What sort of partnership across the Pacific brings benefit?

Author: Peter Drysdale, Editor, East Asia Forum

The grand vision for a Trans-Pacific Partnership (TPP) outlined by President Obama at the APEC Summit in 2011 has moved a little closer to realisation, in scope at least, with announcement by Prime Minister Shinzo Abe that Japan would join in the negotiations.

Protesters stage a sit-in in front of a Diet building in Tokyo on 15 March 2013, demonstrating against Japanese participation in the Trans-Pacific Partnership trade liberalisation talks. (Photo: AAP)

Japan’s move could also encourage Korea to join in. But Japan’s signing into the negotiations makes the latest October 2013 deadline for signing an agreement that would comprehensively liberalise trade and commerce in Asia and the Pacific an even more distant prospect.

The TPP aims to be a high-quality, ’21st century agreement’ that furthers economic integration across Asia and the Pacific, with the negotiations before Japan committed including Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. After much shilly-shallying by the previous and current Japanese administrations, Japan’s announcement that it will participate in the negotiations certainly adds weight to an initiative which otherwise seemed peripheral to the main action in Asia.

Whether the TPP turns out to be a strategic turning point in regional trade diplomacy is still far from clear. ‘Less than half of APEC’s member economies are committed to negotiating a TPP at this stage and [there are indications that] the end agreement and design of the TPP may mean that some key economies will find it difficult to join. The most important of those is China. The so-called platinum standards the US is pushing for in TPP — stronger intellectual property rights, stronger labour and environmental standards and regulatory discipline of state-owned enterprises — will make it hard for developing countries and transition economies [and even developed countries like Australia] to join’, says Shiro Armstrong.

These are not in fact priority issues for making markets more contestable and efficient. If the TPP is to be worth the effort, and not undermine progress through APEC on broader regional cooperation, it needs to be directed at buttressing the global trading system when, with the failure of Doha, the global recession and a powerful retreat to protectionism, the regime is on the ropes. As Jonathon Pollack from Brookings Institution writes, ‘the TPP in its extant form represents an overly constricted approach to trade ties across the Pacific; to many observers, it seems a thinly disguised means to counter China’s growing economic influence’.

The TPP will need to be more. It must be an agreement that offers inclusion and more than the multiplication of preferential bilateral deals with exclusions and vetoes that favour the principal parties. There is a huge, complex negotiating agenda. The United States will have to make concessions to accommodate the priorities of its TPP negotiating partners. It will have to tackle its own long-standing protectionist practices and rules. This means liberalising high tariffs (and restrictive quotas) on textiles, apparel and footwear. It will also mean liberalising market-distorting rules of origin that drastically curtail supply chains by excluding parts and components from non-TPP members. As well there are America’s highly restrictive quotas and tariffs in key agricultural sectors, such as sugar, dairy products and cotton to deal with.

Politically, the Japanese government’s commitment to joining the TPP negotiations was about shoring up Abe’s reform credentials at home rather than being based on any deeply held economic reform convictions that Japan must open up for its own good and about declaring political solidarity with the United States on its Asian engagement. Abe wants to project this image and achieve political success through his performance on the economy and his management of the US relationship. The truth is that, while liberalisation of the agricultural sector is an important object of reform in Japan — and reform-minded Japanese commentators cling to the hope that it will break a log-jam on economic reform across the Japanese economy — the chances of the TPP making an iota of difference to the main agenda of economic reform in Japan beyond agricultural issues of direct interest to US (and hopefully Australian and New Zealand) negotiators is close to zero. Indeed, if American agricultural protectionism itself triumphs it will likely permit Japanese agricultural exceptionalism to prevail, especially if the pressure is to do a TPP deal quickly.

At this stage the TPP negotiations reflect much more the American negotiators’ wish list than an agenda for comprehensive Asia Pacific trade reform. As Shiro Armstrong explains in this week’s lead essay, not everything in that list is likely to ‘produce win–win, positive-sum outcomes for its members, and indeed, some aspects could be damaging to potential TPP members and the region more broadly’.

A key US objective is to align the regional intellectual property (IP) regime with US IP regulation. There is considerable evidence that strengthening IP rights provisions in trade agreements is negative sum and reduces global welfare rather than raising it. The United States is a large net exporter of IP, and so strengthened IP in the TPP will mean wealth transfers from less developed to more developed countries. ‘IP rights exist to give innovators incentive to innovate by protecting their right legally to collect monopoly rents on innovations for a given period’, Armstrong points out. ‘Yet there is a balance to be struck between the rights of the innovator and public welfare, since the weaker the IP rights are, the higher the potential benefits to social welfare, as the public benefits from cheaper access to that technology (a patented medicine, for example). Extending copyright or extending patent protections in trade agreements is very different in principle from lowering tariffs’.

Some of the traditional trade issues that have been highly publicised are related to US market access. The United States has yet to relax strict rules of origin for Vietnamese textiles (not allowing fabrics to be sourced from non-TPP members such as China), open up its sugar market (at which Australia is having a second go after failing in the Australia–US free trade agreement, AUSFTA) or remove border barriers to beef and dairy (which are of particular interest to New Zealand). Results of liberalising those trade barriers are well understood; the impact of IP and other regulatory issues less so.

As Armstrong concludes, the TPP negotiations need to be ambitious on market access issues (including now the whole range of market access issues in the Japanese agricultural market) if they are to be worth the effort. There are other areas where there is also a clear-cut case of trade liberalisation leading to win–win outcomes. But in the rush to a conclusion of the TPP negotiations it would be wise not to trade these wins off against measures like IP, where there is little evidence that such trade-offs will deliver good public policy.

Peter Drysdale is Editor of the East Asia Forum.

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