It may be a long time before the Trans-Pacific Partnership really bears fruit. But it could eventually make a big difference
The US, along with 11 countries from across the Pacific rim, yesterday agreed on the world’s biggest free-trade deal in more than two decades. The Trans-Pacific Partnership (TPP), as the scheme is dubbed, encompasses economies that represent 40 percent of the world’s output. It will see reduced trade barriers reduced on a wide array of products ranging from beef and dairy to data and textiles.
The Obama administration is understandably gleeful. At a time when the flaws of its foreign policy strategy are being put under crude light by Russia’s bold interventions in Syria, the agreement marks a welcome diplomatic victory for the US president. It also gives substance to Washington’s “pivot” towards Asia – and allows it to score a point against Beijing in its struggle for influence in the region – a few months after some of its closest allies joined the China-led Asian Infrastructure Investment Bank against its recommendations (China hasn't been invited to join TPP).
But the deal should make the rest of the world cheerful too. Research firm Eurasia Group estimates that TPP could add $285 billion to the combined GDP of its 12 members by 2025, with exports increasing by $440 billion. These benefits should help boost the global economy at a time when it is looking for new growth engines; they should also allow poor countries to get richer, in a context where trade remains their only option for climbing the wealth ladder. TPP is symbollically important too: coming amid rising protectionism across many markets, it brings hope that the free-trade agenda can still progress.
And yet the deal is attacked by sceptics on several fronts. There are those who find its scope and reach, in fact, underwhelming. “No one is talking about the larger story, which is that the biggest trade news in a decade involves a regional deal of relatively limited impact,” reckons Megan McArdle from BloombergView.
Trade unions, meanwhile, argue that the negotiations were carried out in secret to favour the interests of big corporations. Some also reckon the deal opens up the possibility that governments be taken to court by global companies over issues like environment and public health, undermining their ability to regulate them (TPP creates mechanisms allowing investors to bring sinful governments to arbitration).
The first criticism is slightly misguided. It is easy to find the agreement’s achievements short of impressive: tariffs have already been greatly reduced among TPP members, so the largest cuts are reserved to more arcane sectors than those targeted by previous rounds of negotiations. But the treaty brings much more to the table, such as minimum standards for intellectual property, workers’ right and the environment. It even involves laws forbidding countries from favouring state-owned enterprises. These topics had been serious bones of contentions before – that governments could see eye to eye on them is big progress.
Trade union reluctance to embrace the treaty, on the other hand, was predictable. But unions still have a point: TPP had until this week been kept under a thick blanket of secrecy, meaning details about the pact will only emerge in the coming weeks. But the measure was necessary to protect negotiators from the pressure of interest groups affected by the treaty, and imagining a plot by global corporations may be pushing it a bit far. Arbitration courts have a long history behind them, and governments seem to win and lose there as often as anyone else.
A more relevant – and immediate – reason to keep the champagne on ice is that the implementation of TPP is far from being a done deal. Before anything happens the treaty has to be approved by lawmakers of its 12 member countries (Japan, the US, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam).
In some places, like Japan or New Zealand, it should be a relatively smooth process. But in others it will be less straightforward. In Canada, which is to stage a close-knit election next year, one of the main parties is opposed – TPP will no doubt be used as a political football as the campaign heats up. Communist, undemocratic Vietnam will have no such problem, but there liberalisation reforms that come as a by-product of the treaty may face resistance by political factions with vested interests.
Yet the biggest hurdle may well rest in the US. Passing the deal through Congress, in the run-up to next year’s election, won’t be an easy task: Democrats fear it will cost manufacturing jobs and water down environmental laws, while some Republicans are against provisions to block tobacco companies from suing governments over anti-smoking measures. Leading GOP candidates are opposed – Donald Trump described it as a “an attack on American business” – and Hillary Clinton has so far refused to endorse it.
The stakes are high. Beyond removing barriers and boosting trade, the treaty gives its members the opportunity to establish rules for 21st century commerce. TPP could soon welcome new members, such as South Korea, Taiwan, the Philippines, and Colombia, allowing these rules to apply to an expanding part of the world's economy. Indeed, the bigger it becomes and the greater incentive China will have one day to join in. The treaty also puts fresh pressure on the EU to conclude its own trade negotiations with the US, aimed at creating an ambitious Transatlantic Trade and Investment Partnership, before Obama leaves the White House.
It would be a shame if lawmakers of TPP's founding members failed to understand that the treaty is, actually, quite a big deal.