Despite its many illustrious members, the gains to be had from the deal are not as great as might appear at face value. Australia already possesses existing FTAs with all but two of the nine other participants (Japan and Peru; and Peru is second-last on the list in terms of the value of Australian exports — less than A$100 million in 2010).
Such pre-existing links suggest there will be, at best, modest economic benefits for Australia resulting from the deal. But even if effects to the bottom line are marginal, other aspects of the TPP may be important.
Furthering the coherence of relationships between its members is one benefit the TPP seeks to achieve. The current group of FTAs throughout the Asia Pacific (the ‘spaghetti bowl’) lacks consistency, at times overlap, and often generate criticism regarding what the agreements do and do not cover, their text and their implementation.
A combination of modest gains and a step toward regional convergence in relations to trade does not quite warrant the TPP being named as Australia’s ‘highest [trade] negotiating priority’, as the government describes it. It is irrational to invest significant time, effort and resources into an initiative which has a low and largely intangible payoff. It appears there is more to the story here.
In short, the key value driver of the TPP is the potential for its future extension to other regions within the Asia Pacific.
For example, consider Australia’s top three export markets in 2010: China, Japan and South Korea. All three are powerhouses and none currently have FTAs with Australia. This description holds for the overwhelming majority of the TPP’s potential participants.
If a working TPP can be expanded successfully to other nations, conditional upon an initial success, then the potential for and size of future gains to all parties is large. Importantly, the broad realisation of this outcome is only possible with an initial agreement.
Press statements and present descriptions of the deal support this hypothesis. Language from the Australian Department of Foreign Affairs and Trade, describing the TPP, features terms including ‘living’, ‘building block’ and ‘21st century’. Japan’s recent request in early November to join the talks also cements this view with action.
It is difficult to assess whether such a valuation is the correct one. Trade is complex, and many experts in numerous fields are divided as to just how feasible or profitable a strategy of expansion may be. In any case, it is clear that the contemporary debate and discourse regarding the TPP should not be solely centred on the present — the deal should be recognised as both dynamic and speculative.
Hubert Wu is a student at the University of Melbourne and was a Global Voices delegate at APEC 2011.
I think you raised some good points, especially here:
“If a working TPP can be expanded successfully to other nations, conditional upon an initial success, then the potential for and size of future gains to all parties is large. Importantly, the broad realisation of this outcome is only possible with an initial agreement.”
I agree completely. I remember reading an article a while back that vilified the TPP and completely overlooked its potential for growth.
I think the true value of the agreement stems from the future opportunities and choices it provides us – it would be wrong to ignore this.
Thanks for the comment David. Interestingly, the notion of value in choices and opportunities may be extended further if you’d like. For example, the branch of financial derivatives theory which deals with real options provides a set of powerful tools with which a deal like the TPPA may be analyzed.
In this context, the deal could be viewed as being laden with a number of (amongst other) call (growth) options, ‘opportunities’ which would explicitly boost the TPPA’s value today.
However, as the commentator below has correctly implied, the existence of such options may not be sufficient on their own to guarantee a profitable expected outcome. In other words, the TPPA may still not be worth going through with no matter where its good points come from. I’m sure this isn’t anything new or insightful to you though.
What I personally *do* find interesting (and hope that you do too) is the fact that it is surprisingly easy to find material on the Agreement which treats it as a static, ‘now or never’, and one-off entity. In my mind, this is not the right kind of analysis.
Mr Wu says that ‘if a working TPP can be expanded successfully to other nations, conditional upon an initial success, then the potential for and size of future gains to all parties is large. Importantly, the broad realisation of this outcome is only possible with an initial agreement’. He’s dead right. But what kind of agreement? Fatally, Wu does not examine the outcome likely given the nature of the agreement that is planned. Reading Armstrong’s piece, Hu’s conclusion appears to be an illusion, an outcome promised and hoped for but one that will clearly be subverted.
A compelling argument, but one that is not quite relevant to the piece. Your error has been to confuse the distinction between value and viability.
The contention of this piece was simply to emphasize the importance of how the TPP should be evaluated. Specifically, it’s argued that any assessment of the Agreement should be growth-orientated rather than backwards looking and comparatively static. I see that you’ve agreed with this.
So too apparently do Professors Armstrong and Drysdale. Their excellent analysis on China’s involvement is underpinned by a deep recognition of Beijing’s impact if China were (or were not) to join.
This is consistent with rather than being mutually exclusive to this piece. I’ve also explicitly stated that I would not speculate on an outcome; few (I hope) would see this as ‘fatal’.
The TPPA may very well be an ‘illusion’, but this specific result is derived from factors which determine the deal’s success, not the other way around. I’ve deliberately left the speculation to the best in the business.
Also, cheers for the comment. It’s much appreciated.