WHAT IS THE TPP AND WHY IS IT IMPORTANT?

Fort the last five years largely secret talks have unveiled the Trans-Pacific Partnership (TPP). The TPP is a free trade agreement between 12 countries: the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru (China is notably absent). Some say it is one of the most ambitious free trade agreements ever signed.

What is a free trade agreement?

A free trade agreement (FTA) is a Treaty between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or any other indirect trade barriers. There are many FTA’s signed between different countries around the world. An example of such type of treaty is the North American Free Trade Agreement (NAFTA) between Mexico, the US and Canada. In addition to tariffs, FTAs also cover areas such as government procurement, intellectual property rights, and competition policy.

A difference between a trade agreement and a customs union, such as the European Union, is that capital or labor may not move freely in a free trade area, whereas in a common market it can. Additionally, in a custom union there are common external tariffs (CET) on imports from non-member countries.

The TPP

The magnitude of the TPP in the world economy is significant. The TPP is meant to address tariffs on most good and services, intellectual property laws, and general economic policy. The 12 countries involved in the agreement have a collective population of about 800 million, which is almost twice that of the European Union’s single market. In fact, the 12-country bloc is currently responsible for 40% of world trade. Therefore, the economic and public policy effect of the TPP will not only be seen between the nations involved but also around the world.

Most goods and services seem to be involved, but not all tariffs are going to be removed and some will take longer than others. On textiles and clothing, they will be removing all tariffs, but while the US Trade Representative says most tariffs will be removed immediately after the deal is ratified, tariffs on some products will be eliminated over longer timeframes as agreed by the TPP Parties.

It is not clear which tariffs and services will be immediately affected or which services and countries fall into which category given that the full text has not yet been published.

In favor of the TPP

Those in favor say this trade deal will unleash new economic growth among countries involved. It is also an argument that this agreement will take away some of the power from China, and will empower the trading abilities of the countries involved. Additionally, it will remove all indirect barriers of trade between the countries parties to the agreement and facilitate political relations.

Against the TPP

One of the downsides of FTAs is that it gives powerful economies the ability to impose their will over smaller, developing economies. Most often, this comes in the form of a smaller economy making more concessions than are beneficial in the long term, while the larger economy keeps its trade restrictions in place. Furthermore, critics argue that FTAs promote large, competitive trading blocs that could create economic instability in other parts of the world.

Some also fear that the TPP could mean jobs will move from the US to developing countries, and that it will intensify competition between countries’ labor forces.

When will the TPP be implemented?

It will be sometime before implementation of the TPP. In the next few months, details of how the deal will be implemented will be argued out in individual countries’ legislatures before being ratified. In the US, Congress has granted the President “fast-track” authority over the deal. Presidential “fast track” authority, also called “trade promotion authority,” is the authority of the President of the United States to negotiate international agreements that Congress can approve or disapprove but cannot amend or filibuster.

Discussions over the deal are likely to take place before Congress in the midst of the presidential primaries, so it will probably turn into a political point for both parties. What is clear is that the TPP is a reality that will affect everyone and thus, it is important to keep informed of new developments.

 

 

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