Thursday, 3 October 2013

Finalising a TPP agreement - the obstacles

A new round of talks beginning this week in Bali, Indonesia October 3 – 8 should bring the Trans Pacific Partnership (TPP) negotiations one step closer to finalisation. Asia Pacific markets ranging from the tiny to the tremendous are poised to join together in a highly compromised but effective agreement which will break trade barriers for 40% of fastest-growing sections of the global economy.

There is still a lot of work to be done, especially around intellectual property and convincing labour unions the agreement is more than just a corporate power-grab, but the TPP is actually a reasonably good trade policy. Most members are high-income or upper-middle-income countries with high degrees of economic freedom.

Participating countries include New Zealand, Australia, Peru, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Singapore, the United States, and Vietnam. Thailand and South Korea also plan to join in the near future.

The TPP is the flagship policy of US President Barack Obama’s “Asian Pivot” and the inclusion of the US in the talks back in 2009 changed the partnership from a marginal connection between New Zealand, Brunei, Chile, and Singapore into a global agreement. The US was very interested in gaining better access to a region where 61% of all American exports are consumed.

If the talks are given the attention they deserve, the agreement has a strong chance of early completion. Mr Obama wanted to close the negotiations before the end of this year however the most recent round of talks in Washington were remarkably unsuccessful. US Trade Representative Michael Froman, the official in charge of overseeing the US side of the talks, said in July that concluding the talks this year was going to be a difficult goal but certainly “doable”.

This is beginning to look unlikely as bringing all parties together to be completely satisfied with the outcome is proving to be more difficult than Mr Froman or anyone else expected. The closest conclusion date will probably be late 2014 at this point, regardless of progress in Bali this month.

Japan still has deep fears the talks will eliminate tariffs on its agricultural exports which their farming community still considers very important. Japanese agricultural sector is one of the most protected in the world, and there is little chance the rest of the partnership will allow such protectionism.

To get an idea of how large those Japanese trade measures are, the tariff on rice is 777.7%, butter has 360%, and sugar hovers around 328%. On the other side, all the participating countries wish to protect their own favoured industries or agriculture in some way. So some aspects of a whole swathe of different topics will be considered non-negotiable by one country or another. The ultimate balance is proving difficult to find.

Intellectual property obstacles are also proving to be a real headache. One of the bigger problems lies with the patent disputes around generic drugs in developing countries. Technology patents and entertainment are similarly troublesome and could end up being an obstacle too nuanced for complete agreement across the board. They could even be a deal-breaker if the negotiations aren’t handled correctly.

The talks were always going to be difficult, so there’s little surprise in how slow they are progressing. Bilateral negotiations sometimes take years to formulate, and there’s comparatively few complications in such talks. But bringing together 12 or 14 hugely different nations with potentially mutually-exclusive market processes is a colossal task in diplomacy.

Given this reality, it is perhaps a little surprising that the participating countries continue to talk. Similar talks between the EU and the US - the so called TTIP negotiations - have stalled in the post-NSA spying controversy, while US-China talks are rarely amiable and full of thorns.

But the economic benefits of the TPP are too juicy to forsake over a few navigable obstacles. When Japan joined in July, it opened up the potential for the monetary cream of creating quasi-free trade deal with Japan for all members of the TPP.

Predictions for a rise in incomes to the smaller partners of the agreement averaged around US$16 billion, with large gains going to New Zealand and Australia. Such numbers are keeping everyone excited. The upcoming round of talks in Bali will include the US President, which offers more weight to this round than usual. If this brings more momentum and displays to all observing countries the potential rewards of inclusion in the partnership, the Bali talks could encourage other Asian nations to join as well.

Ultimately, however sound the TPP policy appears on paper - championing as it does free-market principles and including many of the world’s fastest-growing nations - the realities of dealing with multifarious nations is proving to be a more significant obstacle than first thought.

A successful round of talks in Bali may break new ground; it remains to be seen where and by how much.

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