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McClay’s claims of economic gains from TPPA-11 discredited

Senior UN economist discredits McClay’s claims of economic gains from TPPA-11

Last month, trade minister Todd McClay claimed the Trans-Pacific Partnership Agreement minus the US (TPPA-11) could still ‘add $2.5 billion annually to our economy and eliminate costly tariffs – saving New Zealand companies $222 million each year’.

Senior United Nations’ economist Dr Rashmi Banga today pointed to ‘serious limitations’ in the study by Japanese economist Kenichi Kawasaki on which McClay had relied, according to Auckland University law professor Jane Kelsey. Dr Banga notes the limitations of the computable general equilibrium model (CGE) are ‘widely accepted in the economic literature’.

‘This is yet another reason why New Zealand’s negotiators should withdraw from the meeting in Tokyotomorrow and Friday, which is meant to finalise options on the TPPA-11’, Professor Kelsey said.

‘The Labour Opposition voiced concerns over similar modelling in its minority report on the TPPA, saying the Government had failed to present a robust economic case and to address concerns about employment, income distribution and public health impacts’, Kelsey observes.

‘Hopefully, Labour will embrace Dr Banga’s review, which reinforces their earlier decision to reject the deal as not in New Zealand’s interests’.

Notes on Dr Banga’s report

Rashmi Banga, ‘Critique of Impact Assessment of Regional Trade Agreements using Non-Tariff Measures’, UNCTAD, 15 September 2017

Dr Banga warns policy makers seeking to rely on studies that use CGE modelling to be aware of the wide assumptions that underlie such analyses and the probability of multiple biases. The literature on such models shows they are designed to always lead to increase in ‘overall gains’.

Applying the model to so-called ‘non-tariff measures’ treats regulations as barriers to trade, even when they increase welfare in the country that applies the measure and ‘are often introduced to serve legitimate public demands for better product safety or environmental protection’.

Dr Banga notes that the Kawasaki study and her review cover only the tariff and non-tariff (regulatory) aspects of the TPPA. They do not address other rules that have broader economic impacts, such as stronger monopolies on intellectual property (that affect the price of medicines), investor protections that are enforced through investor-state dispute settlement, rights for foreign bidders in government procurement projects, and embedding the fully corporatised model of state-owned enterprises.

Further note: The Australian Productivity Commission’s annual report in 2016 pointed to these rules, alongside the problems with CGE modelling, when it concluded there was questionable benefit to Australia from the TPPA, even with the US.


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