TPP: A Gold Standard of Trade

 

As a viable free-trade zone in Asia-Pacific, president Obama announced Trans-Pacific Partnership (TPP), to promote trade and investment between the U.S. and eight Pacific economies. Over the years some more countries are likely to become partners under TPP framework. Presented for the first time before the Asia Pacific Economic Cooperation forum (APEC) in Hawaii (November 2011), TPP has generated a lot of interest among countries in the said region.

No sooner than TPP was unveiled that some strong advocates of free trade have expressed skepticism about this initiative. Jagdish Bhagwati, a professor of Economics at Columbia University believes that TPP will undermine the World Trade Organization’s Doha round of global free trade talks. These talks since 2001 have not progressed due to a number of reasons.

This trade agreement is indeed the product of growing frustration seen in stalled negotiations of Doha Development Round, with no concrete achievement even after 12 years of launching. Some of the sticky points of this round have been the insistence of the developed nations to force the developing nations to open their markets to services sector, among others. On the other hand the developing nations have been demanding the removal of agricultural subsidies by the developed nations.

Some economists opine that free trade agreements result in discrimination. Countries do not treat all trading partners at par with those that are members of the free trade agreement. The concessions in trade provided are exclusive to the trading partners. Therefore, some economists typically call regional trade initiatives as the Preferential Trade Agreements (PTA).

 PTAs also known as Free Trade Agreements could be either bilateral or plurilateral. Bilateral agreement is between two countries but plurilateral agreement covers more than two countries but fewer than all.

In his essay “America’s Free Trade Abdication” Professor Jagdish Bhagwati has criticised the American government’s role in advancing global free trade talks launched in Doha. According to him, both the U.S. administration and the Congress have been enthusiastic about concluding bilateral free trade agreements at the expense of multilateral trade negotiations. This has now been substantiated by Obama administration’s recent conclusion of bilateral trade deals with Columbia and South Korea.

It is ironical that as a global leader of the 21st century, America was so effortful in negotiating trade concessions under the framework of FTAs, particularly with South Korea and Colombia while paying scant attention to Doha Round of trade talks. This clearly sits at odds with U.S.’s commitment to the Millennium Development Goals (MDGs). These time-specific eight goals covering  important segments of development were adopted by the UN General Assembly in 2000 with consensus. During the Millennium Summit 13 years ago all the UN members had committed to achieve those goals by 2015.

One of the MDGs deals with trade and aid. This goal commits the UN members to “develop further an open, rule-based, predictable, and non-discriminatory trading and financial system”. Judged against this, regional trade agreements are not the preferred solutions.

Furthermore, an analysis of the background leading to the emergence of Trans-Pacific Partnership demonstrates that it is not confined to economic sector alone. The Obama administration presented TPP as an initiative of free trade in Pacific region that stretches from the Indian Ocean in the east to the Pacific Ocean to the west.

The sponsors of TPP with the U.S. as the leader are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam have a combined population of  more than 200 million. More importantly, these eight Pacific economies constitute U.S.’s fourth largest export market behind only China, the European Union, and Japan. Canada, Japan, and Mexico have shown interest to join TPP according to Bernard K. Gordon, who has written an article “Trading Up in Asia” run by Project-Syndicate.

Notwithstanding this reality, inclusion of non-trade subjects like social and environmental issues in U.S.-led TPP has reasonably caused alarms particularly in China. Considering America’s heavy dependence on China, with nearly $ 400 billion in bilateral trade each year, and nearly a $1 trillion of U.S. debt held by Beijing, China’s apparent exclusion from TPP looks unconvincing.

 In addition to traditional issues like industrial goods etc. the new regional trade zone also provides for protection of intellectual property and emerging issues like digital technologies. The social and environmental issues have become the bone of contention between the developing and the developed economies. In WTO negotiations the developing economies have been consistently resisting the provision for intellectual property protection, among others.

What is more troubling for the non-sponsors of TPP in Asia-pacific region is the strategic context elaborated by former U.S. Secretary of State Hillary Clinton on the eve of APEC meeting in Hawaii. She then said “The U.S. will continue to make the case that…(the region) must pursue not just more growth, but better growth”. Against this background Michael Auslin in his recent Foreign Policy piece “Xi is not Ready” has said “Washington’s fears of somehow upsetting the economic relationship have hamstrung consecutive administrations, who have warily watched China’s military growth while doing everything possible to encourage economic ties.”

Sanjaya Baru of International Institute of Strategic Studies (IISS) in “The Economics of Strategic Containment” has observed that crisis-weary Europe and America face a rising tide of protectionism at home, and are trying to find ways to blunt the edge of China’s non-transparent trade competitiveness.

 There is apprehension in some quarters that TPP, under the cloak of another free trade area accommodating major Pacific economies, has been designed to form an exclusive group of nations that are seemingly worried about China’s “beggar thy neighbor trade and exchange-rate policies”. But the U.S. being the champion of new regional trade bloc should bear in mind that as long as China and America place themselves in other’s shoes, they have a good chance of minimizing the potential of conflict as viewed by Michael Auslin.

In view of growing emphasis placed by Obama administration on regional trade agreement like TPP, the existing anxiety of the least developed countries has been reinforced that the developed world is losing enthusiasm in finalizing the multilateral trade talks under the WTO.

In Sanjaya Baru’s opinion the sponsors of TPP have resolved “to establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new traditional trade issues and twenty-first century challenges”. No wonder that president Obama has dubbed TPP as as the gold plated trade agreement of the 21st century.

 It seems that the nations in Asia-Pacific region are seeking an alternative to excessive and growing economic dependence on a peacefully rising China.

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