The twelve countries that have entered into the Trans-Pacific Partnership known as the TPP, were finally able to overcome a number of issues this month, that had forestalled an earlier conclusion in the negotiations. Investors are buoyed by a new trade pact that covers 40 percent of global trade. It is estimated that by 2025, GDP (Gross Domestic Product) will be boosted by 1 percent throughout the new trade bloc. That would equate to an over $200 billion USD (United States dollar) increase.
Emerging markets will benefit the most from the pact at this time. It is estimated that Vietnam alone, will see an increase in GDP of 10% by 2025. However, even in advanced countries like the United States, exporters will see thousands of tariffs reduced to zero in participating countries.
Dark Green: Reached Conclusion of Agreement
Light Green: Interest In Joining
Blue: Potential Future Members
The trade pact had stalled for 5 years over issues of agricultural protections, intellectual property, services and investment. Of course, full ratification by all member nations may take up to two years to complete.
There is hope among many, that the successful conclusion of the talks will help speed similar negotiations that are proceeding between the European Union and the United States. The Transatlantic Trade and Investment Partnership known as the TTIP, is facing similar hurdles in cinching a deal.
The Trans-Pacific Partnership has evolved from an agreement reached among the nations of Brunei, Chile, New Zealand, and Singapore in 2005. In 2008, additional nations saw the economic advantages that would be gained by expanding the trade understanding. Therefore Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam would join the proceedings.
A protest against TPP in Wellington, New Zealand in November 2014
The goal of the TPP was to enhance trade and investment among member nations. The emphasis was to be on promoting economic growth and development through innovation and new rules, that would level the playing field among the participating countries. The obstacle for an earlier agreement, was how best to create and retain jobs in a number of individual nations.
The wide variation in economic development among the group was a major impediment to the final agreement. The lowering of trade barriers threatened industries in a number of countries, that had previously received special protection from their respective governments. Economically more advanced nations were more concerned about intellectual property, and setting up uniform standards for environmental and labor protections.
As with most trade agreements, a major issue of contention was how to deal with disputes that were bound to present themselves in the months and years ahead. A mechanism for solving these conflicts needed to be created. The final draft is supposed to provide this stipulation.
“Stop Fast Track” rally against TPP in Washington D.C., April 2015
There are various groups that will continue to oppose the TPP based on two main objections. One is that the new trade agreement does not provide adequate protection for some industries. Others feel the pact does not go far enough in limiting trade barriers among member nations. Part of the protests are the result of the secrecy involved, as the agreement was being negotiated.
The assorted advocacy groups that include farmers, labor organizations, environmentalists, internet freedom activists, health professionals, and corporate officers have all expressed their misgivings in moving forward in a number of countries. As expected, there has been a political alignment in member nations from those politicians and elected officials who favor the agreement and those who are in opposition.
There are some legitimate concerns with TPP that go beyond simple nationalistic interests. One is that the trade accord underscores the shift away from world wide agreements. The World Trade Organization (WTO) has largely failed to pass any new undertakings since 2001.
Although reaching any agreement with 161 nations is far more challenging than a mere 12 nations, there has been no real progress in in almost two decades. It is far more difficult now, because the lower trade hurdles have already been removed. More entrenched protections in individual countries as a result of history, culture and local politics are very hard to overcome.
Pacific Rim Nations
The other complaint with regional trade deals is that politics will often move to exclude countries that should participate, because of geographic proximity or their large role in regional trade. In TPP, there are two obvious exclusions that weaken the effectiveness of the new accord. That would be the two rising economic powers of China and India.
However, the importance of doing anything to promote more global trade and investment should override these anxieties say proponents. These advocates point to the general slowing growth across the world. The amount of goods being shipped in the first half of 2015 only increased 1.9%, when compared to the same period in 2014. The average growth in years past, has been closer to 5%. The slowing demand in China,is not alone responsible for this lagging indicator.
Wellington, capital and 2nd largest city in New Zealand
There is the strong possibility that the present membership will be expanded, once TPP is officially ratified by the governments of participating countries. In Asia, these would include the nations of Bangladesh, Cambodia, Indonesia, Laos, South Korea, Philippines, Taiwan and Thailand. In Latin America for example, it seems quite likely that Colombia will wish to join the TTP soon.
Each participating member in the TTP negotiations, had trade positions that would complicate their future adherence to the pact. For example, both the United States and New Zealand voiced concerns over the protectionist policy of Canadian agriculture, especially the dairy sector. Eventually other economic interests in Canada forced the domestic farming lobby to give way to the larger overall financial concerns.
Insulin crystals
The United States was particularly concerned over the length of time new medications would have patent protection, once they became available for use. The Americans wanted 12 years of exclusivity, as is common practice domestically.
There was tremendous pressure exerted by the pharmaceutical industry, to maintain the longer period of time given the enormous financial investment in the development of new medical drugs. In the end, a mere 5 years was finally agreed upon. It was a major blow to the biotechnology industry in the United States.
The Apple Watch quickly became the best-selling wearable device, with the shipment of 11.4 million smart watches in the first half of 2015.
For the United States a leading demand was to be the rigid enforcement of copyrights, patents and trademarks. There has been a huge market in producing counterfeit merchandise and stolen intellectual property originating from American companies.
The unbending position of the United States on this issue was unnerving to the group at large, particularly Australia. At one point there were 19 areas of disagreement in this area of contention alone. In the end, all sides were forced to make some compromises.
Japan was another nation, intent on continuing protection for certain segments of the agricultural sector. If the Japanese would not open up their markets to American farmers it would be unlikely that TTP would pass the American legislature, upon the conclusion of the negotiations. Cattle ranchers, pork producers, citrus, dairy, rice, sugar and wheat farmers in particular, would benefit from an further opening of the Japanese market.
The Nissan Leaf is an all-electric car launched in December 2010
Another major sticking point among some leading members in the pact were automobiles. There was a strong desire among the countries of Japan, the United States, Mexico and Canada to each protect their market portion of this economically important and lucrative trade. The previous way to protect domestic companies was to keep tariffs in place.
There finally was an commitment to reduce these across the board. This will of course, benefit consumers everywhere in the new trade zone. It will however, lead to a number of job losses as the most efficient auto companies gain market share. In order to soften this blow, American tariffs on some Japanese vehicles for example, will be reduced over the next 30 years.
Workers’ compensation, or employers’ liability insurance, is compulsory in some countries
The biggest room for productivity increases will be in services. This will be of a major benefit to those countries that offer the most efficient practices in a number of industries that will include banking, insurance and finance, but will also benefit companies involved in as widespread pursuits like adverting, consultancy and technical expertise.
The Trans-Pacific Partnership now faces the upcoming political battle in those nations having a fractious legislature, that must approve of the new trade accord. This will be more difficult in nations like the Canada and the United States, that are already embroiled in upcoming national elections. In others, political leaders will be called upon to explain to the larger electorate, how the new trade treaty will work to the advantage of their respective country.
As a result of how TTP must be approved by each country’s entire government, it is not a foregone conclusion that passage of the pact will result in automatic accession. In time, most of if not all of the participating countries will submit to the provisions of the treaty, but politically it will be contentious. International investors will benefit from the more open markets, yet will still experience uneven treatment in a number of individual industries in particular countries. This will be the result of new measures that are bound to be implemented, in order to continue some protection for certain industries by their host governments.