TPSEP became effective in May of 2006 for trade in goods and is referred to by Schwab as a “high-standard agreement” because it addresses issues like intellectual property rights, standards, transparency, labor and environment. The agreement reduces tariffs by 90 percent with the eventual elimination of all restrictions on trade among members and establishes a set of standards for trade practices. The U.S. has participated in recent financial services and investments talks which the countries hope to conclude in the near future. Singapore is the driving force in TPSEP because of its interest in achieving economic stability by becoming interlinked with other countries in Southeast Asia and the rest of the world. Singapore is already a leader among the ten countries of ASEAN, the Association of Southeast Asian Nations. ASEAN recently concluded a comprehensive FTA with Australia and New Zealand.
Beginning negotiations with TPSEP recognizes that calling a “time out” on trade agreements does not serve the best interest of U.S. consumers, workers and businesses. The Asia-Pacific region accounts for almost 60 percent of world GDP, 50 percent of global trade and 41 percent of the world’s population. The region’s economic growth is faster than the world average, and International Monetary Fund expects it to remain that way for the next five years. There are 152 trade agreements in force with one or more TPSEP countries, with 21 awaiting implementation, 72 being negotiated and 81 in exploratory stages. Australia, Vietnam and Peru have indicated interest in joining TPSEP. China and the EU are expected to show increased interest in coming months.
As USTR Schwab has stated, TPSEP is a high-standard agreement in a world of trade agreements that lean more toward preferential agreements that ignore tough economic integration issues. Assuming that financial services and investment negotiations are successful, TPSEP could set a new standard for multi-lateral agreements and encourage others to reform agreements.
The negotiations will force all participants to seriously consider how to achieve a FTA in an imperfect public policy world. The National Milk Producers Federation (NMPF) in the U.S. has already announced that they will seek “the full exclusion of New Zealand dairy products… because of the New Zealand dairy industry’s unique structure and excessive manipulation of dairy markets globally and in the U.S.” NMPF believes New Zealand has a defacto monopoly with one company controlling 90 percent of the countries milk production. New Zealand is also a low cost producer of milk and does not provide direct producer subsidies.
This raises one of the most vexing trade policy negotiation issues in how to judge various types of government interventions in industries. The U.S. has had a milk price support program for decades, but the program is now much more market oriented than at any time in the last 70 years. The U.S. also has a history of providing emergency assistance to all types of farmers when weather, disease or market demand issues have arisen. How to weigh the market impacts of government interventions is a never-ending struggle.
The problem is not unique to agriculture. The recent passage of legislation to provide $25 billion in federal government loans to the U.S. auto industry could become an issue in future trade negotiations. The loans are cast as providing retooling for production facilities to produce cars that get better gas mileage, but companies in other countries have produced cars for years that get better gas mileage than U.S. cars. The U.S. has had a long-running dispute in the WTO with the EU over government loans and subsidies to makers of Airbus planes that compete directly with planes by Boeing.
The U.S. already has a FTA with Singapore and Chile. Brunei borders the South China Sea and Malaysia has a land area slightly smaller than Delaware with 400,000 people, extensive petroleum and natural gas fields and little agriculture. U.S. agricultural imports from New Zealand were $1.73 billion in 2007, with cheese and dairy products at $697 million and red meat at $675 million. U.S. exports to New Zealand were only $210 million led by fresh fruits at $29 million. If Australia, Vietnam and Peru join TPSEP, the U.S. already has a FTA with Australia, which excludes sugar, a trade promotion agreement with Peru and a Trade and Investment Framework Agreement with Vietnam, which also is a member of ASEAN.
The purpose of FTAs is to provide consumers, workers and businesses with the economic efficiencies that result from specialization of labor and comparative advantages in the production of goods and services. The greatest benefits can be achieved by total free trade and the removal of all domestic subsidies, but those conditions are not going to happen in the foreseeable future and certainly never without many intermediate steps.
The issue is how to achieve substantial incremental change. A “high-standard agreement” such as TPSEP is a good place to start with a goal of maintaining that high standard. That means that certain products are not immediately dropped from the agreement and difficult issues are resolved rather than papered over. The perfect should not be the enemy of the good, nor should the lowest common denominator become the new standard.