From May 19th-20th, lead negotiators for twelve nations met in Singapore to continue negotiating the Trans-Pacific Partnership (TPP). The TPP would create a mostly-free trade zone between twelve nations which together account for 40 percent of total global output. It would include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, the United States, Vietnam and Singapore. Of these countries the US has existing Free Trade Agreements with Australia, Canada, Chile, Mexico, Peru and Singapore.
Should the countries reach a deal, it is expected to vastly increase trade and exports between these nations to the tune of $123 billion a year. These increased exports should then create positive ripple effects within the nations’ economies, most importantly for the US, job creation because exporting industries should be able to expand their workforces, and creating new export markets for small businesses.
It is particularly important for small businesses which want to export because tariffs are greater barriers to entry for them then they are for larger companies, which are capable of establishing subsidiaries abroad. Or, as Brookings Institution Fellow Joshua Meltzer testified before the House Small Business Committee, 94 percent of SMEs in the US are importers and exporters and consequently trade agreements which reduce trade barriers should “disproportionately benefit” them.
The TPP entails detailed agreements on both eliminating (most) taxes and tariffs and on reducing the costs of exchanging services between these countries. Reducing the costs of services is a new component in trade negotiations and is viewed as critical in today’s increasingly service-oriented global economy, this would, for example, reduce the costs of shipping within and between these nation’s for firms from the other countries.
Additionally, the TPP is supposed to go beyond the WTO in providing for intellectual property protection, foreign investment protection, and environmental and labor regulation. The increased intellectual property protection appeals to innovative firms, particularly to those in technology, and to large pharmaceutical companies, which has created concerns that lower-priced generic medications will become unavailable in certain countries.
Politically, the deal is also viewed as a means towards solidifying existing trade relations and continuing US influence in the Pacific in the face of an increasingly-powerful China, and is an integral part of President Obama’s trade policy. Regardless of the political and economic reasons in favor of the TPP, an agreement still appears distant, even though negotiations have been ongoing for four years, because a plethora of issues exist within the individual nations which are slowing the negotiations.
The TPP is viewed as an integral part of President Obama’s trade policy; however, other nations are concerned that the deal will fail to pass Congress even if it has executive support. The Obama administration is pressuring Congress for Trade Promotion Authority (TPA), which would allow the deal to either pass or fail in the Senate without any further negotiations and alterations from the legislative branch. Although the administration can continue negotiating the agreement without TPA, having TPA would be seen as a vote of confidence from the Congress and could encourage other nations to move negotiations. Conversely, some, like former acting US Trade Representative Demetrios Marantis, think that reaching a conclusion to the TPP talks could encourage the Senate to approve the agreement.
The two nations viewed as both critical for the negotiations, and as those slowing them down, are Japan and the US. The recent Ministerial Meeting began with a meeting between the lead US negotiator, US Trade Representative Michael Froman, and Japanese Economy Minister Akira Amari, and last April President Obama went to Japan and the TPP was one of the main topics of discussion between him and Prime Minister Shinzo Abe. Although both countries have said that they believe that the talks are moving forward, little progress seems to have been made.
In the recent round of talks Japan signaled that they are willing to reduce tariffs on imported beef and pork; Japanese agricultural tariffs have been a sticking point for the US because of the powerful US agriculture lobby which wants to export more, and this was viewed as signaling a greater willingness to negotiate. Other issue areas are related to pharmaceutical IP and the automobile industry.
The greater Japanese willingness to negotiate is seen as progress; Virginia Foote, President and CEO of Bay Global Strategies in Hanoi (and Blue Star Strategies Network Partner), has been watching the situation closely, and regarding the recent round she notes that, “there remain many questions about the US TPA process and timing and about the US-Japan market access discussions, but nevertheless there is good momentum coming out of Singapore for moving forward and narrowing down the outstanding issues."
Considering the potential benefits which could be derived from the TPP, particularly the increase in jobs and assistance for SME’s, one can hope that the progress made in Singapore continues into the next round of negotiations in July and that the nation’s are open-minded flexible.