While New Zealand may feel flattered at being called “the Saudi Arabia of milk” it would be more accurate to regard us as the suicide bombers of free trade. Ever since the Uruguay Round kicked off in the 1980s New Zealand has set a socially self destructive, tactically inept, tariff cutting example that few other countries have felt inclined to emulate – and this last round of the TPP talks has surely been no exception. It does us no tactical favours to demonise say, Canadian dairy farmers for their domestic quota system of price support. In fact, Japan is the real problem for us – and New Zealand and Canada share a common interest in getting a reasonable degree of market entry for dairy in Asian markets to justify the trade-offs they are being expected to make in other areas.

Before getting into the detail of that, it might pay for New Zealand to get some idea of how it is being perceived within ther TPP context. Peter Clark is a Canadian lawyer and leading North American commentator on international trade – in the 1990s, he advised the Canadian negotiation team for the NAFTA trade deal. Yesterday, in his Ipolitics column, Clark had some interesting observations to offer on New Zealand:

The buzz around the Westin [hotel in Maui] is that the New Zealand dairy industry — Fonterra, a near-monopoly protected by Competition Law administration which would never fly in North America or Europe — is pessimistic about limited access to dairy markets in the U.S., Canada, Japan and now Mexico.

What does New Zealand have to offer in return? Compare New Zealand’s population to city populations around the world; it’s a safe bet that, since 2012, the country’s entire population has been outstripped by any one of handful of fast-growing Chinese cities. When it comes to assessing concessions, size does matter. With a population density of 16.32 per square kilometre, New Zealand does not offer a very attractive market.

New Zealand dairy producers are no doubt concerned about Japan’s offer to Australia on rice. Media reports from Japan indicate Australia was offered access equivalent to 12 per cent of the offer to the U.S. And the total package was equivalent to one per cent of Japanese consumption. This is not good news for New Zealand.

Indeed. In this column too, I’ve used Japan’s bargaining position on rice as a rough indicator of what its likely offer on dairy will be. On imported rice, the US started off asking Japan for a quota of 175,000 tonnes; instead Japan is offering the US 50,000 increasing to 70,000 tonnes over a ten year period and – as Clark says – is offering Australia roughly one eighth of that 70,000 for an all up figure of around 80,000. That’s still less than half of what the US alone was originally seeking.

This rice exercise is instructive in that it exemplifies how the TPP is proceeding – essentially, this is a bilateral between Japan and the US, with a few scraps on the side for everyone else. The US operates a ‘hub and spoke’ negotiation method with every other TPP nation one-to-one, purely in order to discern their bottom lines. Touchingly, Trade Minister Tim Groser thinks this means he enjoys a special relationship with the US. (What a pushover.) Overnight, I contacted Clark and asked him what he’s been hearing about the Japanese offer on dairy. His reply a few hours ago was this, based on contact with the Japanese farm lobby JA Zenchu:

The Japanese said their government have agreed to provide a TRQ [ a quota with a designated tariff schedule] of 70-75 000 tons for dairy. This TRQ will be offered to the entire TPP group. However, it seems that this will be a global TRQ for any kind of dairy exports whether it's butter, cheese or something else, the product will be converted into milk equivalent. NZ is said to be unhappy with that proposal.

And again, even more recently :

I heard tonight 70,000 MT total for all TPP members. Something strange about product levels. Think there are none. I told the Pork people that there would be little left after US got what it wanted. Fonterra people here are a gloomy lot.

Fonterra’s gathering gloom is for very good reason. If there is no further movement from Japan, and the Canadians don’t suddenly capitulate ….which is unlikely given that (a) Canada has an election coming up, (b) its dairy industry reportedly adds $19 billion annually to the country’s GDP and provides 214,000 jobs with 49% of all Canada’s dairy farms being in Quebec and given that (c) Canada already has bilateral trade pacts with most of the other TPP members. Meaning: it has some incentive to horse trade on the TPP, but none at all to give away the entire horse.

New Zealand has more at stake here – and it has left itself with fewer cards to play, thanks to our naïve willingness to unilaterally dismantle our own trade barriers. A 70,000 dairy quota – even if it was divvied up purely between Canada and New Zealand - would again, be just scraps from the table. Such a result on dairy simply cannot justify New Zealand’s acceptance of higher prices for medicines, patents, other IP measures etc and for extensions to our term of copyright that will solely serve the interests of the US entertainment industry interests. Not to mention the infringement of sovereignty that will be involved in our embrace of investor state dispute mechanisms and the whole panoply of international arbitration panels - if and when foreign multinationals should ever happen to feel displeased about the impact of our laws on their bottom lines.

So far, the local reportage on the likely TPP medicines outcome – we’ll be paying more for medicines in future, since we will have slower access to generics because patent terms arte extended – has not conveyed the additional bad news that these extra costs will be incurred in the cutting edge treatments aka ‘biologics.’ The US originally wanted a 12 year patent protection period for biologics, but is now offering seven – the Australian position has been that a five year patent period should be the TPP standard.

Those medicines are now at the front line of treatments for diseases including cancer, HIV/AIDS, rheumatoid arthritis, diabetes, hepatitis B and multiple sclerosis. The original US proposal, as set out in texts leaked as recently as May, would have resulted in a "devastating impact on global health", medical humanitarian organisation Medecins Sans Frontieres said on Friday.

The TPP promises benefits for farmers and service providers in Australia but doctors, public health advocates and economists have been outraged by US moves to use it as a vehicle to extend drug company monopolies over expensive biologic drugs.

Again, its quite hard to see what any of this has to do with “ free” trade. Time and again within the TPP, the process has been far more about cementing US corporate advantage in place. As things stand, New Zealand and Canada are being hung out to dry on dairy access. They can either cave in and accept the scraps on offer, or dig in. Come Saturday, the closing TPP communique in Maui will – no doubt - be attempting to declare victory amid a fair level of ongoing dissent. So, expect a communiqué that will announce agreement on a TPP ‘framework’ with more work still to be done. And no doubt, that old cliché about ‘significant progress’ being made will be once more pressed into service.

Footnote : BTW, is it really all that great being the “ Saudi Arabia of milk” when there’s a global dairy glut, and commodity prices are plunging? And as for Tim Groser’s comment on TPP critics yesterday : “We need adults to do this, not breathless children to run off at the mouth when the deal is not actually finished.” Yep, that does just about take the cake for ministerial arrogance.

Second footnote Correction: the respected Canadian trade commentator Peter Clark advises that he is not in fact a trade lawyer, and his role with respect to Canada's NAFTA team was advisory, and not as a negotiator per se.

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