Fonterra 'very disappointed' with limited TPP dairy deal

Tuesday 6th October 2015

The New Zealand government faces a tough job defending the outcome of the Trans-Pacific Partnership trade and investment agreement, in which it gained limited new access into the highly protected dairy markets of the US, Canada, Japan and Mexico.

That's despite substantial gains elsewhere and, for the first time, a free-trade agreement with the US and Japan, where New Zealand has tried over three decades and failed to win bi-lateral FTAs.

Other gains include a less onerous deal on pharmaceutical patents than had been widely expected, with five-year patent provisions remaining in place, and a carve-out for New Zealand and Australia to prevent tobacco companies from attempting to sue either government if they introduce public health initiatives to curb smoking.

Likely to be controversial, especially with universities, is the extension of copyright from 50 to 70 years.

"The cost of this to consumers and businesses will be small to begin with and increases gradually over a 20 year period," said Trade Minister Tim Groser in a statement. "Other potentially far-reaching or costly proposals raised earlier in the negotiations were not included in the final agreement."

The agreement requires no changes to the Pharmac drug-buying agency, which many TPP opponents had feared.

However, gains for New Zealand were limited in dairy products, the country's largest export, into the North American and Japanese markets.

In a statement issued overnight from Atlanta, where the TPP negotiations concluded after more than five years of negotiations, Fonterra chairman John Wilson said he was "very disappointed that the deal falls far short of TPP's original ambition to eliminate all tariffs" although there would be "some useful gains for New Zealand dairy exporters in key TPP markets."

"Dairy has been very hard to resolve and New Zealand has managed to get some progress against the odds." The outcome was an improvement on the limited offers tabled at the second to last ministerial meeting, in Maui, Hawaii, in late July.

Speaking from Atlanta, Trade Minister Tim Groser told BusinessDesk that failure to get greater liberalisation for butter into North America and Japan was the biggest disappointment.

"There is movement on butter, but it is very modest in some markets," he said. Details differ country by country and will only emerge once officials agree final wordings in the next few days. Dairy access talks continued until 5 a.m. Monday, Atlanta time, just four hours before a much-delayed press conference to announce the historic 12 nation trade and investment pact.

Among the details known are that all tariffs on cheese and whey will disappear in the Japanese market in the long term and some quotas will be lifted modestly; one critical cheese tariff in the US market will disappear in the long term; and infant formula tariffs will be eliminated in the US market in 10 years.

Wilson said "the entrenched protectionism demonstrated by the US dairy industry in particular ensured that the deal on dairy failed to reach its potential."

Groser declined to comment on the quality of the deal with Canada, saying he was being targeted by Canadian media for comments that could inflame the dairy issue ahead of Oct. 19 federal elections.

However, he defended New Zealand remaining in the TPP rather than walking away when it became clear a stronger dairy deal couldn't be reached.

The negotiations had been a "game of chicken in which I am riding down the highway on my bike and four trucks - Japan, the US, Mexico, and Canada - are coming the other way."

"We negotiated until time ran out and we took what we could get. Not being in TPP, on the other hand, would put New Zealand at a competitive disadvantage compared to other countries. In these negotiations, you are either on the bus or you are an idiot."

The TPP agreement also covers a far wider range of goods and services than the dairy market and will eliminate tariffs on 93 percent of New Zealand’s trade with its new FTA partners, once TPP is fully phased in.

Based on an assumption of no growth in exports despite market access created by TPP, officials estimate annual tariff savings of $259 million, "around twice the savings initially forecast for the China FTA," said Groser, who said such estimates were inevitably wrong.

"It makes sense to New Zealand to get market liberalisation wherever it can, and that's what we've done."

Tariffs on beef exports to TPP countries will be eliminated under the deal, with the exception of Japan, where tariffs reduce from 38.5 per cent to 9 per cent and tariffs on all other New Zealand exports to TPP countries – including fruit and vegetables, sheep meat, forestry products, seafood, wine and industrial products – will be eliminated.

The TPP knits together some 40 percent of the global economy, having begun nearly a decade ago as a four-way negotiation involving just New Zealand, Singapore, Brunei, and Chile. Since then, the US, Japan, Canada, Mexico, Australia, Vietnam, Malaysia, and Peru have joined, with the initiative now widely described as a legacy project for outgoing US president Barack Obama.

Parliaments of all 12 countries will have to pass legislation to enact the TPP and Groser said he expected it would be in force in New Zealand within two years.

BusinessDesk.co.nz

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