The Secret Trade Deal That"s Bigger Than NAFTA

The Trans-Pacific Partnership, or TPP, is a proposed free trade agreement between the United States and 11 other trading partners bordering the Pacific Ocean. Current trade between the countries is $1.5 trillion in goods (2012 estimate) and $242 billion in services (2011 estimate).  Once approved, it would be bigger than the North American Free Trade Agreement (NAFTA), currently the world’s largest free trade area.

It would be slightly smaller than the other large regional trade agreement being negotiated, the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union.

The TPP is between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States. and Vietnam. The countries involved are responsible for 40% of the world's total GDP (Gross Domestic Product) of $88 trillion, 26% of its trade, and 793 million of its consumers.

Notably, the agreement excludes China. That's deliberate. It's meant to balance the trade dominance of both China and India in East Asia. It also provides a trade alliance that gives the United States an excuse to intervene in trade disputes in the oil-rich South China Sea. China has been beefing up its military to back its incursions in the area.

However, all parties have signaled that other members can join in the future. So far, the Phillipines and China have indicated an interest.

Like most other trade agreements, it removes tariffs on goods and services, and sets reciprocal trade quotas. Unlike most agreements, but like the TTIP, it removes non-tariff blocks to trade and harmonizes regulations and statutes. The TPP covers a wide range of goods and services, including financial services, telecommunications, and even food safety standards. In this way, it affects foreign policy and even laws within countries. For example, it suggests that countries set up an agency like the U.S. Office of Information and Regulatory Affairs to analyze the costs and benefits of new regulations.

Pros

The TPP boosts exports and economic growth, creating more jobs and prosperity for the 12 countries involved. It increases exports by $305 billion per year by 2025. U.S. exports would increase by $123.5 billion, focusing on machinery, especially electrical, autos, plastics and agriculture industries. 

The agreement adds $223 billion a year to incomes of workers in all the countries, with $77 billion of that going to U.S. workers. (Source: US Trade Representative, TPP Fact Sheet)

Cons

Most of the gains in income would go to workers making more than $88,000 a year. Free trade agreements contribute to income inequality in high-wage countries by promoting cheaper goods from low-wage countries. 

This would be particularly true for the TPP, because it protects patents and copyrights. Therefore, the higher-paid owners of the intellectual property would receive more of the income gains.

The agreement regarding patents will reduce the availability of cheap generics, making many drugs more expensive. Competitive business pressures will reduce the incentives in Asia to protect the environment. Last but not least, the trade agreement could supersede financial regulations. (Source: Public Citizen, Eyes on Trade, September 12, 2013)

Obstacles

There are five areas that stand in the way of a successful deal. First, the U.S. wants more protection for intellectual property rights, such as copyrights for music and film. It also wants longer-lasting patents, especially for biologic drugs. This would disrupt the market for bootleg cds, which is huge in Asia, and make many prescription drugs more expensive. 

Second,  the U.S. wants to limit support for state-owned enterprises. These are really important to the economies of Vietnam, Singapore and Malaysia.  

Third, the U.S. and Japan don't want to remove all trade barriers for automobiles and agribusiness. In fact, the farming subsidies received by U.S. and EU companies prevented the success of the Doha round of trade talks held by the World Trade Organization.

Fourth,  the U.S. doesn't want any restrictions on the trade of tobacco. It wants to allow cigarette companies to sue countries that tax or otherwise restrict cigarette advertising. 

Fifth, the U.S. wants to allow companies to sue governments directly. This is known as the investor-state dispute settlement mechanism. Australia specifically requested to be excluded from any such mechanism because it gives foreign companies more rights to sue the government than their own companies have. (Source: Peterson Institute, Sticking Points in the TPP Negotiations)

Next Steps

On June 29, 2015, President Obama signed into law the fast-track trade promotion authority granted to him by Congress. This authority is what any President needs to proceed with final negotiations. The Fast Track Authority means Congress cannot vote on any specific element of the deal. It still can, of course, either give a thumbs up or thumbs down on the entire package. (Source: On Trade, Here's What Was Signed, Whitehouse.gov, June 29, 2015)

Japan and the U.S. are making progress on hammering out their differences on beef, pork  and auto restrictions and tariffs. There are many other minor matters, but these are the major stumbling blocks.  (Source: Tokyo Offers to Cut Tariffs, Japan Times News, February 2, 2015) Article updated July 3, 2015.