Cars, not dairy, to blame for drag on TPP agreement

Claims that New Zealand’s demands over better access for its dairy exports into the US, Japan and -- especially – Canada, sank any chances of getting a deal done at the recent TPP meeting are not correct, according to NZ’s agricultural trade envoy Mike Petersen. He says a late disagreement between Mexico and its car manufacturing rivals the US and Japan meant the big crunch expected over dairy access never occurred.

Petersen says despite an improved offer of dairy market access, it was not enough for the NZ industry to back a deal. And both the US and Australia, as well as NZ, were frustrated at Canada’s offer, which protects its farmers with tariffs as high as 200-300% on some dairy imports.

Throughout the talks the US has been reluctant to open its consumer market to increased imports from NZ and Australia without offsetting gains for its dairy industry from a significant opening of the Canadian market.

Petersen says the last-minute intervention by Mexico on car parts meant the final haggling over dairy never eventuated. “If automobiles had have been resolved there is every chance they would have let the deal go through.”

No date has been set for trade ministers to reconvene to overcome the remaining differences, and Petersen believes it needs to happen in “weeks rather than months”, given the upcoming Canadian elections and next year’s US presidential vote; delay caused by these events will make it difficult to get a deal.

Rural News Give us a rundown on how the talks in Maui worked, i.e. who was leading the negotiations on NZ’s behalf and what was your role in this?

Mike Petersen The Maui talks were a TPP ministerial meeting. Ministers only get together when negotiators believe progress has been sufficient for the ministers to follow the negotiator-only meetings. However, this meeting was still in two parts, where negotiators met for about five days before the ministers arrived; then the ministers try to settle the outstanding differences. Chief negotiator David Walker leads for NZ until the ministers arrive, then Minister Tim Groser leads for NZ.

In addition to ministers and their negotiating teams, there are a huge number of other stakeholders in attendance, including farmer groups and representatives from both sides – some for and some against the talks. For example, the Canadians had about 20 advocating for the talks and about 30 people in the supply management sectors who are protectionist and working to stop the talks. 

My role is to work with the stakeholders from NZ and other countries to try to find some common ground, pass on information and intelligence to the minister and the negotiators and offer advice where appropriate. Basically I am a pain in the arse – niggling away and pressing to get the best outcome for NZ.  I know all the main players now and I am well connected after having spent time on these things. 

NZ had a few other stakeholders there, but still only two from DCANZ including Malcolm Bailey, two from Fonterra including John Wilson for the last two days, and one from Beef + Lamb NZ. 

RN Is it correct that the actual negotiations on dairy products never got to the table because inability to reach agreement on auto parts tipped over the talks before you got onto dairy?

MP Negotiations on dairy market access did get to the table and this was shaping up as the pivotal issue in the talks earlier in the week. Autos only came up in the last 36 hours and we were staggered at how big the gap was and how this was in effect the show stopper. No doubt if autos had been resolved, there would have been pressure on all countries to unlock dairy and complete the deal. 

RN A lot of speculation is that the NZ Government will cave in on dairy concessions to get a deal done. Have you seen or heard any evidence of this? And do you see this as possible in an effort to get a TPP deal done?

MP The NZ Government is not going to cave in on dairy just to get a deal done. With the sector being 27% of our exports we must hold out for a deal we can accept. However, for all the other negotiating partners dairy is an important political issue, but small in economic terms relative to other sectors. 

We have moved from our initial position of tariff elimination for all products over time, to one of ‘commercially meaningful’ access. We are not defining what that is publicly, but will only agree to something that meets this aim. 

RN Why are the Canadians so obstinate on freeing up dairy? How much are they protecting/subsidising their dairy producers? 

MP How much time have you got? Firstly, let’s be clear about our aspirations for Canada. This is not our target consumer market in TPP. Canada is one of the key dominos that needs to fall to get better market access across the whole deal. So the big producers in TPP (NZ, Australia and the US) are keen to open access into Japan and the US; and for the US itself – Canada. If Canada is not prepared to open its market then the US will not open theirs and then Japan will not open theirs….

Canada has a supply management (SM) system for five sectors under which production quotas are issued to farmers. The market is assessed by the sectors themselves and prices to farmers are agreed to reflect a ‘fair return’ for their effort. The whole thing is underpinned by huge tariffs on imports -- 200% and 300% – to make sure there are no products available to anyone who would like to buy from other sources at the market price. 

So SM has three legs: control supply, set prices and restrict imports. It has created huge wealth for farmers, which they are desperate to protect. To supply milk in Canada you have to buy quota -- currently CN$30,000 per cow -- just for the right to produce. 

Then farmers get paid at about double the world price for milk and also don’t have to compete against imports. (People get arrested for smuggling milk into Canada!) 

The value of the quotas has also been capitalised into the value of land, and along with the high value of cows, farmers there are very wealthy indeed and they want to hang on to it. 

The justification by Canadian farmers – and a valid point I acknowledge – is that there are no direct subsidies going to them. They benefit from cheap subsidised feed, often from the US, but the high incomes Canadian dairy farmers receive are paid for by consumers in the price of dairy products, which is about twice world prices. Many consumers are now rallying against SM as they realise the truth. 

RN We often hear claims by Canadian and US dairy farmers that Fonterra is some kind NZ Government-owned entity and therefore NZ farmers are subsidised by the Government. Is this what many dairy farmers still believe in these countries? What is NZ (the trade negotiators, you, Fonterra, etc) doing to dispel this myth and put the facts about Fonterra and the NZ dairy industry?

MP Absolutely! I get this every day. Unfortunately, the myth is perpetuated by people who know the truth, but it suits their argument. I spend probably 90% of my time correcting the myths about dairy in respect of NZ and Fonterra. Many are now accepting our arguments as Fonterra’s market share slips to 86%, and with the growth in new entrants, but it is still a battle.

RN What are the benefits for NZ agriculture, and NZ in general, if we get a TPP deal? Can you give examples of new market access and/or breakdown of protection for NZ products if a TPP deal is signed?

MP I can’t go into detail here, as what has been agreed is being held tight by all involved because there is a key principle at stake: ‘nothing is agreed until everything is agreed’. 

We have a very good deal for NZ in nearly all areas apart from dairy, but any public debate and dissection of this part of the deal runs the risk of the offers being withdrawn. This is not just a NZ issue. However, the well-publicised offer that is meaningful is a reduction of beef tariffs to 9% over time. (Tariffs are currently 38.5% and revert to 50% under a safeguard provision if volumes are increased.) This is a saving for the NZ meat industry of about $70 million a year, I think. Probably more important is that all the major beef producing countries in TPP are on the same deal, which is a huge advantage.

RN How close do you think a realistic TPP deal is from being achieved? Have you seen progress/movement in your time as a special trade envoy? Can you give examples of movement by countries in this time?

MP We are literally 98% there. If autos were resolved the deal would have been completed. There has been massive movement during my time of involvement, but of course the key market access issue for agricultural goods has been slow. These are always the hardest issues -- longstanding barriers that were always going to be last at the table. Newer issues like IP have moved quicker as well.

RN What timeframe do you think there is left to get a deal done?

MP We have only a matter of weeks. The Canadian election is on October 19 and its Parliament is starting the election process this week (Aug 4). Then we run up against the US presidential election. So we need this done now – and it is doable.

RN What do you say to all the naysayers and scaremongers like Jane Kelsey who claim any TPP deal is selling out NZ’s sovereignty and letting big businesses dominate the world and countries like NZ?

MP I talk with Jane a bit about this and we obviously have completely different views. I am close to the negotiations – without being directly involved – and I assure you our negotiators are not going to sell NZ’s sovereignty. Equally they are not going to make prescription drugs prohibitive in NZ. 

I would urge [the critics] to wait until the final deal is agreed before passing judgement on these aspects and I believe that when the deal is completed the NZ public will be surprised at how good it is and how ridiculous some of the claims have been.

RN If you look at public forums on TPP or letters to newspapers on TPP, 99% of the respondents parrot Kelsey’s claims. Do you see as part of your role the debunking of this view?

MP I have thought about this a lot. The online forums in every country are awash with views consistent with Jane Kelsey and others. I am not going to engage in these forums as I don’t have enough time. However, there is no doubt that, assuming we close this deal, one of my key roles, with others in the primary sector, will be to help the public understand the benefits for NZ.  These are jobs, economic growth, wealth creation and a future for our young people.

RN Are you disappointed at how most of the political opposition parties in NZ have made a political football of the TPP talks and stirred up public discontent over the deal? I am particularly interested in your view on how Labour has now gone down this track after years of bi-partisan support for free trade deals by the two main, big political parties.

MP I am very disappointed the Labour Party has turned TPP into a political platform and broken what appeared to be a very constructive and bi-partisan position on trade. However, I would like to think that when the deal is concluded and proceeds through the ratification process, that this position will be reversed. There are enough rational thinkers on trade in the Labour Party to enable this to happen. 

RN If the TPP is not signed can you give examples of what the cost to NZ agriculture and our economy could be?

MP We will miss out on the large market access benefits of lower tariffs. We will lose the ability to balance our trade in this region to provide alternatives to China.

This is about the future of NZ in Asia-Pacific.