The current four country agreement was signed in July of 2005 and took effect in May 2006. Most tariffs were removed on implementation with the remaining tariffs eliminated by 2017. Investments and financial services were not included in the original agreement, but will be negotiated next year. President Bush had made plans to join talks on investments and financial services, but those talks were put on hold in February 2009 at the request of the new Obama Administration.
The existing agreement includes a binding Environment Cooperation Agreement and a binding Memorandum of Understanding on Labor Cooperation with the goal of raising environmental and labor standards in the four countries. If a country withdraws from the labor or environment agreement, it must withdraw from the partnership agreement and vice versa.
The four members of the partnership and the four prospective ones are all members of the Asia Pacific Economic Cooperation (APEC) forum that promotes bilateral and multi-lateral free trade agreements. The new agreement will be consistent with APEC and WTO principles and will be open for other countries to join. Regulatory barriers to trade will be one of the priorities in the negotiations.
These are not large markets like South Korea, but have the potential to build a high standards agreement by eliminating tariffs on all goods trade and adopting an equivalent approach in services. Australia is the largest market with a GDP of $803 billion in 2008 on a purchasing-power-parity basis, the world’s 19th largest economy. New Zealand and Singapore previously had a free trade agreement since January of 2001, but TPP is New Zealand’s first agreement with a South American country. Australia and New Zealand had a free trade agreement beginning in 1966 that was replaced by a Closer Economic Relations agreement in 1983. The U.S. has free trade agreements with Singapore, Australia, Chile and Peru.
Negotiations on the TPP are a much needed U.S. response to Asian agreements that exclude the U.S. like the ASEAN-Australia-New Zealand Free Trade Agreement that will enter into force on January 1, 2010. It would help the Asian countries deal with a "spaghetti bowl" of overlapping bilateral trade agreements. This could also be a way for “multilateralizing” regionalism in the Asia-Pacific region and the “bottom-up” approach may be more feasible than the much talked about Free Trade Area of the Asia Pacific that has not generated momentum for serious discussions.
These negotiations fit the Obama Administration’s cautious mode on trade policy. They will be less contentious than the pending Columbia and South Korea free trade agreements, and yet will be with major world traders in New Zealand, Australia and Singapore and rapidly developing countries in Vietnam, Peru and Chile. The existing TPP has labor and environmental provisions that have been key issues for many Democrats, and New Zealand and Australia are not likely to backtrack from previous commitments on labor and the environment. The presence of Peru, Chile and Vietnam in the negotiations will help create an agreement that spans the gap between developed countries and emerging developing countries.
To achieve the “high standards” mentioned by President Obama the agreement will have to include all goods and services. Products like sugar cannot be skirted as the Bush Administration did in the U.S.-Australia FTA. Manufacturing and agricultural products will get much of the political attention, but the reality is that almost 80 percent of the U.S. GDP is services and 80 percent of employment is services related. In September services were 32 percent of total U.S. exports of goods and services. Finances and investments are already a central part of the negotiations, but all kinds of services need to be given the same attention.
Reducing tariffs, increasing quotas and other market access issues need to be negotiated, but they have proven to be easier to handle than the “behind the border” regulations that can deny real market access. These include sanitary and phyto-sanitary issues, including biotechnology, in agricultural and food products which have stymied access for products. This will again be a test of how to turn science-based analysis into politically acceptable regulations that facilitate trade.
This effort could be the start of something much bigger. C. Fred Bergsten of the Washington, DC based Peterson Institute for International Economics just returned from South Korea and Japan where he was told both countries are interested in joining the expanded TPP if the U.S. is a full participant. Bergsten believes that successful movement on expanding the TPP could encourage countries outside the region to return to the Doha talks rather than be at a disadvantage outside the TPP. Moving from an eight country negotiations to reshaping WTO negotiations will take time. Bergsten notes that the U.S. will be hosting the APEC meeting in Honolulu in 2011. That would be a good target for having an initial agreement for the expanded eight or ten TPP members.
Interest in an expanded TPP is an indication of the recognized need by many countries to expand trade and have the U.S. as part of any new arrangement. The U.S. has been losing out in trade in Asia and countries like China would like that to continue. Other countries in Asia see the need to be part of wider trading relationships that integrate their economies into markets throughout the world. The expanded TPP should not be a cheap deal with all kinds of exceptions. As President Obama said, it should be a high standards agreement worthy of a 21st century of more open trade and improved standards of living.