The 12th round of negotiations on the Trans-Pacific Partnership (TPP) Free Trade Agreement began on May 8th in Dallas, Texas. The goal is to have an agreement by the end of the calendar year, but policy differences still exist and more countries seek to join the negotiations.
Nine countries are now part of the talks: Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, the U.S. and Vietnam. On November 12, 2011 the countries announced consensus on a broad outline of a “high standards” agreement. It includes traditional issues like industrial goods, agriculture, textiles, intellectual property, technical barriers to trade, labor and the environment. Also included are regulatory system compatibility, investment in innovative products and services, like digital technologies, and an ensuring state-owned enterprises compete fairly with private companies. All tariffs among members would be eliminated within ten years.
Three countries continue to seek to immediately join the talks – Canada, Mexico and Japan – without slowing down the speed of the talks for year-end completion. Canada and Mexico under NAFTA and other FTAs have experience on most of the trade policy issues related to agriculture and should have few difficulties in getting up to speed. Japan still has a highly protected agriculture and would need time to develop new policies. Agriculture and automobiles are probably the two biggest issues with Japan for the U.S. When Japanese Prime Minister Noda met with President Obama in Washington, DC on April 30, the TPP FTA was discussed, but there was no indication of a conclusion reached.
U.S. Trade Representative Ron Kirk has indicated that moving ahead with the current nine countries is the higher priority. The Obama Administration is honoring a provision of the now expired Trade Promotion Authority requiring a 90-day notice to Congress before beginning negotiations on a FTA. If the Administration gave approval on June 1, a country could not join the talks until September.
U.S. agriculture does not have a lot to gain directly from the FTA, about 5.0 percent of agricultural trade in 2011, unless Japan, 11.0 percent of agricultural trade, becomes part of the current negotiating process. Australia (1.0 percent), Chile (0.4 percent) and New Zealand (0.2 percent) are major agricultural countries; Australia and Chile have FTAs with the U.S. Brunei (less than 0.1 percent) has a small population. Singapore (0.5 percent) has higher incomes. Malaysia (0.8 percent) and Peru (0.6 percent) have more opportunity, but the U.S. already has an FTA with Peru. Vietnam (1.4 percent) is a rapidly growing developing country with the most opportunity growth in agricultural trade.
U.S. agricultural groups have reasons to pay attention to the talks even if the immediate impacts are minimal. The first is the desire of other countries to join. As noted, Japan, Canada and Mexico have asked to join the talks. South Korea and China have expressed some interest, as has the Philippines and Costa Rica. Other Asian groups have had some interest in crafting FTAs for parts or all of Asia, but the TPP FTA is the only proposal with work in progress. If it does not move forward, another 5-10 years may go by before another opportunity develops.
The second reason is the potential to develop compatible regulatory systems. Sanitary and phyto-sanitary issues are often greater roadblocks to trade than traditional tariffs. A standard set of regulations for the TPP FTA based on sound science could be used as a template for other trade agreements. Australia and New Zealand with strong agricultural export industries would be good partners for establishing a regulatory framework.
Third, for an agreement to be “high standards” it would need to be a comprehensive one that covered all industries and all goods and services within industries. Too many FTAs have exempted certain politically sensitive agricultural products like poultry and dairy for Canada in NAFTA. The rules may not be the same for all products, but all must be part of the process of market opening.
Fourth, if labor and environmental issues could be resolved within the TPP FTA, they could also become a template for other agreements. Australia and New Zealand face many of the same labor and environmental issues as the U.S. Vietnam is a developing country with much more interest in economic growth and reducing unemployment and poverty. The other countries fit somewhere in between. Any agreement that would meet the diverse needs of the nine countries may have wide applicability to other FTAs.
Before becoming too enthralled with the progress on trade policy that can be made with the TPP FTA, the reality is that national political considerations of each country will continue to influences their positions. While terms “high standards” and “21st century” are often used as adjectives for the agreement, the outcomes will be far from real free trade. Tariffs may be phased out over ten years, which is good, but rules-of-origin, sanitary and phyto-sanitary issues, intellectual property rights, environmental issues and other limits to access will remain.
For example, some groups have made sugar trade a point of contention because it was not included in the U.S.-Australia FTA at the insistence of the U.S. Sugar trade between Australia and the U.S. continues to be managed under provisions of the WTO agreement. The USTR has taken the general position of not reopening arrangements agreed to in previous FTAs. This also applies to dairy products. Textiles and apparel rules-of-origin requirements have also been key issues.
The movement toward freer trade is very much a work-in-progress. While the current movement is too slow for many seeking new income opportunities or lower cost imported products, the movement since the General Agreement on Tariffs and Trade (GATT) was formed in 1947 has been substantial. The TPP FTA negotiations are another step down the road of improving standards of living through trade.
The agreement is a “single undertaking” in that no issue is final until all trade and trade-related areas have been addressed. Wrapping up all these issues by December of this year may be a stretch, but would be worth the effort.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology