invest-high-tech-capital-thumb_largeA lot of the hype around the Trans-Pacific Partnership Agreement (TPP) has been on issues like Fonterra’s access to US markets, and whether generic drugs and parallel importing will go down the gurgler. But the controversial trade deal could also have a radical shape up in IT services commissioned by the New Zealand government, which account for a huge chunk of our tech sector economy.

First published in the National Business Review print copy Friday June 19th 2015

The TPP and its related Trade in Services Agreement, if enacted in their current (leaked) forms, are likely to drive a shakeup of government IT in New Zealand starting with the office of government chief information officer and spreading through other departments that have, in particular, established policies that demand agencies keep their data within New Zealand borders.

New Zealand ICT lobby groups, which have long pressured government to put up measures to ensure the uptake of local ICT companies by agencies, are also set to suffer a blow. For example, although the multinationals, Accenture and Fast Enterprises, have landed plum roles with Inland Revenue’s $1.9 billion upgrade project (see nbr.co.nz/fast), the government has also pledged that 30% of the work will go to local ICT companies. That promise would have to be abandoned.

Can’t advantage local industry

At its heart, the TPP reduces barriers to trade. It has come under a great deal of scrutiny over past years as it has developed, primarily because it has been developed in secret, without the input of the wider community. This absence of information has caused the rise of conspiracy theories and, because it has been an opaque process, in my opinion, it has also allowed counter-lobby groups to hide their own interests.

In practical terms, this means a government cannot introduce trade barriers that, in particular, advantage local industry. For example, if the government introduced procurement rules that pushed government agencies to adopt local ICT services over overseas ICT services, then this would possibly breach the agreement.

In that case, overseas interests have the right to sue to redress the breach.

As an example, a battle has been under way on several fronts over renewable energy. Canada’s fledgling industry was severely damaged by a trade case that saw it accused of unfairly supporting its own local manufacturers. China is accused by the US of heavily subsidising its own renewable energy products, particularly solar panels, and is subject to a war of words. The US also had words with India over the same, in recent months.

In short, any country that attempts to support its own industry over another would breach the TPP, as it stands today.

Unfortunately, New Zealand wouldn’t have, in my opinion, the resource to fight such a legal battle. Nor the time. So while the TPP may give us access to other local markets to sell our ICT services, managing, monitoring, and making sure that it happens is almost a bridge too far I suspect.

Common capability contracts in jeopardy

In my opinion the TPP, if passed in current form, could be used against some of the (GCIO) government chief information officer’s Common Capability contract services. These are contracts that agencies must use. There is no get-out-of-jail card if you are a government agency; you must buy certain ICT services via the GCIO, who has used the Crown’s heft to negotiate advantageous terms with authorised service providers.

If Common Capability contracts are seen to be a trade barrier to external ICT companies trying to tout their business, then it could be challenged – particularly if there is a single supplier only (as is the case with One.Govt, a suite of telecommunications, networking and security services provided by Dimension Data NZ) or a closed group of primarily New Zealand suppliers (as is the case with the all-over-government panel to supply infrastructure as a service or IaaS cloud computing; the panel is made up of New Zealand companies Datacom and Revera – part of Spark – plus IBM).

But it becomes clearer and far more interesting when we add the Trade in Services Agreement (Tisa) to the equation. The TSA reads in part:

Article X.11: [PA: Data Processing and Treatment of Certain Information] [EU: Transfers of Information and Processing of Information] [US: Transfer of Information]

[PA, EU: No Party shall take measures that prevent transfers of information or the processing of financial information, including transfers of data by electronic means, into and out of its territory, for data processing or that, subject to importation rules consistent with international agreements, prevent transfers of equipment, where such transfers of information, processing of financial information or transfers of equipment are necessary for the conduct of the ordinary business of a financial service supplier. Nothing in this paragraph restricts the right of a Party to protect personal data, personal privacy and the confidentiality of individual records and accounts so long as such right is not used to circumvent the provisions of this Agreement.]

TISA is a proposed trade agreement that covers 24 countries including New Zealand. It looks specifically at things such as healthcare, transport, banking, other financial services and professional services. It sets about removing trade barriers and includes what is called a “ratchet” clause. That is, once a barrier is removed, it cannot be reintroduced.

The draft clause above is of interest to New Zealand. It effectively states that you cannot have a data sovereignty policy that forbids you to store data outside New Zealand.

In other words, the government could not stipulate that agencies store their data only within New Zealand borders. That is going to be a problem because some agencies and sectors have a stated policy as such, the Ministry of Health for example. Anything that is seen as supporting that barrier, could be challenged. The ministry’s policy: Unless an exemption is granted by the National Health IT Board, all personal health information held in an identifiable form and associated clinical or administrative data must be fully domiciled in New Zealand.

When you couple the TPP and the TISA together, the world of GCIO-mandated Common Capabilities could be challenged. One.Govt presents only a single supplier for use, IaaS presents three but data must be in New Zealand. These, because they are mandated, are the most likely candidates to be challenged and the most lucrative.

They demand that all agencies move their computing power into these commercial constructs and no other option is allowed. It covers all 70 or more central agencies and is quickly being pushed to local government. This is a multi-billion dollar market that encompasses all infrastructure from the network to the application layer.

That appears to be a trade barrier to anyone wanting to have a free-market agreement with New Zealand that wants to sell ICT services.

As we move to an open market in an increasingly competitive ICT world, the TPP and TISA also would provide opportunity for our own New Zealand ICT companies to access international markets, making this a possible “you can’t have your cake and eat it too” moment.

If agreed in their current form, then local ICT must look to overseas markets, lobby groups must do the same, and the GCIO must reassess their entire contractual model on all Common Capability Services.

12 comments

  1. Welcome back – nice first post too! Here in Japan, the government has balked (well, farmers have actually) around unfair US advantages in TPP agriculture and vehicle trade proposed, and it looks like the farmers and big car manufacturers are digging in their toes for the long fight on this. About 80% of AsiaPac business with the TPP partners is with the US and Japan, so unless Japan rolls over anytime soon, the TPP will require some watering down to accommodate their position.

    But I agree, the IP and technology services TPP articles leaked do not seem to benefit non-US partner companies, and I wonder if many Kiwi tech companies also realise they will be thrust even more so into the US legal circus of endless patent law suits once this agreement goes through. As someone already running an international (albeit small) company, I well know the cost of business IP insurance just because of the US litigation threat, and the almost 10-fold increase in the various premiums because of it. Expect ’10-fold’ to become ’20-fold’…

    1. Great comment. I agree. It’s a potential shambles and the secrecy aspect is an affront to New Zealand, which supposedly, has the least corrupt government of pretty much anywhere.

  2. Yes, absolutely agree with you Ian, “you can’t have your cake and eat it too”. From a helicopter perspective, what we are seeing is an inevitable globalisation of markets emerging from increasing digital connectedness. This means that increasingly the concept of ‘local market’ (government or otherwise) will disappear. The local pool is merging into a global one, where to avoid drowning we’ll need quality, pricing and street smarts to match the very best.
    To deal with potential security and accessibility issues of storing data overseas, security and other requirements will need to be expressed in a way that addresses associated risks specifically, rather than via some blanket approach to constraint by jurisdiction. So we would probably be better to deal with this now rather than wait for parochial policies to be challenged and forcibly removed.

    1. Excellent comment. I agree. You would hope that local IT companies are seeing this potentially about to happen and responding to protect their business. But. It’s going to be very very tough.

  3. Its easy to see who is being fucked by these agreements, but I wonder who in New Zealand is going to do well out of them? And what pressure is being brought to bear to force these clearly detrimental instruments into life – am I missing something, because I cannot see why anyone in their right mind would be pro tpp etc.

    1. I don’t think you are. I think the neo-liberal ideology demands open market. Problem is, it has already failed, and the bankers (National) just don’t get it.

  4. I find this all quite depressing. The one thing that NZ-based IT services can’t compete on is scale. Next year’s massive uplift in trans-tasman cable bandwidth, coupled with the onslaught of cheap commoditised and increasingly sophisticated services from Amazon and Azure, and NZ IT will rapidly become hollowed out. Niche service providers however, should survive. This is “progress”, and an inevitable consequence of being a small country at the edge of the world. Just don’t let your kids take up a career in IT.

    1. Yeah. I think we are seeing a real swing toward the death of IT, perhaps a decade or more away. Certainly what NZ could be left with is just making cheap cogs (thanks to cheap labour) for the overall machine. Or, we could adopt a fighting stance and actually start something new…

      1. With regards ‘death of IT’ (in NZ). That I believe is entirely up to us. For example MailMarshal, started by 5 Kiwi’s in Auckland, was incredibly successful in targeting and selling their product directly into the USA, despite a plethora of competing USA products (a wonderful story). Another example is the amazing suit of open source, R statistical packages developed by Hadley Wickham of Auckland University (chief scientist at RStudio), which are used regularly by almost every data scientist on the planet. There are lots of similar examples of us effectively trouncing the global competition, so we can surely can learn to emulate what those guys did right, despite the US patents etc. However, we need to get a lot more serious about investing in ‘made in NZ’ digital industries, where success will hinge on a belief that we can be more than predominantly a nation of farmers.

  5. There is also an effort for the TPP to prohibit open source software requirements in government RFPs so proprietary vendors are not excluded. Also all US software patents will have legal effect in NZ. Great Kiwi firms like Catalyst will soon be extinct and only low-profit local resellers and ISVs acting as the channel partner will remain.

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