SEPT 28 — If all goes to plan, within a few months, the world will have an enormous new trading bloc that will affect everything from how public tenders are conducted in Australia to what kind of thread Vietnamese tailors can use.
The new trade zone, which would stretch from the United States to New Zealand and from Japan to Peru, would be the first self-styled “21st-century trading agreement” and, arguably, the most important advance for free trade in two decades.
But what, precisely, is the Trans-Pacific Partnership (TPP)? To some, it is the “gold standard” of trade deals. They argue that the 12-member club of aspiring free-trade purists, led by the US, can jump-start the stalled multilateral Doha Round, which the World Trade Organization (WTO) initiated in 2001 to break down global trade barriers.
To opponents, the TPP is a “giant corporate power grab” that would endanger food safety, access to medicines and national sovereignty.
Some others regard the project as a commercial irrelevance or, at best, a US geopolitical exercise in Asian re-engagement gussied up in free-trade clothing. In China, official media have suspected that the deal has more insidious goals than simply forging a trade alliance, accusing the US of corralling Pacific nations against Beijing’s interests.
The ‘Can Do’ 12
The would-be agreement had humble beginnings. Initially a trade pact envisaged by Brunei, Chile, New Zealand and Singapore, the TPP was transformed in 2008 when the US expressed its interest. Since then, it has expanded to 12 members, bringing in Australia, Canada, Malaysia, Mexico, Peru and Vietnam.
Most significantly, this year, Japan — often considered a free-trade laggard — surprised many by entering the talks. Its entry brings a critical mass to a deal that, if completed, would cover countries that account for two-fifths of global output and one-third of international trade.
For Washington, the TPP has several overlapping aims. One is to update the WTO’s rules, which have been unchanged since 1994. Another, part of the broader “pivot” to Asia, is to avoid being marginalised from a region in which China holds increasing sway, and in which rival trade pacts are gathering pace.
A third is to find an alternative way of pushing forward the dormant Doha Round by ditching what Mr Robert Zoellick, former US Trade Representative, called the “won’t-do countries” and pressing towards free trade with the “can-do countries”. If the US also concludes a free-trade agreement it is pursuing with Europe, it would have signed deals with countries accounting for two-thirds of global output.
The TPP, in other words, could be part of a grand strategy to conclude an only slightly less ambitious version of the Doha Round by other means.
Hard Pact to Strike
Officially, Washington insists the TPP can be concluded this year, with some hoping for a breakthrough at the Asia-Pacific Economic Cooperation meeting in Bali next month. Unofficially, almost everyone knows that is impossible and that talks will drag on into next year.
“Every country has an issue, or issues, that have to be dealt with,” concedes Mr Michael Froman, the US trade representative. Not one of the 29 “chapters” in the fiendishly complex agreement have yet been closed, and the thorniest issues have been left till last.
The stated aim of the TPP is to deepen trade by addressing issues such as government procurement, intellectual property protection and the conduct of state-owned enterprises. It is also meant to update trade agreements by dealing with post-WTO developments, including e-commerce and cloud computing, as well as addressing labour and environmental standards.
To its supporters, the TPP will help dismantle non-tariff barriers and enforce best practice, while obliging countries such as Japan and Vietnam to tackle domestic vested interests.
To detractors, it represents an erosion of sovereignty in the interests of big business. Opponents also complain that talks have been conducted in an atmosphere of anti-democratic secrecy.
Long List of Controversies
Supporters of the TPP worry that the founding principles will be watered down during negotiations, now in their excruciating 19th round. With such a variety of countries — ranging from communist Vietnam and laissez-faire Singapore to the US and Japan — that is highly possible.
“The narrowing of membership (compared with the WTO) hasn’t taken away the diversity and, on top of that, you raise the bar with all this talk of a high-level agreement,” says Mr Jayant Menon, an expert in economic integration at the Asian Development Bank. “It’s very hard to be optimistic about the outcomes of this negotiation.”
Mr Froman insists that the TPP must rise above run-of-the-mill trade deals. “We seek ... to establish high standards (and) strong disciplines. And if we can’t achieve those, then we shouldn’t be signing,” he says.
There lies the rub. There are so many conflicting interests that it is hard to see how the consensus on the “high standards” that Mr Froman envisages can be reached. The list of controversies is long:
The TPP seeks much stricter protection of intellectual property (IP) than many want. Poorer countries fear that such provisions will make it more difficult for them to use cheaper generic drugs, potentially denying their populations access to life-saving medicines.
More generally, strict enforcement of IP is judged to favour advanced countries at the expense of poor ones, which have traditionally absorbed technological advances through copying. To enforce IP rights in too draconian a manner is, say opponents, a victory for protectionism, not for free trade.
The agreement seeks to regulate the role of state-owned enterprises, so that they do not enjoy unfair access to licences, contracts or state finance. This is seen as an assault on the sort of state capitalism in countries such as China.
It is difficult, however, to see how meaningful rules could be imposed on Vietnam, a TPP member, where Standard Operating Environments (SOEs) are used by senior Communist Party officials as a cash cow for favoured projects and sometimes as personal piggy banks. Even Japan, where the Post Office is in state hands, and the US, which has Fannie Mae and Freddie Mac, may fall foul of some provisions.
Temasek Holdings, the Singaporean sovereign wealth fund, is believed to be concerned that new rules could affect the performance of some of the companies in which it has invested. Malaysia’s bumiputra policies, which favour ethnic Malays in the awarding of state contracts, may also run counter to the TPP.
Companies Can Sue Governments?
The TPP calls for a controversial investor-state dispute settlement that would, theoretically, allow companies to sue governments if they believed they were being treated unfairly. Australia has argued that this would weaken sovereign power in favour of multinationals.
Canada has raised concerns that cigarette companies could use the provisions to take governments to court over anti-tobacco regulations. In Malaysia, Mr Anwar Ibrahim, the opposition leader, has characterised the TPP as an attempt by the US “to impose its brand of economic model” on unwilling countries.
As in every trade negotiation, each country is seeking exceptions for sensitive industries. Japan was allowed to join talks on the basis that it would drop its age-old agricultural protectionism. Yet when Japanese negotiators turned up to talks in Brunei in July, they sought exceptions for “five sacred” agricultural commodities: Rice, wheat, beef, dairy products and sugar.
Japan is by no means alone. Canada (and the US) want protection for their dairy industry in the face of strong potential competition from New Zealand. Vietnam wants an exception for its textile industry so that it can enjoy tariff-free access to the US while continuing to use yarn made in non-TPP countries, especially China.
Disguised Club Or Conspiracy Theory?
It is so difficult to envisage all 12 countries agreeing on such a complex agenda that some commentators have sought another explanation for the TPP. Many, noting the absence of China, regard it as a geopolitical club masquerading as a free-trade one.
Until recently, editorials in the official Chinese media regularly thundered against the TPP, describing it as a plot designed to contain China’s rise. In recent months, however, Beijing’s attitude has softened. There are even suggestions it may seek to join, perhaps figuring that, if one-party state Vietnam is welcomed as a member, it would be difficult to keep China out.
Still, the absence of China is significant. Mr Vali Nasr, Dean of the Johns Hopkins School of Advanced International Studies, argues that the US, through its parallel free-trade talks with Europe, “is trying to block off the two biggest areas of global gross domestic product from what Washington considers its main rival”.
TPP proponents describe the so-called plot to exclude China as an illogical conspiracy theory. Countries do not want to jeopardise their access to China, they argue.
At the very least, it is worth looking at the TPP as part of a broader push. Ms Mireya Solis of the Brookings Institution calls the TPP a “tipping-point approach” through which a core group of trade pioneers seeks critical mass, obliging other countries to join. Since TPP talks have gathered pace,South Korea, Indonesia and Thailand have expressed some interest.
Still, there may be a limit to what can be achieved. Mr Roberto Azevedo, Director-General of the WTO, regards preferential trade deals among a limited number of countries as inferior to the comprehensive multilateral agreement at which Doha once aimed. “None of these agreements is going to tackle some of the fundamental problems we have in terms of protectionism,” he says.
Mr Menon, too, emphasises the limitations. Despite the talk of gold standards, he says, the TPP essentially follows a discriminatory approach in which a group of countries trades off concessions in return for preferential access. “I can’t see why this kind of approach promises more than others,” he says. “I can’t see how they will succeed where Doha failed.” — todayonline.com
** David Pilling is the FT’s Asia editor. Shawn Donnan is its World Trade Editor.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.
