Negotiators have gathered in Atlanta for what may be the final round of talks for the Trans-Pacific Partnership (TPP) trade agreement. After more than five years of negotiations, it’s a good time to ask: What’s it all about?
The United States announced its intent to join the TPP negotiations in September 2008 and finally did so in March 2010. Taking part today are 12 countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam — that produce nearly 40% of global GDP.
The booming Asia-Pacific region is a logical focus for America’s trade negotiators. Over the last two decades, the region’s middle class grew by 2 billion people. That number is expected to rise by another 1.2 billion by 2020. According to the International Monetary Fund, the world economy will grow by more than $20 trillion over the next five years, and nearly half of that growth will be in Asia.
U.S. workers, farmers, and businesses need access to those lucrative markets if they are to share in this dramatic growth. However, U.S. companies are falling behind in the Asia-Pacific. While U.S. exports to the Asia-Pacific market steadily increased from 2000 to 2010, America’s share of the region’s imports declined by about 43%, according to a report by the think tank Third Way. In fact, excluding China, East Asia purchased a smaller share of U.S. goods exports in 2014 than it did five years earlier, despite a 54% increase in total U.S. merchandise exports in that period.
One reason U.S. companies have lost market share in the Asia-Pacific region is that a number of countries maintain steep barriers against U.S. exports. A typical Southeast Asian country imposes tariffs that are five times higher than the U.S. average while its duties on agricultural products often soar into the triple digits. In addition, a web of nontariff and regulatory barriers block market access in many countries.
Trade agreements are crafted to overcome these barriers. However, Asia-Pacific nations are clinching preferential trade deals among themselves that threaten to leave the United States on the outside, looking in.
According to the Asia Regional Integration Center of the Asian Development Bank, East Asian countries have signed 145 bilateral or regional trade agreements, and more than 65 more are under negotiation today. Two decades ago, just a handful of such agreements were in effect. Meanwhile, the United States has just three trade agreements in the region (with Australia, Singapore, and South Korea).
This challenge is looming ever larger: 16 countries are negotiating a trade agreement called the Regional Comprehensive Economic Partnership (RCEP). It includes Australia, China, India, Japan, Korea, and New Zealand, as well as the 10 ASEAN countries — but not the United States.
Against this backdrop, the TPP is America’s best chance to secure a level playing field for trade in the Asia-Pacific region. Its objective is to achieve a comprehensive, high-standard trade and investment agreement that eliminates tariffs but also introduces new rules to cut through the non-tariff barriers that at times loom even larger than tariffs and quotas. While American commentators often describe it as focusing on Asia, it also includes Canada, Mexico, Peru and Chile, thus offering a chance to integrate existing U.S. trade agreements in the Americas.
Completing the TPP would pay significant dividends for the United States. The agreement would substantially improve U.S. companies’ access to the Asia-Pacific region, which the Third Way report projected to import nearly $10 trillion worth of goods in 2020. The most widely cited study of its potential economic impact — entitled The Trans-Pacific Partnership and Asia-Pacific Integration: A Quantitative Assessment (summary) and prepared by Peter A. Petri, Michael G. Plummer and Fan Zhai of the Peterson Institute for International Economics — estimated the TPP could boost U.S. exports by $124 billion and add $77 billion per year to U.S. real incomes by 2025.
In a statement issued in Honolulu in November 2011, the leaders of the TPP countries committed that the TPP would be:
… a model for ambition for other free trade agreements in the future, forging close linkages among our economies, enhancing our competitiveness, benefitting our consumers and supporting the creation and retention of jobs, higher living standards, and the reduction of poverty in our countries.
The U.S. business community has advocated strongly for the TPP to be just the “model for ambition” called for by these heads of state and government. The TPP must establish strong rules to protect Americans’ intellectual property, eliminate self-dealing by government-owned firms, support the digital economy, safeguard international investment, and foster open and competitive markets.
Further, in the view of the U.S. business community, the TPP must avoid granting exceptional treatment for specific commodities, products, or sectors by retaining tariffs or exceptions to general rules. Doing so risks exposing U.S. companies and the workers they employ to similar discrimination by our trading partners, who inevitably have their own views on “special,” “sensitive,” and “unique” products.
The TPP has the potential to be a game-changer for American workers, farmers, and companies seeking to sell their goods and services in these promising but highly competitive markets. We will be watching the negotiations closely in their final stages.