Notes related to presentation made on 9 May
Thank you for the opportunity to present my submission on the CPTPA.
My comments today support my submission. I think that the National Interest Analysis (NIA) is inadequate. The CPTPA NIA does not examine the impacts of risk to a government that decides to take democratic action. Neither does it analyse New Zealand’s existing trade deals and the broader impacts on the wider New Zealand public, instead addressing mainly the interests of farmers, exporters and importers.
Instead the analysis has been framed to highlight the easily measurable things – namely profit – and to gloss over the hard things such as the cost of environmental degradation and social costs which are often the most intractable to address.
In his recent book Safeguarding the Future Jonathan Boston wrote about Anticipatory Governance. What he says has direct relevance to the issues I wish to draw attention to in my presentation today. In the face of uncertainty and risk he says, Anticipatory Governance takes a precautionary approach. It places the burden of proof on the advocates of a potentially risky course of action to demonstrate that the threat of harm is low and is justified. Good governance says Boston develops the capability and tools for rigorous risk management.
It is not possible for a lay-person to understand and estimate the possible impacts. However from my reading two major factors stick out and I address these in turn. They are the risks of opportunistic ISDS (or in country legal cases based on CPTPA rules) for presumed ‘loss of profits” and the lack of a realistic analysis of the indirect but hugely serious impacts of the CHINA FTA.
ISDS cases caused by opportunistic claims of claim ‘discriminatory behaviours”; ‘expropriation’ or “indirect expropriation”
Defending and then potentially losing multi-billion dollar ISDS or legal cases (which we are not at risk of prior to the CPTPA coming into force) would be devastating to NZ’s public interest. However taking action on some of NZ’s most pressing problems – including mitigating climate change or reducing carbon emissions – could incur these risks because neither of these important public policy areas are protected by the ‘legitimate public policy’ tests of the CPTPA.
David Parker has said that he has reduced the risks of the government’s own contracting being the cause of a successful case and that may be so but there is still the risk of being sued through the CPTPA measures directly with respect to policy changes that impact future profits of overseas corporations. This risk remains as corporations could still claim against ‘discriminatory behaviours”; ‘expropriation’ or “indirect expropriation” if a law or government decision changes in a way that could cut anticipated future profits.
To explain this further the CPTPA Annex II contains a list of areas where the government has freedom to “take any measure” to protect what the NIA calls “legitimate public policy objectives”. However there are many other areas where by implication the government will no longer have the freedom to act. Despite a strong public interest or even a democratic mandate there will be no risk free option to make policy changes. The following list illustrates the two categories.
- child care is protected but not elder care;
- public transport is protected but not roading or private transport including driverless vehicles;
- public utilities are protected but not privatised utilities like the telephony, fuel pipe-lines or the broadband networks or internet infrastructure.
- social security, insurance social welfare are protected but not taxation policy;
- the sale of government state owned enterprises but not for bringing services (even failing services) into public ownership except with full “compensation” including for lost profits many years into the future;
- fire-fighting services but not aerial fire-fighting services.
- nuclear energy generation but not fossil fuel energy generation
- NZ film and television & NZ content for those industried but not NZ music, local online productions, gaming or modelling industries
- agriculture and horticulture are included but not novel foods such as the emerging production of artificial meat and dairy.
Perhaps of the most vital importance is that by not being a protected area of public policy NZ cannot “take any measure” whether taxation, legislation or regulation to mitigate the effects of climate change or to lower carbon emissions as neither are areas listed as being of legitimate public policy interest in the CPTPA
What this means is that for climate change, as well as any action to address a novel issue, government actions whether as policy, tax changes or legislation may have to be addressed within the framework of the protected legislation set aside for the CPTPA’s “legitimate public policy objectives”. Mitigating the impacts of climate change will need to rely on waiting until damage has occured and then using measures that the CPTPA regards as legitimate public policy objectives such as the option to take any measure in public health. Enforcing change to be made only in language that is not entirely fit for purpose will make for clumsy interventions. In particular it will strangle precautionary approaches to mitigate risks before they occur. In areas like climate change where vested interests have done their best to undermine scientists and huge profits are at stake it is hard to imagine an affected corporation would not cry foul at a precautionary approach, demanding proof of causation and mounting an action to sue the government.
As discussed above novel products, services and approaches are (by being excluded from Annex 11) are not “protected” areas of in the CPTPA giving government licence to act. This means action to rein in the negative impacts of new and untested approaches could easily lead to an accusation of expropriation or discriminatory action. Just think about this and the rate of change in science and technology. Algorithms, products connected to the “internet of things”, rocket launches, artificial intelligence, corporate surveillance, drones, unmanned flying or nano-technology or any new area where corporations have expectations of significant ongoing profits could be effectively exempt from legislation no matter the negative impacts on New Zealand. Taking action could seriously indebt the government.
To make things worse what the CPTPA National Interest Analysis describes as a “legitimate public policy space” is itself not defined. The US organisation Public Citizen has made clear that a “legitimate public policy objective” is not self-defining and any country using as the means to adopt new policy would have to justify the policy objective if it is challenged in a dispute”.
How these limited protections for public legislation could play out in practice has potentially alarming consequences. Similar cases have arisen in other jurusdictions and a couple of references are provided at the end of this article showing how these kinds of cases have actually played out.*
But here are some possible NZ examples
Imagine a popular retirement area in 15 years when a much smaller proportion of the aged population will have an asset to sell in the form of a home but they make up a much larger proportion of the population than now. If a struggling Health Board decided to create a public aged care option would be likely subject to a claim of indirect expropriation based on the commercial operators anticipated future profits.
Imagine that the introduction of self-driving vehicles has some serious downsides – and several are forecasted. Overseas investors who will even now be spying NZ as an area of light handed regulation and providing easy market access for trials will sue for loss of anticipated profits if legislation or taxation action is mounted to rein in the negative impacts.
There is no analysis of this kind in the NIA.
The CHINA FTA.
There is also none about the impacts of the other major Free Trade Agreement of recent times.
In the 2008 NIA for that the Chine FTA MFAT officials in the said that “the FTA is not expected to have any discernible negative social effects in New Zealand.”
However the FTA appears to be at least partly responsible for extreme levels of private debt – in Dec 2017 Westpac Senior Economist Satish Ranchhod said that overseas debt has risen by 7.3% in 1 year by or about $38bn. (In contrast the total overseas trade – not profits to repay debt – for NZ over the same period was $55bn of which exports into China account for $12bn. This indebtedness I would argue could be, to an appreciable extent be linked to the China Free Trade Agreement through the dairy conversions and retooling by farmers and house price increases brought about by speculator investment from offshore. I would argue such increases in private indebtedness are simply unsustainable. The Reserve Bank in 2017 reported that thousands of farmers are vulnerable to the risk of an international financial crisis. In addition hundreds of thousands of households (up by more than 60% over 10 years) are at risk of an interest rise or a small fall in prices or an illness away from foreclosure). The ratio of household debt to income has now reached a record – 168 per cent of income and this is even greater than in 2008.
But the additional and arguably just as important disadvantages of the China FTA are secondary effects. Negative impacts to the good of NZ – its people and environment, not impacts on exporters and importers and foreign investors.
The 10 years since we signed the China FTA we have had
- Serious Corruption concerns identified by Anne-Marie Brady that even former first Lady Hillary Clinton is aware of.
- Increasing inequality – in particular as a result of speculative housing and speculative dairy conversions.
- Several polluted aquifers and dust storms blowing across the Canterbury plains.
- Boom, followed by Dutch disease – and then bust in the dairy industry.
- Dodgy steel, falsely tested and imported cheaply that is now in our bridges, motorways and in Canterbury homes
- A growing pile of plastic recycling now that the Chinese government are no longer willing to accept it.
- Hungry Chinese workers replacing asbestos in NZ’s trains while employed on China’s working standards and pay.
For decades the approach to interviewing job candidates has been a behaviourally based interview. Past behaviour is a good predictor of future behaviour. Its time that trade agreements were made to pass the same test. The lack of any cost assigned to these enormous negative is one of the main reason that I think that the NIA is an inadequate document. To pursue the agreement when there is no mitigation of further risks of these kinds is hubris.
ISDS compensation cases based on ‘expropriation’
The Vattenvall vs German Government case is an example of so called “indirect expropriation” where the company sought $US5.1bn when German policy was to quit the nuclear industry shows what happens when a government is not protected to be able take any action necessary to achieve a public policy objective.
In a Canadian example a council encouraged US company Bilcon to invest in a local quarry. Later it was discovered that the quarry was not compliant with environmental legislation and the investment would be damaging. The Canadian government sought to stop it and is now facing a multi-billion dollar fine in a case that has taken a decade. There is nothing in the CPTPA which would prevent a similar situation in New Zealand.