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Trans-Pacific Partnership Outlook and Impact

  • A trade initiative to lower tariff and trade barriers and promote economic growth among its members
  • Includes twelve Pacific Rim and Asian nations — Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam
  • Current negotiations revolve around establishing rules in areas ranging from intellectual property to the role of government in private enterprise
  • As of February 2014, the negotiations for TPP are still in progress
  • Whether or not President Obama will be granted “fast-track” from the U.S. Congress will significantly influence the timing and success of negotiations

Overview

The Trans-Pacific Partnership (TPP) is a trade initiative that aims to create a free trade agreement in the transpacific region. It currently involves 12 active member countries bordering the Pacific Ocean. At a high level, it aims to lower tariffs, open markets, and create a strategic partnership within the Asia Pacific.1

Broad framework2

On November 12, 2011, the leaders of the TPP participants announced a set of broad outlines for the agreement. Some highlights include:

  • Cooperation and capacity building among developed and developing member countries
  • E-commerce related issues such as customs duties, authentication of electronic transactions, and consumer protection
  • Environmental protection and conservation
  • Financial services-related issues including investment protections and transparency
  • Intellectual property rights in the forms of trademarks, copyrights, patents, trade secrets, etc.
  • Market access for goods, agricultural export competition and food security
  • State-owned enterprises and government procurement policies
  • Telecommunications
  • Textiles and apparel

Expected benefits

The current TPP participants represent 11 percent of world population and account for 39 percent of world GDP, making the potential impact on the global economy significant, with further expansion possible. According to a quantitative study based on an analysis of 48 actual and proposed Asia Pacific trade agreements, adding countries to TPP membership increases the collective economic benefits substantially.3 It argues for the future enlargement of TPP to create a true region-wide free trade framework.

One area worth mentioning is the services sector, which accounts for most of developed countries’ GDP but is currently only a small share of trade. The TPP agreement would potentially expand trade in services and help reduce the cost of activities such as shipping, banking, education and healthcare.4

The projected economic benefits to individual member countries will vary, driven by facts such as economic scale, industry competitiveness, and level of economic development. For example, in 2011, it was estimated that New Zealand’s gains from TPP could be 1.4 percent of its GDP by 2025.3 Vietnam was estimated to be the largest beneficiary from TPP, especially in its apparel and footwear industries where China’s competitive advantage is fading. Because of each country’s varied economic interests and TPP’s relatively grand scale, there will be manifold challenges on the road to reaching a well-balanced agreement.

U.S. participation

As a region, Asia Pacific represents 40 percent of global trade and includes some of the world’s most robust and fastest-growing economies. The Obama Administration has stated the U.S. participation in the TPP reflects American economic priorities and values, and believes that Asia Pacific offers extraordinary opportunities for the U.S. to boost economic growth and create high-quality jobs by increasing its exports to the region. In 2012, the broader Asia Pacific region was the destination for 61 percent of total U.S. goods exports.5 As more countries join the TPP in the future, the U.S. would have the opportunity to expand its trade access to countries with which it currently does not have Free Trade Agreements.

Apart from the economic benefits, another geopolitical intention of the U.S. leading TPP negotiations is to influence some of the economic power dynamics in Asia-Pacific, which aligns with President Obama’s strategic plan to increase U.S. engagement in the region.6 Observers note that America’s security alliances across the Pacific would be enhanced through TPP as TPP helps to strengthen the ties between the U.S. and other Asia Pacific countries both economically and politically.7

Calendar and next steps

Since commencing in 2010, there have been 19 rounds of formal negotiations. Though President Obama and the leaders of the other 11 TPP countries had previously aimed to finish talks by the end of 2013, the inconclusive ministerial-level meeting in Singapore in December means that negotiations will continue into 2014.

While various outstanding issues remain unresolved regarding the TPP content, external challenges also exist. Most notably, President Obama being granted “trade promotion authority” (aka “fast-track”), which would allow him to negotiate deals first and present them to the Congress for a simple yes-or-no vote without lawmakers revising the details, will be crucial to passage of the TPP. The U.S. Congress last granted fast-track to the President in 2002 and it expired in 2007. Without the “fast-track,” the other parties to the TPP cannot be certain of America’s commitment, creating further complications and delays.

In January 2014, The Bipartisan Congressional Trade Priorities Act of 2014 was introduced to reauthorize trade promotion authority.8 As of February, the bill is still under discussion in the U.S. Congress, and it is unclear when the bill might be passed. According to The Economist, it is unlikely for a fast-track vote to take place before November’s mid-term elections.9 Furthermore, the momentum of TPP negotiations inevitably impacts other trade deals that are currently on the table, such as the Translantic Trade and Investment Partnership (TTIP). Together with TPP, these two deals were estimated to boost the world’s annual output by $600 billion with some $200 billion accruing to America.10 The potential cost of losing momentum could be significant.

1New Zealand Ministry of Foreign Affairs & Trade. http://www.mfat.govt.nz/downloads/trade-agreement/transpacific/main-agreement.pdf
2Office of the United States Trade Representative. Outlines of the Trans-Pacific Partnership Agreement. http://www.ustr.gov/about-us/press-office/fact-sheets/2011/november/outlines-trans-pacific-partnership-agreement
3Peter A. Petri, Michael G. Plummer and Fan Zhai, The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment, East-West Center Working Papers No. 119, October 24, 2011.
4http://www.economist.com/node/21596934/print
5Office of the United States Trade Representative. The United States in the Trans-Pacific Partnership. http://www.ustr.gov/about-us/press-office/fact-sheets/2011/november/united-states-trans-pacific-partnership
6Meredith Kolsky Lewis, The Trans-Pacific Partnership: New Paradigm or Wolf in Sheep’s Clothing?, 34 B.C. Int’l & Comp. L. Rev. 27 (2011), http://lawdigitalcommons.bc.edu/iclr/vol34/iss1/3
7The Trans-Pacific Partnership: New Rules for a New Era. The Wilson Center (2013). http://www.wilsoncenter.org/event/the-trans-pacific-partnership-new-rules-for-new-era
8http://www.finance.senate.gov/newsroom/chairman/release/?id=7cd1c188-87f1-4a0b-8856-3fc139121ca9
9http://www.economist.com/node/21596934/print
10Same as above.

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