In the first week of October, the US-led Trans-Pacific Partnership (TPP), one of the most ambitious free trade agreements ever signed, was agreed to as a trade tariffs agreement and set common standards in member countries including Japan and the US.Some LDC countries including Bangladesh have expressed anxiety about the TPP. In this context, it has been pointed out that Vietnam, among South East Asian nations, will most likely gain the most out of this dynamics, by increasing its share of the apparel and footwear market, particularly in the US and Japan
The Trans-Pacific Partnership (TPP) deal
Muhammad Zamir
In the first week of October, the US-led Trans-Pacific Partnership (TPP), one of the most ambitious free trade agreements ever signed, was agreed to as a trade tariffs agreement and set common standards in member countries including Japan and the US.
It all started with a trade agreement signed 10 years ago between Brunei, Chile, New Zealand and Singapore. Eventually, the dynamics in the process grew and in 2015, TPP as agreed upon involved 12 countries- US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. The pact is aimed at deepening economic ties between these nations, slashing tariffs and fostering trade to boost growth.
The deal has removed tariffs on most goods traded between the countries at present and also promised to cut more tariffs in the future and co-operate on wider issues such as employment practices, intellectual property and competition policies. Analysts have noted that the deal is a remarkable achievement given the very different approaches and standards within the member countries, including environmental protection, workers rights, and regulatory coherence - not to mention the special protections some countries have for certain industries.
Member countries are also hoping to advance a closer relationship on economic policies and regulation. The agreement, it is being anticipated, could end up creating a new single market like that in Europe.
The TPP, which covers about 40% of the world economy, was agreed to after five days of talks in Atlanta in the US. This agreement came after the culmination of five years of negotiations between member countries led by the US. The deal is being seen by analysts as a counter balance to Chinas growing economic influence in the Asia Pacific region and also as a potential catalyst for unleashing economic growth, promoting greater employment opportunities, higher incomes and a better standard of living. Some, in the USA however fear that it could mean jobs will move from the US to those developing countries involved in the process.
There was some anxiety among the TPP Members as to how China would react to their coming to terms. Consequently, there was some relief when China cautiously welcomed the free trade deal struck between these 12 Pacific Rim countries, the biggest in decades. Chinas Ministry of Commerce called the TPP one of the key free trade agreements for the Asia-Pacific region and hoped that the TPP pact and other free trade arrangements in the region can boost each other and contribute to the Asia-Pacifics trade, investment and economic growth, It however underlined that while it was open to any mechanism that follows World Trade Organization rules, it still had not decided whether it would join the TPP, which still needs to be ratified by lawmakers in each country.
Japanese Prime Minister Shinzo Abe, in his response, has remarked that the deal signified a new Asia-Pacific century, but has also added that it would have strategic meaning only if China joined in the future. It would contribute largely to our nations security and Asia-Pacific regional stability, he said. It may be mentioned that under this agreement Japan has made certain concessions to open its market wider to food exporters including Australia, New Zealand and the US. Under the deal, 98% of tariffs will be eliminated on a wide range of products including: dairy, beef, sugar, wine, rice, horticulture and seafood, manufactured products, resources and energy. Canada and Japan, it may be noted, have also agreed to permit greater access to their tightly controlled dairy markets, while New Zealand has convinced the US to accept more of its milk products.
Australias new Prime Minister Malcolm Turnbull has called the TPP a gigantic foundation stone for our future prosperity. His view was not however shared by Australian sugar cane-growers. They were disappointed because they failed to obtain greater access to the US market than was agreed upon.
Nevertheless, there has been some criticism about the manner in which the TPP has been brought into place. Some analysts have remarked that this entire process was a secret gambit to keep China at bay and that this secretive approach will eventually generate suspicion among the stake-holders. Other analysts have pointed out that TPP will also intensify competition between countries labour forces. Defenders on the other hand have mentioned that the reason the negotiations were not made public was because there was no formal agreement on them.
It is understood that details of how the deal will be implemented will be argued out in individual countries legislatures in the coming weeks and months before being ratified. In the US the pact is likely to come before Congress in the midst of the Presidential primaries. This will mean that it might become a political football to be kicked around by contending Presidential candidates. US Officials have however tried to reduce anxiety by pointing out that the Congress had earlier granted the President fast-track authority over the deal. This means that lawmakers will be allowed to review the agreement, but not to amend it.
Some LDC countries including Bangladesh have expressed anxiety about the TPP. In this context, it has been pointed out that Vietnam, among South East Asian nations, will most likely gain the most out of this dynamics, by increasing its share of the apparel and footwear market, particularly in the US and Japan. It is being recalled that in 2012, Vietnam exported almost $7billion worth of apparel to the US, which accounted for 34% of US apparel imports. Vietnam also exported $2.4 billion worth of footwear.
The TPP will allow Vietnam to export apparel to the US at a 0% tariff rate, which will make Vietnamese exports even more competitive. Vietnam also enjoys several competitive advantages, such as low labour costs, and benefits from being closer in proximity to major textile exporters China and South Korea. It also enjoys strong government support such as subsidies on financing, energy and trade promotion.
Efforts to assuage such anxiety is however being undertaken by pointing out some of the existing challenges will continue in the context of Vietnam. The key concern that will remain for Vietnam will be the Rules of Origin (ROO) on apparel. Vietnam has been pushing for the more liberal cut and sew ROO, which only requires that cutting and sewing of finished products that originate in TPP countries.
This is unlike most US free trade agreements which adopt a yarn-forward rule, which states that yarns used to make the textile or apparel must have been produced in the TPP country. The yarn-forward rule benefits the US yarn and fabric industry because it exports yarn and fabrics to TPP countries like Vietnam. The industry accounts for two million jobs in the US. However, the yarn-forward rule does not benefit Vietnam since most of its yarns and fabrics are sourced from China and South Korea, which are non-TPP countries.
There are also other challenges that might have an impact on Vietnam. TPP rules relating to state-owned enterprises may affect the governments dominance in the garment industry. It may be noted that the US Congressional Research Service, Vinatex, which is owned by the Vietnam government, reportedly accounts for 40% of apparel production and 60% of textile production. That will raise the issue as to whether the TPP rules will prompt greater privatization of the sector. That might not be so easy in a controlled economy like Vietnam.
The final round of talks was reportedly delayed by negotiations over how long pharmaceutical corporations should be allowed to keep a monopoly period on their drugs.
The US wanted 12 years of protection, saying that guaranteeing revenues over a long period encouraged companies to invest in new research. Australia, New Zealand and several public health groups on the other hand argued for five years before allowing cheaper generic medicines into the market. They based their premise on the view that a shorter patent time would bring down drug costs for health services and bring lifesaving medicine to poorer patients. Observers have in this regard pointed out that though a compromise was reached, no definitive protection period was confirmed. This has left some unease within the equation.
Nevertheless, speaking at a press conference following the deal, US Trade Representative Michael Froman has hailed the TPP as the first to set a period of protection for patents on new drugs, which he said would incentivize drug producers. The Washington-based Biotechnology Industry Association has however said that it was very disappointed by the reports that the agreement fell short of the 12-year protections sought by the US.
Another aspect of TPP has also become the focus of attention/ This relates to the deal allowing companies and countries to challenge another nations laws and rules that have the effect of limiting overseas companies from competing in their market. U.S. critics have observed that this might allow foreign companies to use the agreement to invalidate U.S. safety rules and regulations. There is some latent worry within this parameter.
Brian Jackson, commenting on the absence of China within the TPP paradigm has urged China to reconsider its position about the TPP. He has drawn attention to its ambitious reform agenda to spur necessary economic restructuring and suggested that China joining the TPP would offer immediate reputational benefits, and plant the seeds for boosted economic activity now that the agreement has been reached. It has also been held that given Chinas ambitions, abstaining from the TPP would be a conspicuous omission and might also sow the seeds for slower investment and services trade activity in the future, given stronger policy incentives elsewhere. That is indeed an important factor that requires careful consideration.
There will be on-going challenges that TPP States will have to face and overcome. However, the signing of this important agreement, the biggest since 1994, when the WTO was created with the conclusion of the Uruguay Round, is bringing definite hope for the European Union which has been trying for the past few years to conclude the Transatlantic Trade and Investment Partnership (TTIP) with the United States. The process of negotiations between the two sides has faced problems with regard to use of beef hormones, genetically modified organisms and geographic indicators for food and drink. It has also been facing a growing debate over what sort of legal protections US investors should have in the EU and vice versa. Nevertheless, the EU is now able to see a glimmer of hope for a conclusive agreement after the arrival of TPP on the horizon.
The writer, a former Ambassador, is an analyst specialized in foreign affairs, right to information and good governance. He can be reached at [email protected]
