At the most recent meeting of the MAPI Board of Trustees—just days before the 2012 U.S. election—a spokesperson from the Obama administration detailed the initiatives undertaken at the president’s direction during his first term to boost U.S. manufacturing. At the conclusion of these remarks, a Board member posed a question to the speaker: if the administration has done so much for manufacturers, why did the business community generally (and, implicitly, manufacturing executives) overwhelmingly throw their support behind former Massachusetts Governor, Republican Mitt Romney, for president? In response, the speaker simply said that the administration had a strong record when it comes to supporting U.S. manufacturing.
It is no secret that President Obama’s ties with the business community have been cool at best. Promotion of a free trade agenda in his second term might go a long way toward bridging that divide.
The initiative that some are talking about as providing a spark to a thaw in the administration / business community relationship is the Trans-Pacific Partnership (TPP). While trade professionals and business leaders are well aware of the ongoing TPP negotiations and the importance of the free trade agreement they could lead to, it is fair to say that the potential deal is flying under the radar of the public. As such, the TPP might well be the most important potential free trade agreement of which the public has never heard.
The TPP negotiations represent the first potential free trade deal initiated by the Obama administration and the only such formal talks the United States has under way. If it comes to fruition, it would be the largest free trade agreement since the World Trade Organization (WTO) officially commenced on January 1, 1995. By 2010, negotiations involved nine countries—the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. The 15th round of formal negotiation sessions, during which Mexico and Canada joined in, were held December 3-12, 2012 in Auckland, New Zealand. There have been reports that Japan and South Korea are considering joining the TPP talks. The next session is scheduled for March 4-13, 2013 in Singapore. To grasp the magnitude and potential significance of these talks, one only needs to note that the GDP of the 11 participants is $21 trillion—30 percent of global output. Moreover, these countries export $4.4 trillion of goods and services, or 20 percent of global exports.
Equally important as the positive aspects of this FTA for U.S. businesses are the negative implications of not getting a deal done. While U.S. trade with Asia has grown since 1990, its percentage share of overall Asian trade is down, as nations in that region have continued to negotiate preferential trade agreements amongst themselves. Intra-Asian trade now accounts for more than half of the region’s international commerce. The cost of the United States’ continuing to stand on the sidelines in the rapidly growing Asia-Pacific region while other nations secure new trade and investment deals there is difficult to comprehend much less justify.
Details of the TPP Proposals
While exact details of the deal being negotiated are somewhat scarce, the TPP is being hailed as a 21st-century trade pact, building upon—and going beyond—previous FTAs. The negotiators have identified five defining features to the TPP:
- Comprehensive market access—The TPP is intended to eliminate tariffs and other barriers to goods and services trade and investment.
- A fully regional agreement—The partnership is being formulated to facilitate production and supply chains among its members.
Cross-cutting trade issues—The TPP is designed to build on work being done by APEC (Asia-Pacific Economic Cooperation, a forum of 21 countries in the region that strives to advance free trade and economic cooperation throughout the Pacific Rim) and other forums by incorporating in the final agreement four new cross-cutting disciplines:
- Regulatory Coherence. Commitments among the participants are intended to promote trade between them in a more seamless, efficient manner. The TPP negotiators recognize that regulatory and other non-tariff barriers are major obstacles to companies attempting to gain access to foreign markets. To address these issues, the negotiators have agreed to work to improve regulatory practices, eliminate unnecessary barriers, reduce regional divergence in standards, promote transparency, conduct regulatory processes in a more trade-facilitative manner, eliminate redundancies in testing and certification, and promote cooperation on specific regulatory issues.
- Competitiveness and Business Facilitation. The TPP parties are expected to make commitments that will enhance the domestic and regional competitiveness of their countries’ economies and promote economic integration and jobs in the region, including through the development of regional production and supply chains.
- Small and Medium-Sized Enterprises (SMEs). The TPP will likely address concerns of SMEs about the difficulty in understanding and taking advantage of trade agreements with an eye toward encouraging those enterprises to do business internationally.
- Development. The overall agreement is intended to strengthen member countries’ institutions that are important to economic development and governance and, as such, contribute to advancing TPP countries’ respective economic development priorities.
- New trade challenges—The agreement will strive to promote trade and investment in innovative products and services, including those related to the digital economy and green technologies, and ensure a competitive business environment across the TPP region.
- Living agreement—The agreement will contain self-upgrading mechanisms to address, as appropriate, trade issues that emerge in the future as well as additional issues that arise with the expansion of the agreement to include new countries.
Virtually all of the TPP negotiating groups are said to have developed legal texts for their disciplines; some are farther along than others. There will be legal texts for the 29 chapters of the TPP agreement, including those dealing with: competition; cooperation and capacity building; cross-border services; customs; e-commerce; environment; financial services; government procurement; intellectual property; investments; labor; legal issues; market access for goods; rules of origin; sanitary and phytosanitary standards; technical barriers to trade; telecommunications; temporary entry; textiles and apparel; and trade remedies.
At the conclusion of the 15th round of negotiations in Auckland late last year, the parties’ representatives announced that solid steps forward had been taken to close the remaining gaps that exist between them. During the 10-day session, the delegations focused on finding pragmatic and mutually beneficial outcomes to remaining issues under consideration, while isolating outstanding challenges to be addressed in the coming months.
Competition to the TPP
The TPP is not being negotiated in a Pacific Rim free trade vacuum—competitive trade liberalization efforts in the region are afoot. Specifically, talks are expected to commence in earnest early this year on the Regional Comprehensive Economic Partnership (RCEP), after China announced late in 2012 its intention to join. The RCEP is said to be intended to help elevate the Association of Southeast Asian Nations (ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), along with China, Japan, South Korea, India, Australia, and New Zealand, into a leading economic role in the region. There is some participation overlap between the TPP and RCEP.
It is reported that the RCEP grew out of a plan to launch trilateral free trade talks between South Korea, China, and Japan. China is believed to back RCEP in reaction to the United States’ progress in forming the TPP without that Asian giant. The two free trade efforts have, to an extent, divided ASEAN and weakened its overall role as a leader in regional cooperation. The RCEP is, in a sense, intended as a counterbalance to the TPP.
It will be interesting to see how these efforts play out. The TPP has a significant negotiating head start and is more comprehensive and ambitious in its approach. The RCEP will not likely be as far-reaching and will have to be more flexible to take into account each participant’s development stage and specific needs. Moreover, interesting subplots of the competition will unfold. Many are predicting that tensions between China and Japan could drive the latter country to join the TPP rather than advance an FTA that includes economic powerhouses China and South Korea.
MAPI’s Basic Take on the TPP
MAPI applauds the trade liberalization effort embodied in the proposed TPP. Its forward-looking approach to embracing high standards for participants—covering virtually all products and industry sectors—while also addressing new disciplines truly portends a 21st-century FTA. We encourage the United States’ and other countries’ negotiators to be bold and creative, addressing such matters as the trade-distorting effect of state-owned enterprises, regulatory coordination and compatibility, and intellectual property protection. MAPI suggests that supply chain and trade facilitation issues be made a negotiating priority. Overall, the TPP’s efforts to break down global obstructions to facilitate trade are to be commended.
For the TPP to become a reality, the president must be afforded trade promotion authority (TPA). Such authority gives the executive branch the power to negotiate trade agreements in consultation with Congress and to then have such agreements approved or rejected by the legislature without amendment or filibuster. Every president since Franklin Roosevelt has had such authority and President Obama should be afforded comparable power. The last time Congress passed TPA in 2002 (it lapsed in 2007), it took longer than a year for the bill to wind its way through the legislative maze to the president’s desk. The time is now for the legislative wheels to start turning on TPA renewal so that the promise of the TPP can eventually be realized.
After a sustained period of relative inaction on the trade liberalization front, the United States once again seems to be moving forward. In that sense, the TPP can serve as a significant job-creating boost to the U.S. economy as well as a statement that the United States is again poised to assume a leadership role on free trade issues. Hopefully, negotiators will complete their work in 2013 so that the parties can begin the implementation process. Such a timetable is both ambitious and achievable. In that regard, a demonstrated sense of urgency could provide an impetus to an even more audacious Trans-Atlantic FTA and, beyond that, a boost to restart multilateral trade negotiating efforts under the auspices of the WTO. While virtually everyone agrees that the Doha Round of multilateral negotiations died last year, the TPP might serve as encouragement for a rumored multi-party WTO services agreement. MAPI will continue to follow these free-trade-related developments and report on them to its membership.
 Joseph J. Schatz and Dave Clarke, “Trade deals could help President Obama with business,” Politico, December 3, 2012, www.politico.com/story/2012/12/trade-could-thaw-obama-business-relationship-84533.html.