The TPP Debate

06.02.16
Dominic Hartnett
Longform /02 Jun 2016
06.02.16

The TPP Debate

One of the most striking aspects of the Trans-Pacific Partnership (TPP) is its sheer impact on trade and commerce. The Trans Pacific Strategic Economic Partnership, as it was originally known, was conceived in 2003 by Singapore, New Zealand and Chile as a path to trade liberalization in the Asia-Pacific Region. Brunei joined the negotiations in 2006, the United States, Australia, Peru, and Vietnam in 2008, Malaysia, Canada and Mexico in 2012 and Japan in 2013.

Over the years the TPP has become America’s biggest economic initiative in the region. Obama’s ‘Asia Pivot’ has the TPP as one of its main initiatives for strengthening American economic influence in the region. The Obama administration has advocated for the TPP not only domestically but also internationally. The TPP’s negotiations have been characterized by the phrase ‘high-quality, twenty-first century.’ This phrase has become the principal motif of negotiations which was aimed at creating a preferential trade agreement (PTA). In October 2015, the TPP members officially announced the conclusion of negotiation and released the long document. The agreement has the following aims: promoting economic growth, supporting the creation and retention of jobs, enhancing innovation and competitiveness, raising living standards, reducing poverty in participating countries, promoting transparency/good governance and enhancing labor/environmental protection.

The five features of TPP are: comprehensive market access and reducing or eliminating non-tariff barriers, regional approach to commitments, addressing new trade challenges, ensuring that economies at all levels of development can benefit from trade and create a platform for regional integration.

The majority part of the document talks about thirty regional trade rules like initial provisions and general definitions, customs administration and trade facilitation, sanitary and phytosanitary (SPS) measures, technical barriers to trade, telecommunications and competition policy. The TPP members have agreed in their negotiations that the TPP will coexist with the existing Free Trade Agreements (FTAs). The agreement not only covers the traditional aspects of FTA but also includes new elements like e-commerce, technical barriers to trade, capacity building, trade remedies, customs cooperation and government procurement.

Significance of TPP

The Trans Pacific Partnership is one of the most crucial trade agreements in recent times. The signatories comprise nearly 40 percent of global GDP, a market of more than 800 million people, and around one-third of world trade. After nearly a decade long negotiations by the member parties, the TPP document was released in 2015 and has been seen as a big achievement. But, the main task of ratifying the document by all the parliaments of the member states is yet to happen. Supporters of TPP have highlighted the vast economic boost the agreement will give to the participating countries.

Apart from the lessening of many tariffs in partner countries over the years, the supporters point out the significant mentioning of labor standards and environmental protection in the agreement.

Apart from the loosening of many tariffs in partner countries over the years, supporters point out labor standards and environmental protection in the agreement. All the countries are required to meet the core enforceable labor standards as stipulated by the International Labour Organization (ILO).

Further, TPP has kept environmental protectionism at its core, covering themes like wildlife trafficking, illegal fishing and ozone depletion. New unique elements have been mentioned in the agreement pertaining to State Owned Enterprises (SOEs) and an open internet. The TPP intends to ensure that state owned enterprises aren’t benefitting from preferential treatment. Amidst the rise in cybercrimes, the TPP speaks of banning ‘forced localisation’ of servers and technologies, and plans to establish more effective protections for the security and privacy of users. The TPP also addresses ‘currency manipulation.’

Criticisms and Debates

Being the world’s most ambitious trade agreement, the TPP has managed to attract some serious criticisms from civil society groups, politicians and in some cases industrialists. The overall discussion by the partner states made in the initial phase of the agreement was done in a close-door fashion. Before its release, WikiLeaks had released the section dealing with intellectual property rights and the environment. Although there have been many criticisms of the TPP, two criticisms have been more pronounced: a lack of transparency and weak environmental safeguards. The mystery surrounding the agreement has caused the public to view the trade deal with suspicion. The Obama administration’s tight lipped tactics over the TPP has helped rally trade skeptics, Democrats and also a few Republicans.

On environmental grounds, sections dealing with the environment have been criticized for not being strong enough.

On environmental grounds, sections dealing with ozone depleting chemicals, marine pollution and on endangered species of flora and fauna have been criticized for not being strong enough. Furthermore, among many environmental concerns is the Investor-State Dispute Settlement (ISDS) system included in the part which empowers some of the biggest polluters to challenge environmental protections in private trade tribunals.

The primary environmental critique in terms of its chapter on the environment has been that the authors’ didn’t mentioned ‘climate change’ even once. The chapter on labor has also been criticized. According to Human Rights Watch, the primary concern is that the labor chapter can only be enforced by governments involved in the agreement. The TPP empowers member countries to bring legal disputes against other member countries for violating the labor chapter’s terms. But while unions, labor advocacy groups and trade federations could lobby or petition respective governments to take formal action to enforce the TPP’s provisions, they will not be able to file a complaint under the agreement. This contrasts sharply with investors and corporations, who can bring dispute settlement proceedings against member countries under the agreement’s provisions on ISDS mechanisms.

Economic Projections of TPP

Three reports on the TPP by World Bank, Peterson Institute for International Economics and Tufts University have made some interesting research on the probable impact of TPP on participating states. The report titled ‘Potential Macroeconomic Implications of the TPP’ (World Bank) has stated that the change in GDP of overall countries will be 1 to 3%, whereas change in trade of overall countries will be 0 to 10%. It suggests that the country with the most change in GDP will be Vietnam (8-10%) and the country with the least GDP change will be the United States (0 to 2%). The second report, ‘The Economic Effects of the TPP New Estimates’ (Peterson Institute for International Economics) has estimated that the annual gains by the TPP for the United States will be $131 billion and the annual income gains by the TPP for the world will be $492 billion. Whereas, the exports for the United States will increase by 9 to 11% and for all TPP countries it will increase by 11.5%. Lastly, ‘Trading Down: Unemployment, Inequality and other Risks of the TPP Agreement’ (Tufts University) has estimated that the annual change in GDP of developed economies in the TPP will be negative .04%.

Country Based TPP Facts

The TPP will be Singapore’s first preferential trade agreement with Canada and Mexico. Processed food, textile and apparel manufacturers are slated to benefit from the TPP. Also, investors in the field of IT, construction and consultancy sectors will benefit. For New Zealand, the TPP will be the first FTA with the United States, Japan, Canada, Mexico and Peru. It would add at least $2.7 billion a year to New Zealand’s GDP by 2030. Tariffs will be eliminated on 93% of its trade with the new FTA partners, saving New Zealand exporters $259 million each year. Chile, is the only country to have an existing FTA with all the TPP members. If this treaty is ratified, 1,600 new Chilean products will enter TPP countries. Brunei will have its first FTA with Canada, Mexico, Peru and the United States. Apart from opening up the possibility of larger foreign direct investments (FDI), TPP will also encourage greater labor mobility. For the United States, the TPP eliminates over 18,000 different taxes on American made exports. Though there is great political division within America over the TPP, the Obama administration has promised that the TPP will lift complex restrictions and bans on access for American businesses.

On the other hand for Peru, the TPP will let more access to small and medium enterprises (SMEs) businesses to new markets and it will be beneficial for agriculture, fishing, alpaca wool and textile industries. The country to gain the most from the TPP will be Vietnam, which will see its GDP growth rate in the double digits with its garment and textile industry gaining the most. Being an export economy, reducing tariffs will help Vietnam’s economy. The TPP gives Malaysia a larger international market for its products as it has a small domestic market. Sectors contributing over 20% of Malaysia’s GDP in 2014 are expected to register higher output growth. TPP has resulted in advantageous tariff outcomes for Canada, especially in terms of industrial goods and increased opportunities for Canadian manufacturers. Also, due to tariff liberalization, Mexico improves access to products in sectors like agriculture, electronics, automotive and manufacturing.

Geopolitics of TPP

The geo-economic and geopolitical interactions of the world are currently shaping the larger discourse of international and domestic debates. The TPP presents itself as a quintessential example of being a hybridized economic trade agreement with a larger political strategy. Over the years, the TPP has evolved into being one of the White House’s chief projects, being the economic leg of Obama administration’s ‘Asia Pivot’ strategy. America’s endeavor of sustaining its prominence led President Obama to shift to Asia with his rebalancing strategy, creating waves in Asia Pacific. Apart from the stagnant US economic growth, the rise of China as a formidable challenger to US hegemony fueled greater interest on the part of America in joining the TPP. Since the initial phase of the agreement, Beijing has considered this economic endeavor as a way for the United States to ‘contain’ China’s rise. But since Japan joined the TPP, China’s opinions on the agreement evolved. Since this new development, there have been debates in Beijing about whether they should or should not be part of this trade deal.

Currently, while following a ‘wait and see approach,’ China is gradually moving away from its earlier stance of opposition. With new initiatives spearheaded by China like the Asian Infrastructure Investment Bank (AIIIB) and the three party economic agreement involving South Korea and Japan, the politico-economic struggle has only intensified. Furthermore, the Regional Comprehensive Economic Partnership (RCEP), which involves China, Japan, South Korea, New Zealand, Australia and ASEAN members has been viewed as a possible rival Asia-Pacific trade agreement. The possibility of China eventually joining the TPP is far-fetched and premature it underlies the strategic significance of the TPP for the United States but also for all the states of the region.

The Road Ahead

Currently, the TPP is yet to be executed by the member states as the ratification procedure of the agreement are pending. The country to watch for in this whole process is America. Since the very beginning, the debate on the TPP saw surprising supporters and critiques in the United States. President Obama’s own Democratic Party has seen a split division over the agreement, whereas the Republicans have more often than not supported it. The possibility of having a vote on the TPP in the US Congress is mixed. As the political atmosphere in America is turning intense due to the upcoming Presidential election in November, the TPP has ignited opposition by the presidential candidates.

The other country whose ratification is crucial for the agreement is Japan. Though the Japanese government has initiated the ratification process, the process might take more time than expected. The TPP agreement will enter into force 60 days after all 12 member countries ratify it. If all member nations have not ratified it after two years, it will take effect 60 days after it is ratified by at least six countries accounting for 85% of the combined gross domestic product of the 12 signatories. In practice, this means both the US and Japan must ratify the agreement.

Even though in the current context there are 12 members of the TPP, many more countries namely South Korea, Indonesia, the Philippines, Thailand, Laos, and Taiwan have informally shown interest in wanting to be part of the deal. After Japan’s inclusion in the TPP (South Korea’s biggest economic competitor), Seoul expressed interest in being first in line when a second tier of members is to be admitted in TPP. South Korea’s interest in joining has in turn lit a fire under its fierce competitor, Taiwan, equally anxious to get in. The Philippines, too hopes to join the agreement in order to give impetus to its domestic reforms.

The future of the TPP is difficult to predict at this point of time. With a politically divided America and a cautious Japan, the final agreement might see some countries backing out. Though the agreement is predicted to be an economic milestone for its members, its critics have equally stressed its downfall. The final fate of this one of a kind trade agreement will be realized two years from now, up until then it’s a domestic struggle for the potential member states.

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