Trade Minister Groser downplays Trans Pacific Partnership fears on Pharmac and hits out at US dairy lobbyists

By Alex Tarrant

Trade Minister Time Groser has indicated the government will not let Pharmac be placed completely on the block during Trans Pacific Partnership (TPP) negotiations, although it is open to ideas for changes to New Zealand’s drug buying agency.

Groser also moved to rubbish American fears that opening up the US market to New Zealand dairy products would hurt the US dairy sector, saying New Zealand was having enough trouble trying to keep up with demand from China, and could not flood the US milk market even if it wanted to.

Groser made the comments in a speech yesterday to the New Zealand Institute of International Affairs, where he said TPP negotiations were making progress, but they were not going to be completed by the time US President Obama hosted APEC Leaders in Honolulu later this year.

New Zealand’s Oppostition Labour and Green Parties have called for Pharmac to be taken off the table in TPP negotiations. Groser said he would not take Pharmac off the table, but that New Zealand had a good health system – of which Pharmac was a part of – that it was not going to trade away in negotiations.

“There are limits to sovereignty that even people like me who have spent a lifetime negotiating the boundaries of globalisation respect,” Groser told the conference.

“I cannot yet answer that broad question – what is on the negotiating table - in highly specific terms. The public debate over Pharmac is a classic example. Is this a legitimate issue to be negotiated in an international trade negotiation?

“On its fundamentals – no. Let me be unequivocal on this. We are not about to negotiate our public health system in any trade negotiation. The two major political parties which have shared political responsibility for governing New Zealand decided this some 70 years ago, in the usual messy democratic way,” Groser said.

"We have, for the most part, a public health system that allocates scarce resources – they are always scarce – by a mixture of the price mechanism supplemented in part by private insurance, and sophisticated queuing systems that operate in the public sector, of which Pharmac is one - and a very good one,” he said.

“It may not be perfect, and we are always open to suggestions of change, but we are not about to adopt a health system, via a trade negotiation, that allocates resources according to capacity to pay.

But Groser was not ‘taking Pharmac off the table’.

“No professional negotiator of any quality ‘takes issues off the table’ at an early stage,” he said.

“I have great respect for the United States – one would be a fool not to. It is the pre-eminent country in the world and a great friend of New Zealand. We will sit with US negotiators and listen to their concerns. All I am prepared to say in public is that we will listen and respond accordingly. I make no apology for keeping this at this level of generality.”

Intellectual property

Another big challenge in negotiations was intellectual property. 

“Intellectual property rights are built on the recognition that governments can help ensure that people who create and innovate have the opportunity to get a return for their efforts,” Groser said.

“It goes without saying that Governments looking for stronger economic performance see innovation as one of the key planks. This Government is firmly in that camp,” he said.

“And we know that the people who are making or funding movies and music or investing in cutting-edge industrial innovation will want to know that we have in place modern intellectual property rights backed by effective enforcement.

“So I make no apology for belonging to a Government that believes in intellectual property rights, as part of a commitment to innovation, and is committed to keeping the rules current and to enforcing them. We have seen estimates that pirate DVDs cost our brilliant NZ film industry as much as $100 million a year.”

Groser said he understand the political appeal of ‘freedom in the digital universe’.

“But the idea that any enforcement of intellectual property rights is, by definition, antithetical to human freedom is naïve and absurd,” Groser said.

“As one commentator put it recently, we are not operating in a “parallel universe where legal and moral rules, and all the basic principles that govern societies, do not apply”. Digital natives over the mental age of 13 take note. All below 13 are excused,” he said.

'Quit worrying about NZ Dairy'

“With respect to our ‘offensive interests’ – a wonderfully misleading term used by trade negotiators – we have much ground to cover in the TPP negotiations. ‘Offensive’ in this context means those areas of the negotiations where we see the possibility of major gains for New Zealand,” Groser said.

“As always in trade negotiations, for New Zealand the most difficult issues come down largely to dairy. Dairy is, after all, about a quarter of our total merchandise exports,” he said.

“One prominent American official – a great and deep thinker who has moved in and out of academia and Administrations over decades – has a great joke about New Zealand. He calls New Zealand ‘The Saudi Arabia of Milk’. It’s a great line and an affectionate line. But it is also profoundly wrong.

“We are nowhere close to the Saudi Arabia metaphor. We are the “Algeria of milk” – Algeria has about 2.5% of world oil production which is about what New Zealand has of world dairy production,” Groser said.

“We have no capacity to ‘flood the American market’ with our milk. We can’t even keep up with the opportunities in China. I am a great believer in metrics. Let me put some numbers around this.

“New Zealand currently produces some 17 million tonnes of WME (wholemilk equivalent). Think – take out the water and you have 17 million tonnes of product left,” Groser said.

“We are extremely confident that we can increase our domestic dairy production by 2-3% per annum. Go and visit our wonderful agricultural scientists in Hamilton at the LIC, if you have any doubts. And I have no doubt that the drive to improve environmental outcomes, and reduce the carbon intensity of this output, will continue,” he said.

“So by 2020 we might have another 4-7 million tonnes of dairy products available for export. This, ladies and gentlemen, is equivalent to about 18 months of the likely growth of dairy consumption in India alone – forget China, Indonesia, the Middle East, Latin America.

In quantitative terms the New Zealand dairy industry was a small player. It was the United States dairy industry, not New Zealand, that was poised to take the major share of this growth.

“In the three year period 2005 to 2008 US dairy farmers captured some 60% of the international growth of dairy commodity that this vast and positive paradigm shift produced,” Groser said.

“The US dairy industry is – let me be blunt – looking in the rear vision mirror. They need to look at where they are going, not where they have been. This is not easy, I understand that political perceptions lag way behind reality,” he said.

“But this will change in time, just as the US Meat Industry, which hidden behind the old US Meat Import Law, used to be a very inward-looking industry until it discovered exports. Since the vision of TPP is that it will be a building block into these giant growing markets, I could say, only a little mischievously, that the United States has a greater interest in including a quality deal on dairy than New Zealand. We already have FTAs with most of these markets, they don’t.”