Crunch time for the TPP

Author: Claude Barfield, AEI

The first nine months of 2013 will mark a crucial period for the Trans-Pacific Partnership Agreement (TPP) negotiations being conducted by the United States and 10 other trans-Pacific nations.

During President Obama’s recent trip to Asia, TPP nations set a deadline of October 2013 to conclude the negotiations. TPP members have blown past a previous deadline of November 2011: should they fail again at the end of 2013 there is the real danger that the talks will unravel, and East Asian nations will turn to alternatives, pushed strongly by China.

On 18 November, as President Obama embarked on the highly symbolic trip to Asia, his top security and economic adviser, Thomas Donilon, asserted that the TPP agreement is ‘the most significant negotiation currently underway in the international trading system’. It is also the central lynchpin of the Obama administration’s much touted diplomatic and security ‘pivot’ to Asia. Thus, should the negotiations falter or fail, the result would be not only a severe economic setback, but also a dramatic symbolic defeat for US leadership in the region.

Positively, in an era in which the United States is deeply divided over globalisation and free trade initiatives, the TPP enjoys unusual bipartisan support. Launched under the Bush administration, the agreement has been taken up as a signature accomplishment for President Obama’s second term. During the 2012 presidential campaign, however, Republican Party candidate Mitt Romney also voiced strong support for the pact. Since the election, Texan Republican Kevin Brady, who heads the all-important House trade subcommittee, has urged the president to ‘go big’ on trade during his second term, and complete the TPP in 2013.

Just what is the TPP and why is it so significant? The current negotiations grew out of a four-nation agreement concluded in 2006 by Chile, New Zealand, Brunei and Singapore. Subsequently, Australia, Peru, Vietnam and the United States signed on, followed in 2010 by Malaysia, and most recently by Mexico and Canada. Detailed negotiations began in early 2010, and since then there have been 15 formal sessions. The ultimate goal of the TPP is to include all of the nations in the APEC forum.

At the present time, should the 11-nation negotiation be successful, the TPP would encompass a free trade area covering some 658 million people, and almost US$21 trillion in economic activity. If South Korea and Japan join the negotiations, as many expect in 2013–14, the free market territory would expand to a combined GDP of US$26 trillion, constituting 30 per cent of world exports.

The TPP has been called the first ‘21st-Century Agreement’. If successful, it will put in place international trade rules to lower or eliminate behind-the-border domestic barriers to foreign competition. Among the 29 chapters under negotiation will be rules to open government procurement contracts to foreign competitors; rules to liberalise service sectors, such as telecommunications, banking and accounting; non-discriminatory health and safety regulations; fair competition with state-owned enterprises; and a level playing field for foreign investment.

Despite the emphasis on 21st-century regulatory reform, there are also longstanding 20th-century trade issues that will prove difficult to resolve. For the United States, the greatest challenges stem from sugar, dairy and cotton protection and subsidies; textile and so-called rules of origin that hamper clothing supply chains; and, finally, union demands for interference with the labour laws of TPP trading partners. In the end, the key to success will come down to trade-offs between 21st-century liberalisation and old-fashioned 20th-century protectionism.

The urgency to successfully conclude TPP negotiations is heightened by the appearance of an alternative path for Asian regionalism that does not include the United States. At the November 2012 East Asia Summit, ASEAN leaders, as well as Australia, China, India, Japan, New Zealand and South Korea, formally announced that they would begin negotiations in 2013 for a Regional Comprehensive Economic Partnership (RCEP), with the goal of concluding the pact by 2015.

Much of the impetus for this launch came from China, which has long pressed for an exclusive, intra-Asian regional economic architecture. Given the diversity of the membership (including still-closed economies, such as India and Indonesia, and less-developed economies, such as Laos and Cambodia) and an uncertain timetable, RCEP is not an immediate challenge to the TPP. But should the US-led pact dissolve into contentious, even intractable, conflicts that defy resolution, China’s preferred option of the RCEP will provide a hard-to-resist alternative.

Thus, much is riding on the ability of the Obama administration to advance TPP liberalisation goals, while crafting compromises that are acceptable both to other TPP partners and to the US Congress and business community.

Claude Barfield is a former consultant to the office of the US Trade Representative and a resident scholar at the American Enterprise Institute

This article was originally published here at the American Enterprise Institute.

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