Investing & Day Trading Education:  Day Trading Academy

The Ongoing Controversy Over The Trans-Pacific Partnership

Stop_TPPA_rally._(15550752528)The Trans Pacific Partnership known as TPP involves 12 nations and will constitute 35% of global trade, when and if it is fully implemented. The negotiations have been ongoing for almost 10 years, among the nations that straddle the Pacific Rim. If one were to add the GDP (Gross Domestic Product) of these nations, it would add up to $28 trillion USD (United States Dollar). Together this represents nearly 40% of global GDP. The new partnership will bring massive new opportunities for investors, but is fraught with controversy.

Expanding trade is the stated objective of the pact, but it is the details that has created contention among prospective members. There is no doubt that new opportunities will result, as the accord is ratified by individual nations. However, there will also be some unintended consequences as well. Some manufacturing jobs will migrate from higher wage nations to lower priced ones. In some areas competition will actually become more limited, with new standards and regulations.

Leaders of TPP Member States And Prospective Member States At A TPP Summit In 2010.

Leaders of TPP Member States And Prospective Member States At A TPP Summit In 2010.

The most controversial part of the written agreement is the provision that allows multinational corporations the right to object to national rulings and judicial review. This will become possible by appealing before special tribunals that the treaty provides for.

The nations that are presently part of the negotiations include: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

They are several forces at work at this time propelling the agreement. As economic growth is slowing down in East Asia and parts of South America, the TPP would be a engine of growth by expanding world trade. It also is a way to cement these various countries into the Western orbit, dominated by the United States and Japan. The United States for example, would like to strengthen trade ties with the prospective members especially Brunei, Malaysia, New Zealand, and Vietnam.

NAFTA_logo.svgIt is also considered as a way to upgrade the force of NAFTA (North American Free Trade Agreement). This is a three way trade pact between Canada, Mexico and the United States that was brought into force in 1993. Although it is true that trade and investment did increase dramatically among the 3 nations, the benefits of the accord were unequal.

In addition, it is impossible to precisely know the number of manufacturing jobs that migrated from the United States to lower waged Mexico. However, that this occurred cannot be disputed. There was an increase of millions of new jobs in the United States regardless, but most of these cannot be attributed to NAFTA.

Another fact that is not in dispute, is before NAFTA the United States ran a small trade surplus with Mexico. After 1993, that soon became a deficit that has swelled to more than $50 Billion USD on an annual basis.200px-North_American_Agreement_(orthographic_projection).svg

These are just a couple of the consequences for the United States to consider, as negotiations for a much larger trade association are proceeding. President Obama has made passage of the treaty as one of his goals to achieve, while he is still in office. Yet, the President is experiencing adamant opposition from his own party within the American Congress and traditional allies.

What is curious about TPP is the absence of China in the ongoing debate. The country has not expressed an interest in joining the pact, but correctly sees it as a attempt for the United States to stiffen ties with existing allies and expanding relationships with other countries in the Pacific region. Increasingly China is beginning to see the benefits of possibly joining the negotiations. The problem is in the details. The Chinese government would need to adhere to a number of principles that could be contradictory, to their own objectives in economic development and trade while still maintaining political control.

Trans Pacific Enlargement

Trans Pacific Enlargement

They are not alone. South Korea as well is weighing the benefits and disadvantages of being part of TPP. The same is true for Indonesia, Taiwan, Thailand, and the Philippines in East Asia. One need not wonder why Colombia, Panama, and the nations of Central America are not clamoring for admission. To be part of this trade pact will require a major surrender of national prerogatives.

The trade negotiations are dealing with a wide variety of complex issues concerning financial services, commerce that is being conducted over the internet, labor regulations, environmental issues, intellectual and private property protections to name just a few. These are some the points that give a number of nations pause, when they are considering membership in TPP.

Rice Cultivation In Japan

Rice Cultivation In Japan

A major contention in the dialogue among the various nations is the issue of tariffs. Nations that have long protected certain industries or sectors of their economy, would need to suspend such practices. These would include Japanese duties on agricultural imports particularly beef, citrus, dairy products, and the most important crop which is rice. In the United States this would mean the end of import levies on sugar and some textiles, including footwear.

220px-Hollywood_SignThe United States is insisting on new safeguards concerning intellectual property rights. Given the importance of the entertainment and music industry to the American economy, it is no wonder. It would also include research and development, which means a more rigid enforcement of copyright laws. What the Americans would prefer, is a basic expansion of the regime that exists in the United States with respect to the rights of individuals and corporations to the products and ideas of their creation.

There is an ongoing effort by some of the more Western orientated countries, to help standardize labor and environmental rules and regulations. Of course, if less developed nations would adhere to these requirements, some of their cost advantages in production will be negated.

A major concern among participants and new prospective members is the issue of the internet. A standard practice with many states around the world, is to block access and the free flow of information from one country to another. Another controversial issue in this arena is with server location. Many countries have demanded in the past, that in order to conduct business in that country, you need to have the server within national jurisdiction. The United States in particular is demanding that this practice should be abridged.

Internet Map

Internet Map

This is problematic for a number of nations on the path to ratification of TPP, because it directly effects the privacy rights and regulations of such information. Sovereign governments are used to controlling this type of information, from the citizens that live within their jurisdiction. It is giving up a modicum of control that is unsettling, especially to those governments that are more authoritarian in nature.

A major competitive advantage for the United States in being part of TPP, is the part of the economy that deals with services. The country has vast expertise and experience in issues dealing with finance and technology. The United States is unparalleled in resources in the information industry, that encompass every aspect of this sector. Countries everywhere have attempted to protect their domestic services from the American behemoth. On a level playing field many local industries and businesses will find it difficult to compete with the United States, when it comes to services.

State owned and/or subsidized businesses will be an issue with all prospective members to the accord. It will not be easy to accommodate the wishes of individual countries concerning this economic aspect. There are nations like Malaysia and especially Vietnam, where corporations owned by the state, forms a sizable part of their domestic economy.

Part of the problem in selling TPP to domestic constituencies is much of what is being discussed and negotiated is being done secretly. Unfortunately, this has become the standard practice for more recent trade agreements. Perhaps the complexity and difficulty of achieving so many of the TPP components, make some concealment of the details necessary. This does however, make it more difficult to sell to the public once it is time to move towards ratification.

Only four nations have already joined to be part of TPP. That is Brunei, Chile, New Zealand, and Singapore. All of them were original signatories to the trade pact in June 2005.

Overall, it will be difficult for all of the aspects of TPP to be agreed upon by the prospective members. There will be numerous domestic hurdles and challenges, that will hamper passage of such an ambitious endeavor. Despite the long term economic advantages for such an agreement, the passage of TPP by most nations is not assured.


Post a Comment

Your email address will not be published. Required fields are marked *

Call Now ButtonCall Now