It took nearly eight years, but a dozen countries
on both sides of the Pacific Rim, which account for 40% of the world's GDP
reached a trade agreement. Attention will now shift to the
ratification process.
Canada may offer the first challenge.
National elections will be held October 19. The Conservative Prime
Minister Harper has supported the efforts, but his two main rivals are either
openly critical (New Democratic Party) or lukewarm (Liberals). The latest
polls put the Liberals slightly ahead. Geographically, there appears
to be an East-West split, as one might imagine.
The US and Japan probably have the most at
stake. For the US, the Trans-Pacific Partnership is an essential
component of the so-called Asian Pivot. It excludes China (at least
initially), and is seen to raise the bar to future trade agreements. It
addresses some non-tariff barriers to trade, regulation, government
procurement, and state-owned enterprises. Japan's Prime Minister Abe was
slow to embrace TPP efforts, but his advisers, especially in METI, see it as a
powerful weapon to weaken the domestic obstacles to reform, like the
agriculture cooperatives.
Reports indicate that Japan has agreed to
reduce tariffs on a wide range of agricultural goods, including what, pork,
beef and poultry. Ultimately this will likely have an almost
imperceptible impact on measured inflation. The quotas for raw milk and
rice that are to be imported duty-free account for about 1% of domestic
production.
The US imposes a 2.5% tariff on Japanese auto
imports. This will be eliminated over more than a decade.
Japanese producers service the US market primarily by building locally and
selling locally. This is to say Japanese car makers have pursued a direct
investment strategy to penetrate the US market rather export orientation.
The sales by local affiliates outstrip exports by a factor of four.
Typically, the advocates of free-trade
agreements oversell the direct economic benefits, in terms of jobs that will be
created and the growth that will be generated. After all,
there are many factors that influence job creation and growth outside of trade.
The importance of this trade agreement may lie with taking the agreement
further than other trade agreements. There will be a wider number of
goods that can be traded duty-free, and the tariff barriers on other goods will
be reduced. More importantly, there is a mutual recognition of many
regulations. This includes an exclusivity period of drugs derived from
living organisms (biologics) and patent protection for pharmaceuticals.
State-owned businesses, such as in Vietnam and
Malaysia, must also adhere to commercial, labor and environment rules.
The International Labor Organizations guidelines for collective bargaining,
minimum wage, safety, hours, and child-labor have been codified into the
agreement. For the first in a trade agreement, special help will be given
to small businesses.
There is an unprecedented degree of protection
for the environment. There are provisions against wildlife trafficking and
unsustainable logging and fishing. A wide range of marine and land
animals., such as including elephants and rhinoceroses are also
protected.
There are an estimated 30 chapters in the
agreement, and it is expected to take several weeks before they are all in the
public domain. The lack of details has not prevented candidates for
US President to be critical of the agreement. Trump on the Republican
side has been a vocal critic, striking an apparently responsive chord among
representatives from agriculture districts, especially sugar and rice.
Support among Democrats is considerably
weaker, and Obama depended heavily on the Republican Party to secure Trade
Promotion Authority. Sanders, who is closing the gap with
Clinton in terms of fund raising and in the swing states, condemned the
agreement even before it was reached. Clinton's position seems more
nuanced. As Secretary of State, she seemed more supportive, but as a
candidate, some of her important constituents are opposed.
In some ways, the regional agreements are a
result of the inability reach a global agreement under the auspices of the World
Trade Organization. Trade and capital flows have not returned to
pre-crisis levels. There are several reasons why this is the case.
The stronger dollar and weaker commodity prices play a role. Slower world
growth, the reduction of the US and China trade imbalances, and changing supply
chains also need to be taken into account.
The public debate and the ratification process
will likely take several months to complete. Today's agreement, like
Obama securing Trade Promotion Authority, is another important step toward a
final agreement. Although the odds have improved, it is not a done deal.
disclaimer
TPP Deal Struck, Next Hurdle Ratification
Reviewed by Marc Chandler
on
October 05, 2015
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