In a phase when trade liberalization efforts around the world have, in general, lost momentum, the Trans-Pacific Partnership (TPP) agreement proposed by nine countries on both sides of the Pacific Ocean appears to be a major departure from this trend. It has been proposed as a state of the art agreement that goes well beyond the contours of the traditional market access oriented agreements and focuses more on the “behind the border” issues such as regulatory coherence and enhancing competitiveness. Unsurprisingly, it is bucking the trend of trade pessimism.
The issues included in TPP represent the aspirations of its nine protagonists that include some of the most open economies in the world such as Singapore and New Zealand. A measure of the openness of the countries currently negotiating TPP can be gauged from the fact that the average of the tariffs imposed by all these countries, taken together, is just 4.5%. Quite clearly, then, efforts are being made in TPP to focus on substantive policy issues that could impact operations of enterprises in the global markets.
TPP is intended to build on an existing economic integration agreement, the Trans-Pacific Strategic Economic Partnership (P4) Agreement, which was formalized between Singapore, Brunei, Chile and New Zealand in 2006, to shape future trade liberalization in the Asia-Pacific region. The US signalled its interest to join the P4 in 2008, after it failed to get a deal favourable to its economic interests in a critical set of negotiations in the World Trade Organization (WTO). Although the US joined TPP well into the Barack Obama presidency in November 2009, three more countries, Australia, Peru and Vietnam, decided to join TPP initiative in the meanwhile. A fourth country, Malaysia, joined TPP negotiations in October 2010. In the past few months, three more countries, Japan, Canada and Mexico, have queued up to join. However, these prospective TPP members will have to wait for the outcome of a preparatory process in which the current members will discuss as to whether a new member “is able to negotiate rules and market access commitments consistent with the quality of the agreement currently being negotiated”.
Since March 2010 when TPP negotiations began, 11 rounds of negotiations have been concluded, the last of which was held earlier this month. One of the striking features of these negotiations is that they are conducted in absolute secrecy. In fact, a formal confidentiality agreement has been signed by negotiating parties during the eighth round of the negotiations held in Chicago in September 2011. The crux of this agreement is that the participating countries would maintain the confidentiality of documents, and would develop their negotiating positions and communicate internally and with each other.
With the protagonists projecting TPP as an agreement that would pave the way for a more comprehensive economic integration in the Asia-Pacific region, there are concerns on two counts. The first concern pertains to the structure of the proposed rules that TPP could come up with. In the more recent rounds of negotiations, it has become increasingly clear that TPP is being shaped as an “agreement that reflects US priorities and values”, the objectives that Obama had voiced while agreeing to join the negotiations in 2009. As a result, differences have begun to appear with countries such as Australia in the areas of investment and intellectual property. Among the more contentious issues is the so-called investor-state dispute settlement clauses in the investment agreement, which the Australian government has refused to support, arguing they run the risk of giving foreign business greater legal rights than domestic businesses.
The second, and perhaps the more critical concern, is regarding the future of the other more broad-based economic integration efforts that countries within the region have been contemplating. For more than two decades, the Asia Pacific region has been among the more active regions trying to forge close economic links between the countries. The establishment of the Asia Pacific Economic Cooperation (APEC) in 1989 bears testimony to the interest shown by the countries in the region at economic integration. Over the years, APEC members have taken several initiatives to deepen their trade relations, but the decision to forge an economic integration agreement came relatively recently. In 2006, APEC leaders proposed the Free Trade Area of the Asia-Pacific, which was then seen as a major instrument to further APEC’s regional economic integration agenda, but it has languished on the drawing board since.
Another significant initiative at regional integration was taken by the members of the East Asian Summit (EAS). These countries set their sights on an economic integration agenda, the result of which was the development of the Comprehensive Economic Partnership for East Asia (CEPEA). No sooner was CEPEA formalized in 2009 than the leaders of the participating countries gave their endorsement, thus paving the way for its implementation.
The leaders’ decision made perfect economic sense for they provided political support for closer economic ties between some of the largest and the most dynamic countries, and could, therefore, help in creation of a powerful hub for sustaining the momentum of the global economy. Whether EAS leaders would allow the future of CEPEA to be undermined by TPP is the moot point.
Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi
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