Ryan Greenaway-McGrevy urges small business owners to make use of a suggestion box in the TPPA's SME chapter

This is the thirteenth in a series of articles Interest.co.nz has commissioned reviewing the key chapters and issues for New Zealand in the Trans-Pacific Partnership Agreement (TPPA). Links to all the analysis in this series are below.

By Ryan Greenaway-McGrevy*

The TPPA opens up new markets and trading opportunities across a wide a range of countries and industries. But at over 2,000 pages, it must appear daunting to small businesses that do not have the resources to navigate the web of provisions, procedures and protocols.

Perhaps it is not surprising that our small business owners appear to have responded to the agreement with a collective shrug: A recent survey showed that a plurality of small business owners had no opinion on the TPPA, while only thirty-six percent thought it was a good idea. 

Despite often being designed with the best on intentions, complex rules and regulations can have harmful consequences. They can act as a barrier to entry, dissuading smaller firms from entering new markets because it is too hard or too expensive to demonstrate compliance. This shelters the big corporations from competition, and enables them to extract rents from the rest of us. 

This is how complex rules can end up neutering one of the best aspects of capitalism: the constant competition that drives creativity and innovation. The behemoths of innovation that are today’s household names had to begin somewhere – more often than not, in someone’s garage. 

Yet the solution is clearly not to abolish regulation. We need some rules – as the leaky-building crisis continues to demonstrate. Striking the right balance is tough: We need sufficient regulation to protect our rights, health and safety, but not regulation so complicated that it kills off the creativity of competition. 

Perhaps it is best, then, if we give the smaller players a hand when it comes to navigating complicated regulations. The TPPA leans in that direction. 

Chapter 24 of the TPPA is called Small and Medium-sized Enterprises (SMEs). It is a very short chapter – three pages in total – but it puts in place a couple of mechanisms to encourage SMEs to take advantage of the business opportunities afforded by the agreement. 

Article 24.2 creates a committee of government representatives from each country that will identify ways for SMEs to take advantage of the commercial opportunities available under the agreement. The committee’s activities will include: seminars, workshops and other capacity building exercises to inform SMEs about the benefits available under the TPPA; sharing best practices in trade education, trade finance and identifying commercial partners in other countries; and programs to assist SMEs to integrate into the global supply chain. 

The Article also gives the committee license to collaborate with “appropriate experts and international donor organizations in carrying out its programs and activities”, suggesting that the TPPA will accommodate and work with the multitude of organisations that can help get small businesses off the ground. 

Article 24.1 requires Parties to share information pertinent to SMEs in the form of a dedicated website. Topics covered include the following: customs regulations and procedures; business registration procedures; employment regulations; technical regulations relating to imports and exports; and links to overseas agencies that might be important for SMEs wishing to trade or invest in other countries. Furthermore, the Article requires that this information be provided in English wherever possible. 

A nation of SMEs 

Perhaps it is a cliché, but our economy is built on small businesses. The Ministry of Business, Innovation and Employment defines an SME as having less than 20 employees. By this definition, 97 per cent of businesses in New Zealand are SMEs, almost 70 per cent of which are single-worker businesses. SMEs account for a third of New Zealand's gross domestic product, and one in three workers are employed in a small business.

There are a lot of people that could potentially benefit from the new business opportunities under the TPPA. But does the SME chapter go far enough to ensure that they will? 

There is a suggestion box

When I worked for the Federal Government in the US our writing pads were supplied by a small firm from the Midwest. Contracts such as these are often awarded as part of the political horse trading in Washington. Like it or not, that’s how bills get passed there. 

But this practice goes against the essence of the TPPA. If you recall from the government procurement chapter, all enterprises within the trading bloc will have the right to compete for government contracts, and governments are generally prohibited from taking into account nationality when awarding contracts. 

So suppose a small firm from Onehunga puts in a bid to supply a Federal Agency with its stationery. Call me a cynic, but something tells me that the political machine in Washington is not going to suddenly reverse course and start awarding contracts based solely on the merit of the tender. Giving that contract to an overseas outfit does not help anyone get re-elected to Congress. 

We should not rely on the good graces of foreign governments or corporations when it comes to playing fair in international trade relations. If we really want our SMEs to take advantage of the trade agreement, they need to have the threat of litigation behind them. Only then can we be sure that the big boys will play nice with the little ‘uns. 

Lawyers specialising in international trade are expensive, which puts their services beyond the reach of many SMEs. There is, however, a suggestion box built in to the SME chapter. Under Article 24.2.2 (j) the SME Committee is free to take up any additional issues that the committee may decide. Putting together some sort of legal sub-committee that can provide advice – and perhaps the threat of litigation should the bigger organisations not play fair – may help ensure that SMEs are given a decent shot. 

There will undoubtedly be other impediments preventing small businesses from taking full advantage of the trade agreement. If the TPPA is ratified, our representatives on the committee should regularly meet with small business owners to see how they can help. 

The SME chapter is certainly short – and perhaps too short. But through clauses like 24.2.2 (j) it will be a living document. The suggestion box is open. We should make use of it.

*Ryan Greenaway-McGrevy is a senior lecturer in economics at the University of Auckland. Prior to that he was a research economist in the Office of the Chief Statistician at the Bureau of Economic Analysis (BEA) in Washington DC.

*Amber Carran-Fletcher contributed to this article.

The series so far:

Investor-state dispute settlement

Labour standards

Settling disputes

Intellectual property

SOEs and designated monopolies

Environment

Government Procurement

Sanitary and phytosanitary measures

National treatment and market access for goods

How the TPPA could boost competition in the building materials sector

What TPPA's investment chapter says, including on housing investment

What the TPPA says about remedies for unfair trade

*And here's a video interview with Greenaway-McGrevy where he discusses the series.