TPP So Near But So Far
There is still much misinformation flying about on the TPP Maui Ministerial. Our assessment is that a good deal was almost achieved. But negotiations broke down over an unexpected issue – rules of origin over automobiles. If this had not entered the equation it seems likely that Canada would have improved its offer on dairy so that Harper could have had TPP out of the way prior to calling the General Election. Canada improving its offer would have allowed the US to improve its position and this would have put enormous pressure on Japan. Japan would have sought instructions overnight from Tokyo and would have offered more. Ministers would have met first thing Sunday – one day late – and shaken on a deal. But Rules of Origin on autos is a very complex issue that could not be solved so quickly. Japan needs relatively liberal rules on non-TPP componentry as it sources so many components from non-TPP economies. Mexico and Canada worry whether such liberal rules would render their very large auto industries non-competitive. It is going to take some time to achieve a fix.
There is no Ministerial meeting scehduled yet for all the TPP members but many will be in Kuala Lumpur at the ASEAN Economic Ministers meeting. This does not usually include the US but USTR Froman will be in KL. Expect a hectic schedule of bilateral meetings.
TPP’s outcome is not the trade off between pharmaceuticals and dairy that some in the media are suggesting. Our soundings suggest that at worst an increased drug bill of around $10 million a year may result. Officials expect a much smaller figure. There are some outlandish claims out there about this figure being far higher.
To put this worst case scenario in perspective any journalist could look at the tariffs being applied to kiwifruit in the TPP countries with whom we don’t have FTAs, then apply these tariffs to our trade. This comes to $14 million a year. We understand that there is an offer of zero tariffs across the board as the end result of TPP. So excluding trade gains (exports will grow once tariffs are removed) the value of TPP to that one industry is 50% higher than the worst case increase in our drugs bill. Apply a similar analysis across the rest of our exports and the tariff savings alone are worth $hundreds of millions. And on dairy, what are deemed sub-standard offers (because they doesn’t achieve full free trade) are probably also worth $several hundred million. And this will have to get better.
It is a pity Ministers and officials can’t share definitive figures because when they do many comentators are going to have some explaining to do.
India, Turkey, GCC
No progress
EU
Things are continuing to look positive for an announcement in late October.
