for longer-term consequences, is a recipe for poor outcomes.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.