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TPP’s Benefits Less Than a Quarter of Government’s Claim

5 February 2014

TPP’s Benefits Less Than a Quarter of Government’s Claim

The TPP’s economic benefits are less than a quarter of those the government has claimed - and the proposed trade deal would impose serious costs.

The government has repeatedly used estimates from a team of US economists to justify the Trans Pacific Partnership. This team put the economic gains for New Zealand at US$4.5 billion for 2025 (around NZ$5.5 billion) in their latest study for the Peterson Institute.

A detailed review of that study led by Dr Geoff Bertram concludes that a third of the stated benefits should not be counted at all as they are outside established economic theory. The Sustainability Council review also concludes that only a minor part of the remaining gains are justified. The total benefits likely to be available are less than a quarter of the US$4.1 billion of gains Trade Minister Tim Groser told Parliament would result for New Zealand from the TPP. *

In exchange for a small gain in relative terms, New Zealand is being asked to sign away large slabs of its sovereignty. The TPP bundles the small gains from trade with a wide range of non-trade matters that will set privileges for foreign investors. These would impose serious costs in the form of limitations on a government’s ability to protect the public interest.

The most potent element is investor state dispute settlement (ISDS) rights that would allow foreign investors to file a suit against a government in an offshore tribunal if they believed that new regulations would diminish their expected future profits.

ISDS provisions and other TPP proposals that similarly inhibit or prohibit the government from regulating in the public interest are entirely separable from those required to secure gains from trade. But the US insists on bundling them with standard trade gains in order to lock in the US designed template for “a managed trade regime that puts corporate interests first”, as Nobel prize-winning economist Joseph Stiglitz describes it.

More than any previous trade deal, it matters what gains are really available and whether these exceed costs. On the information publicly available, it is doubtful there is a net benefit for New Zealanders from the TPP.

Our conclusion that the gains have been far overstated is consistent with the Australian Productivity Commission’s view that modelling such as that used in the Peterson study “produce[s] overly optimistic expectations of the likely economic effects”.

* The Sustainability Council’s review is titled: Economic Gains and Costs from the TPP. Groser’s written answer estimated the total income gains for 2025 at US$4.1 billion as he was relying on a variation of the modelling work undertaken by the same team of economists.

ENDS

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