22 May 2014

CORRESPONDENT

6:08 pm on 22 May 2014

Talks to set up a Pacific-wide trade deal have been going for close to five years.

While the 12 nations in the Trans Pacific Partnership, or TPP, are inching closer to completing a deal, many formidable hurdles remain.

Not least is the reluctance of the largest and most influential countries, the United States and Japan, to open up their markets, especially for agricultural goods.

That's the real prize for New Zealand.

But the May 19-20th meeting in Singapore, which again, but not surprisingly, failed to yield any agreement, may be an important turning point for the future shape of the talks.

New Zealand's Trade Minister Tim Groser has been adamant any agreement should be comprehensive and high quality. That means abolishing tariffs on goods in the region.

But that position may be shifting.

In a sign of pragmatism that countries such as Japan are unwilling to abolish barriers on sensitive goods like dairy, beef and rice, Mr Groser suggested New Zealand may be open to a deal that does not abolish tariffs on all agricultural products.

He's insisting it's not a back down, saying he would only agree if Japan and the United States prove they can show another way to achieve a high-quality agreement. Until then, New Zealand will stick to its original position.

Does it matter? After all, trade deals are imperfect, and all involve some compromise.

New Zealand's farmers are naturally disappointed, but they appear resigned that this may be the best way to secure a deal.

Mr Groser rightly argues the TPP is the best vehicle for New Zealand to get access to the lucrative markets of the US and Japan, which it wouldn't otherwise achieve through a bilateral.

Taking such a position helps advance the talks, without making any commitments. Indeed, the full removal of tariffs on all goods could still be achieved.

But there are dangers.

The executive director of the International Business Forum, Stephen Jacobi, warns any compromise on tariff elimination is bound to prompt countries to demand exclusions for sensitive goods. He says any backsliding should be vigorously resisted.

Mr Jacobi also warns the TPP could degenerate into a series of bilaterals, which would favour the bigger countries. New Zealand is particularly susceptible, because it has little to bargain with, having cut or eliminated tariffs already. Mr Jacobi says the benefits of the bilaterals need to be passed on to everyone else.

TPP opponent, Professor Jane Kelsey argues New Zealand is in a position of getting the worst of all worlds. She says the US and Japan could concede very little on market access, yet force New Zealand to accept higher drug prices, tighter copyright rules and fewer controls on foreign investment rules just to stay in the game.

Certainly, there are many concerns about the TPP, including issues of national sovereignty.

Yet the US President, Barack Obama, has talked up the rhetoric that the TPP will be a 21st century agreement. If that's the case it needs to fix 21st century problems such as tariff barriers. Concessions in this area could be very material for a small, open trading nation like New Zealand, and undermine the Government's case of the benefits from this agreement.

Prime Minister John Key will meet Mr Obama in the US next month. He should remind him what the TPP was supposed to achieve.