The Ministry of Foreign Affairs and Trade has taken its gloves off in defending the TPP and come out swinging against two economic studies which have been quoted by Labour as justifying criticism of the deal.
At the Foreign Affairs, Defence and Trade Select Committee two weeks ago, Labour’s Trade spokesperson, David Clark, asked the MFAT Chief Negotiator, David Walker, for a commentary on a much-quoted study by Tufts University.
Economists from the university have produced a study concluding that the Trans-Pacific Partnership, would cause some job losses and exacerbate income inequality in each of the dozen participating nations.
Mr Walker’s response, posted on the Committee’s website, says the Tufts study assumes that the labour market does not respond to a change in exports.
“This has the result, for example, that if a sector declines in a country, people previously employed in that sector stay unemployed rather than taking employment in growing sectors, “ say the Tufts economists.
But Mr Walker says there is considerable empirical evidence to show the opposite.
“For example, in New Zealand as the wool sector declined people took new jobs producing dairy products, kiwifruit and wine.
“Generally exports tend to increase when barriers to trade are lowered, and evidence shows that wages are higher in export-intensive industries.
“It should also be noted that given New Zealand’s already open economy, the effects of trade agreements in different sectors are often best viewed in relative terms.
“Faster growing sectors tend to attract more labour and capital over time, which can be accompanied by decline in some other sectors.”
And Mr Walker has also provided a critique of a study by University of Auckland economist Tim Hazledine, Victoria University economist Geoff Bertram, the former Director of Oxfam, Barry Coates and business journalist Rod Oram.
The study argued that the estimated economic gains to New Zealand from TPP should be seen as modest: “extrapolating from current growth rates, GDP would increase by 47% by 2030 without the TPPA or 47.9% with the TPPA”.
Mr Walker says the 0.9% increase in baseline GDP in 2030 is equivalent to NZ$2.7 billion.
“We would argue this represents a significant increase in New Zealand’s income.”
And Mr Walker says not joining the TPP could result in a decline in New Zealand’s GDP.
He has also contested a claim in the paper which has been used by Labour in debate in the House that the TPP could result in the loss of 6000 jobs.
“Over time market reforms encourage growth in other sectors,” he says.
“For example, over the last ten years New Zealand employment in media and telecommunications has expanded by 16%, education and training by 18% (about 31,000 jobs), and health care and social assistance by nearly 40% or 70,000 jobs.”
Mr Walker was asked by Opposition MPs to set out how much of the tariff reductions under the TPP would accrue to exporters and how much to importers and other parties in the supply chain.
He says MFAT does not have precise data on how the benefits might fall.
“The modelling doesn’t make assumptions about what share of a reduction in tariffs accrues to New Zealand producers or other parties.
“The model does assume that there is perfect competition.
“A reduction in tariffs therefore causes a decline in domestic prices in the country removing the tariff.
“This shift in relative prices is what triggers changes in production, trade and incomes in that country and its trading partners.”
It is rare for a MFAT official to be caught in the middle of a highly partisan political debate in New Zealand, but that is where Mr Walker will now find himself.
Foreign Affairs Committee Chair, Mark Mitchell, plans to have MFAT officials, including Mr Walker, present or on standby for most Committee hearings on the TPP so that they can provide background to points raised by submissions.
All of this is likely to raise more demands from Labour for an independent study of the TPP and its benefits (or otherwise.
It would be unlikely the Government would agree.