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Trans Pacific Partnership
Friday, 25 November 2011 00:27

At their recent Hawaii summit, leaders of nine of APEC's 21 members – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – agreed on the broad outlines of a Trans-Pacific Partnership (TPP) agreement to enhance trade and investment among the TPP partner countries in order to promote innovation, economic growth and development, and support the creation and retention of jobs.

But what is the TPP really?  And is it as great as its proponents argue?

First, a bit of history.  The TPP builds on the Trans-Pacific Strategic Economic Partnership Agreement (P4) between Brunei Darussalam, Chile, New Zealand and Singapore, which entered into force in 2006.  This liliputian trade agreement came to life when US President Obama announced in November 2009 his country's intention to participate in the TPP negotiations to conclude an ambitious, next-generation, Asia-Pacific trade agreement that reflects U.S. priorities and values.

What are the TPP countries negotiating?  The TPP is billed as a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues that will boost the competitiveness of TPP countries in the global economy.

The TPP is in fact much more than a trade agreement.  The negotiations cover all aspects of commercial relations among the TPP countries, things like competition policy, cross-border services, customs, e-commerce, environment, financial services, government procurement, intellectual property, investment, investment, labor, legal issues, market access for goods, rules of origin, sanitary and phytosanitary standards, technical barriers to trade, telecommunications, temporary entry of business persons, textiles and apparel, trade remedies, and cooperation and capacity building to support developing countries’ ability to implement and take advantage of the agreement.   

The goal of TPP negotiating countries is to finalize by the end of 2012.  Already more than twenty negotiating groups have met over nine rounds to develop the legal texts of the agreement and the specific market access commitments.  Negotiations may well however to drag on, as there are many sensitive issues being negotiated.

At the recent APEC summit, Japan, Canada and Mexico also expressed in joining the TPP trade talks.  But they need to discuss the terms of their acceptance into the TPP group with the existing nine members.

Japan's interest in particular was a cause for celebration as the TPP would then cover one-third of world GDP.  But the inclusion of Japan with its resistance to liberalizing agricultural trade and to untying its labyrinth of domestic regulations would also slow down the TPP talks.  

So how should we assess the TPP?

The TPP initiative is in part a response to the failure of trade negotiators to conclude the WTO's Doha trade talks.  One of the big problems of the Doha talks is that they have attracted very little interest from the US business community whose support is absolutely necessary to get US Congressional approval. 

The Doha trade talks were a "nice idea at the time", being launched just after 9/11 with the objective of helping developing countries.  Many of these poor developing economies are today performing much better than the crisis-ridden OECD countries.

With the US clearly in the TPP driver's seat, the TPP trade talks clearly reflect a US agenda and could result in a lop-sided agreement favoring US business.  US business interests of intellectual property, investment and competition dominate the TPP talks, something which is arousing concerns in many quarters.  Just one concern is the US pressure to extend patents, and therefore increase prices on pharmaceuticals.   

Business support for the TPP will ensure eventual Congressional support.  It will also undoubtedly help President Obama's re-election chances in November 2012.  

At the same time, the inclusion of environment and labor clauses is part of a US Democratic Party agenda which developing countries feel unhappy about.  But US Congressional politics requires making happy as many interest groups as possible.  

President Obama's strong support for the TPP also reflects in part his need to be pro-active on the economy, especially for job creation.  In this context, trade negotiation activism can be effective in diverting protectionist pressures, and focusing attention on Obama's goal of doubling US exports in the coming years.

Lastly, the TPP is most certainly a key element in the US strategy to regain political and strategic leadership of the Asia-Pacific.  Over the past decade, trade liberalization in the region had been led by free trade agreements in East Asia, centred around the South East Asian countries (ASEAN), with China also being a leader.  The US was absent from the apparently the emerging East Asian free trade agreement.

When assessing the TPP, we must bear in mid that trade negotiations and agreements are always messy, and end up being very political.  There are always winners and losing, and horse trading is inevitable to get a final deal.  What is most important is that there is forward momentum.

Further, with trade border barriers being very low in most parts of the world, and for most sectors, the broader approach of the TPP is necessary for opening markets and improving the ease of doing business.

It is also important to have the whole Asia-Pacific supply chain involved in a regional trade agreement.  This supply chain starts with Australia's exports of natural resources, goes on to product design and component manufacture in the US, Japan and other advanced Asian economies, continues with product assembly in China, and much of it ends up with final sale in the US and other advanced economies. 

It will thus be important to involve China in the TPP as soon as possible for it to be building block for APEC's goal of free trade and investment in the Asia-Pacific.  Some argue that joining the TPP would be as difficult for China as their negotiations for WTO membership.  But as long as that took, China made it in the end.

 


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