TPP allows for a tax on foreign buyers — Groser

Trade Minister Tim Groser says the Trans-Pacific Partnership Agreement would “in principle” still allow any future NZ government to introduce a capital gains tax or stamp duty on foreign property buyers.
 
“I guess, if you wanted to drive foreigners away and send a message to the world New Zealand’s not open for business, you could do it," he says.
 
Mr Groser says raising the foreign investment screening limit to $200 million under the TPP (from the previous $100 million" will encourage “American and Japanese companies to actually start to look again at New Zealand”.
 
He says the original US negotiating position on biologics patents was 12 years (compared to New Zealand's five) and the TPP means NZ “won’t have to do anything we’re not already doing”.
 
“Very pleased” tobacco control measures exempted from Investor State Dispute Settlement provisions and “I can almost guarantee you that if we had made that public, we would not have got it”
 
He says ISDS wouldn’t stop NZ introducing a policy like plain packaging for fizzy drinks; “I believe you probably could as long as you had a good health-based case and you’re ready to defend it”

Details of NZ’s dairy quota increases should be released in next few days, he says.
 
“The biggest dead rat from a New Zealand point of view was that we had an opportunity, if the American dairy industry had just looked to their future instead of their past, to transform global dairy markets, and we haven’t achieved it in this negotiation," he says.
 
New Zealanders will see the “entire deal” but not necessarily the background negotiation papers, he says.

RAW DATA: The Nation's Lisa Owen interviews Trade Minister Tim Groser

Watch the full interview here

Lisa Owen: Well, it reportedly came down to the wire, but after years of negotiations and a few dead rats, the Trans-Pacific Partnership was finally agreed this week in Atlanta. But the full text is still weeks away, and the only detail we have now is Government-released fact sheets. It’s trumpeting the 260 million we’ll save in duty and tariffs, but the deal will also limit future governments’ policy choices. Now, Trade Minister Tim Groser joins me now in the studio. Good morning, Minister.
Tim Groser: Good morning, Lisa.
Now, you’ve acknowledged that this wasn’t necessarily— well, it fell short of the gold standard, this deal, so what did you end up getting for the country? Was it bronze or silver or where?
It’s gold standard on everything other than dairy, basically, with one small exception – Japan beef, where there’s huge liberalisation but the figure is not nought. Everything is full free trade, so that’s gold standard. On dairy, well, here’s the really interesting thing.
Did you get a bronze or silver there or less?
Well, we’ll find out what we brought later on. What we got was, I mean, a number of issues around elimination – elimination of the tariff on cheese, elimination of tariffs on infant formula, and there’ll be a lot more detail that will become apparent. But the really intriguing thing is that of this very, very conservative estimate of a quarter of a billion dollars a year, each year, who is the biggest sector to earn from this? Dairy. That’s the reality. In other words, the far less than we wanted, because so distorted are world markets in dairy, turns out that dairy is the biggest single gainer from this agreement.
Well, the thing is we’re in a bit of a strange situation here, aren’t we, Minister? Because you’ve seen the deal. The media, the critics, the independent analysts, they haven’t. It’s kind of like playing cards and you are the only one that’s seen everybody’s hand. Isn’t it absurd that we’re in that position now?
No, it’s not absurd. What is absurd is for people to assume that the New Zealand government would have entered into an agreement that ‘TPP kills babies’. That is absurd. We think people should reserve their position until they’ve had an opportunity to study the text and get expert advice. That’s what the Australian Labor Party has done, and I think that’s a very, very sensible approach.
But we don’t have the text, and so we’re in the waiting room, basically, and I suppose your critics would say that it’s awfully convenient that you’re getting to go around, sing the praises of this deal, do some publicity and the public only have your word to take for it.
They have our word, but they also know that we’re going to be held accountable for this. The Prime Minister and I and other ministers would not be exposing ourselves to ridicule by telling some large degree of make-believe story when we know that eventually the whole deal is going to be out there. So I understand the difficulty people have, but I’m just saying that’s the way it was negotiated. And to give you an example – practical example – one of the things we’re very pleased about, and it only came together at the last minute, is this whole exception for tobacco control measures from this very controversial ISDS, this disputes settlement form. I can almost guarantee you that if we had made that public, we would not have got it. Big Tobacco in the United States has got hundreds of millions of dollars to campaign. If they had known what was at stake, for sure they would have gone in to senators and to congress offices. I don’t think Froman would have been allowed to do that.
But the deal’s done now, Minister.
Yes.
The deal’s done, and we still aren’t—
That’s why we can now—
We still aren’t seeing the detail, are we?
But we— well, we’ve got about 600 or 800 pages of text which are now being worked out by international lawyers. I think they’ve finished in Atlanta now. And all of our publics around the 12 will then be able to see the deal. But until we’ve actually got a final agreement, there was no such thing as a TPPA. That came together at the very last minute.
No, but we’re not talking about that, Minister. We’re talking about now. Now let’s move on. You’ve said that we would have to swallow some dead rats to get this across the line. Well, what was the biggest one you had to swallow?
Oh, the biggest dead rat from a New Zealand point of view was that we had an opportunity, if the American dairy industry had just looked to their future instead of their past, to transform global dairy markets, and we haven’t achieved it in this negotiation. That unquestionably is the biggest disappointment.
So in saying that, I mean, the gains that you got in dairy are being described as modest. I mean, some of these tariffs are going to take 20 years to lift. So when you said that you would walk away if the deal was not good for dairy, was that just bluster?
No, it wasn’t bluster. At Maui, we were in a desperately difficult situation. On one of the countries, we’d received literally nothing. Zero. Nada. So I would have walked away—
Which country?
I’m not going to tell you, because this is very, very controversial.
Japan, was it?
And we got involved in a huge fight in public with Japan, who accused me and New Zealand of blocking the whole deal, so that was a really, really difficult moment for us and my team, but we got a result that actually will carry dairy forward, and we got an outstanding result in everything else.
So you say it wasn’t bluster, that threat to walk away, but the thing is we’re a small country. We couldn’t afford to walk away, could we? That’s the reality.
Well, I was—
You couldn’t walk away, could you?
I was… Frankly, I was betting on a political relationship we have with a number of countries, including the United States, that if I said, ‘Absolutely no way are we on our most important export taking literally nothing,’ that they wouldn’t have forced us out of this negotiation. There’s no rules around this. This is all about political judgement. Anyway, we got the deal. It’s going to be great in a number of sectors.
Okay, well, let’s look at some of the sectors. Let’s go to dairy, then. We’re supposed to be getting an increase in dairy quota. Now the US has released its new quota details, so specifically what are we getting, Minister, in terms of increased quota?
Well, I won’t run through the whole detail of it, because it varies market by market, but let’s take some of the highlights of it. We will get increased milk fat quotas into the US butter market, starting off at a relatively modest level and growing over time. We will get complete elimination of all cheese tariffs into Japan. That’s large. We sell $350 million of cheese to Japan. That’s going to increase by some very large factor.
But the detail that hasn’t been released publicly, so the quota detail, America’s put its increased quota out, so where are the details for what ours will be?
We’ll get this detail out I think in the next few days.
Give us a taste. Give us a couple of examples.
We’ve given you a couple of examples.
Solid examples.
We’ve given you a couple of examples. Infant formula is going to be eliminated in 10 years, and we’ll have to ask our companies. Now, look, all we’ve done is create an opportunity—
We’re talking about examples that you haven’t already put out there, Minister. What other detail can you tell us about?
All right, I’ll give you one example. Elimination – I can’t recall over how many years; it’s not 10 years;  it’s less than that, I think – of the tariffs on apples into Mexico. Let me deliberately take that as an interesting example that nobody’s thinking about. So everyone knows—
But I was talking about increase in dairy quota, Minister. Can you give us some examples around that, the gains in quota for dairy?
Look, I can’t remember the exact amounts. I’d have to have the brief in front of me to remember that, where it finally came out.
All right, well, foreign investment – the TPP means categorically that New Zealand cannot ban foreign nationals from TPP countries from buying property. Correct?
Correct.
Okay, but it can impose what is called ‘discriminatory new taxes’.
Correct.
So what could that be?
Well, that would depend on whether a government – we don’t tend to do this – whether a future government wants to try and put a large disincentive in front of foreigners buying residential property. By the way, it has no implications on sensitive land. The land provisions are exactly the same.
No, that’s a separate issue, but—
So people understandably have not quite grasped that distinction. But on residential property, there is a provision there that explicitly states that you can introduce discriminatory taxes if you wish. So, I mean, I guess, if you wanted to drive foreigners away and send a message to the world New Zealand’s not open for business, you could do it.
So, for example, you could put a stamp duty that only applied or a capital gains tax that only applied to non-resident, non-citizen buyers. You could do that.
At a high level of generality, yes. But, look, you need lawyers to tell you the exact nature of the proposal and then give you an opinion about the consistency with the exact words. But in principle, yes.
So the option is there, say, for a future government, let’s say it’s Labour or one of the other Opposition parties that support this—
Yes, send up a messaging we’re not open for business if that’s what the message they want to send, yes.
Okay, well, the TPP lifts our threshold— when you talk about business, the TPP lifts our threshold for screening foreign investors from 100 million to 200 million. How much more attractive do you think that that is going to make New Zealand to foreign investors?
Well, it won’t make any difference to by far the most important country to us, which is Australia, because Australia’s got more investment in New Zealand than the rest of the world put together.
But other foreigners?
And they’ve got a 500 million figure. So it won’t make any difference to our most important investor, but I’m hoping it will actually facilitate some, you know, high-technology, well-managed American, Japanese companies to actually start to look again at New Zealand.
Okay, well, the deal also allows you to ring-fence certain areas. You mentioned tobacco there. Ring-fence areas that might conflict with the principles of the TPP, and now Australia is protecting foreign ownership of houses, so it’s sticking with that policy. What things have you ring-fenced in this deal?
Oh, sensitive land, fishing quota and, of course, anything to do with the Treaty. So we’ve got a complete— we’re the only country that’s got a complete nationwide carve-out – it’s called the Treaty of Waitangi clause – and those are some of the carve-outs we got.
And the Overseas Investment Act?
The Overseas Investment Act—
And Pharmac?
Well, Pharmac is not cut out, but…
Right.
…the Pharmac will carry on exactly as before. And the increased costs in Pharmac, according to – these are politically neutral civil servants providing these; these are not figures I’m inventing for political reasons – estimate the cost year on year will be four and a half million first up and then every year two and a half million after that. This is out of a health budget of nearly $60 billion. You’d need a political microscope to see it.
Okay, well, I want to talk about specifics in the area of health – medication, biologics, these new state-of-the-art drugs. They’re still going to have a five-year patent protection in New Zealand, so is there nothing now that we can do to get access to cheaper generic drugs faster? Because the deal means you can’t go backwards from that five years, doesn’t it?
No, that’s absolutely right, and we and Australia didn’t want to go backwards. You know, we’re countries that believe in strong intellectual property, but the key thing on biologic was, the original negotiating position of the United States was, ‘We want 12 years.’ As a result of this agreement, we believe on the basis of advice from New Zealand and Australian experts advising me and my Australian counterpart that neither New Zealand or Australia will have to change any of our existing policy measures as part of the TPP.
Okay, so there’s a five-year patent, but there’s also some fine print there that says you have to offer other effective market protections. What does that mean in a nutshell?
Well, in a nutshell, we won’t have to do anything we’re not already doing. For example, on—
Okay.
Well…
All right, well, let’s move forward. There is a clause that allows foreign companies to sue governments if we don’t meet our TPP obligations. You talked about that in terms of tobacco, how that’s been ring-fenced. But I’m just wondering what about something like sugar? If the government in future wanted to introduce some kind of health warning on certain foods, fizzy drinks, could we be sued for that?
The text allows a future government to regulate in the interests of public health and environment and other public policy space like that. It would depend on the measure, but in principle there’s nothing to stop—
You could force plain packaging for fizzy drinks, say?
I believe you probably could as long as you had a good health-based case and you’re ready to defend it.
So I know that Egypt, for example, has been sued by a French company because it raised the minimum wage. Could we potentially face lawsuits over that?
No, look, this agreement’s got some very interesting provisions on trade and labour, the most advanced provision of trade and labour that I’ve seen in any trade agreement. So each country is now obliged to have minimum hours, minimum wages, minimum standards of health and safety. There’s flexibility for the developing countries to establish them.
I think it’s interesting that you raise that, because I did want to ask you about that, because you’re saying that these are strong rules, so you have to have collective bargaining, be free to enter a union, et cetera. This is the likes of Chile, Brunei, Vietnam, Peru. Who is going to enforce that? Who’s going to make sure that someone’s paid a minimum wage and some 8-year-old’s not made the T-shirt I’m wearing?
Well, this while have to evolve in time. We’re not trying to attack these countries, but we will have consulted a process that will emerge and deepen over time, and I’m hoping that these countries, as they become richer, will adopt higher labour standards in line with their obligations.
But that sounds a bit loose. That sounds a bit loose. How are we going to make sure? Who is going to enforce this?
Well, we’ll see how this develops over time, but this is a new field for some of these countries. It’s very controversial in them, and the idea is to work in a facilitated way with them.
Okay, well, what about New Zealand jobs? Have you done analysis on the net effect of this agreement on jobs in this country?
Not yet, but anything that builds economic growth and exports is going to build jobs in this country.
Some people—
The exact number we haven’t got.
But your critics might be quite astounded by the fact that you’ve signed up to an agreement that you haven’t done that research on.
See, this gets back to the sort of meaning-of-life question about negotiations. Actually, we don’t need precise numbers to know that New Zealand has to trade with the world. New Zealand cannot survive without access to markets. New Zealand is part of a global community. Actually, we don’t need precise numbers. It’s just going to be three jobs more or three jobs less.
So it wouldn’t matter what it said about jobs if there was some kind of analysis of the net benefit?
Well, as long as we see that this is moving the economy forward and growing our competitive-exports sector, it’s going to be good for employment.
Okay, well, talking about analysis, MFAT is going to do the cost-benefit analysis, aren’t they, of the TPP?
Sure.
Isn’t that like marking your own exam paper?
No. I imagine they will use NZIER as the obvious go-to place. They have in the past. They’ll use independent consultants we used an Australian consultancy on some of the issues to measure potential costs, so it’ll be up to the officials to work out how they want to do this. We won’t interfere politically in that process. We’ll see what they generate.
Okay, well, just before we go, I want to know, obviously we’re going to get the text over time – yes or no, do you plan to publicly release the other documents associated with the negotiations?
I don’t want to be categorical on this, because some of them may be confidential. I don’t know what the legal process is. What we will do is put the entire deal in front of New Zealand, and they’ll be able to make a decision for themselves.
But not the background negotiation papers?
Some of that might be considered politically very, very confidential. We’re not trying to create political losers here amongst some of our close friends involved in these negotiations. But, look, finally, I mean, let’s get this straight – this is a very good deal for New Zealand. The question is – are we in, or are we out? We’ve got to be in.
All right. Thanks for joining us, this morning, Minister.