Thursday, 20 March 2014

TPP deal still alive - but only just

Last year was full of promises about finalising the Trans Pacific Partnership (TPP), but ultimately, the deal still rests anxiously in the things-to-do pile. The wide-ranging international trade accord, with members spanning the globe in two hemispheres, was at the top of US President Barack Obama’s list and yet not even the most powerful man in the world could push it through in 2013.

The machinations of the TPP were probably less to blame for the US President’s inability to negotiate successfully than it was about the Republican Party’s impressively destructive economic opposition to whatever Mr Obama tries to do.

Any deal with 12 very different countries, with very different economies, will always take time to work out the many kinks and obstacles. It is always difficult to isolate a single cause for bumps in the road, yet at least in America, the trend towards robust free-trade relationships appears to have stalled. And it should be a worrying sign for everybody if Mr Obama cannot revive the TPP.

Despite the hurdles, the TPP is actually fairly good trade policy. It awards free-market principles, it is truly international, and it is very inclusive. There is even good reason to believe it will overtake the loitering World Trade Organisation (WTO) in both importance and effect.

Nobel Prize-winning economist Paul Krugman, writing at the New York Times earlier in February, doesn’t seem to mind that the TPP is held up on the tracks. Even though he is a big proponent of free-trade, Mr Krugman isn’t convinced the deal should be completed. He’d apparently be “a bit relieved if the TPP just fades away”.

Mr Krugman’s main problem is that trade deals are not what they once were. They don’t work to reduce tariffs and lessen protectionism like they used to, because there just isn’t that much protectionism remaining to eliminate. Instead, trade deals appear to be about protecting property rights and patents for interested parties.

He points out that in the US, average tariff rates have dropped by two-thirds since 1960 and a report issued by the International Trade Commission on American import restraints “puts their total cost at less than 0.01 percent of GDP.” Trade between the members of the deal, which would amount to around 40% of the global economy, is already “fairly free, so the T.P.P. wouldn’t make that much difference”, says Mr Krugman.

But as Ryan Avent pens in the Economist, tariff rates are not universally low. While reducing them further may not affect the macroeconomic line, the microeconomic effects might be well worth the energy.

Non-tariff barriers, which Mr Krugman doesn’t address, will reportedly decrease substantially if the TPP passes successfully. Reducing these barriers is actually a stated goal of the TPP negotiations. If the non-tariff restrictions were calculated together in an all-in measure, Mr Avent says, they lift US tariff restrictions to 17%. Japan is calculated to have 38.3% with this all-in measure, South Korea’s is 48.9% and Australia’s is 29.5%.

That implies there are plenty of walls still to break down between many of the participating countries. The takeaway from the negotiations is that they will create important steps towards regulatory harmonisation. Mr Krugman correctly notices how robust the trade between TPP members already is, but this interaction could certainly be updated and streamlined. That is what the TPP is all about.

The question is whether the talks can conclude soon and find some common ground. It is important to identify that this sort of trade deal has never been attempted before on such a large scale, and toes are bound to be stepped on. There are still many private interests groups hoping their own industries in their particular countries can be protected from the prospect of greater free-trade.

Unions and free-trade opponents alike ridicule the TPP as a series of secret talks aimed at creating a giant corporate power grab. In an age where secrets are leaked so often and for so many reasons, the existence of back-room talks out of earshot of the public is an easy card to play to disparage any trade talks. But secrecy is not an indicator of the presence of the insidious, it’s just the way geopolitical and economic talks are organised.

US President Barack Obama is using the TPP talks as a capstone in his announced “Asia Pivot” strategy. That plan hit some nasty speedbumps at the end of last year as crises appeared in both the Middle East and domestically, and it simply wasn’t clear that Mr Obama meant to follow through with the scheme. However, there are encouraging signs appearing from Washington in early 2014.

It is important to watch what the US is doing with the TPP talks, because they will be the largest partner by a long shot. This year, Mr Obama will travel to Japan, South Korea, Malaysia, and the Philippines in late April to begin again where he left off and try to repair the damaged relationships with important US partners. The TPP negotiations will once again be high in his list, according to National Security Advisor Susan Rice.

Talking to the Department of State's Global Chiefs of Mission Conference a few days ago, Ms Rice made special effort to praise the significance of trade talks."In the Asia-Pacific, we're working hard to finalise the Trans-Pacific Partnership and to lock in an agreement on a high-standard free trade agreement that will govern one-third of global commerce,” she said.

New Zealand is also holding the leash tight. Trade Minister Tim Groser said the latest round of talks in February made some important progress on outstanding issues such as market access and copyright and patent rules. Mr Groser reiterated that the talks are “slowly chipping away at a vast stone to get down to the kernel of a very good quality trade agreement and we've made very good progress, but we're not there yet."

A successful TPP could convince dozens of other pending trade talks around the world that their own partnerships are still within the realm of the possible. The new estimate for success is sometime late 2014, but even this might be ambitious considering the remaining obstacles. Economists don’t often agree on much, but more and freer trade is surely a good thing for everybody.


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