The Trans-Pacific Partnership, a free trade agreement between the U.S. and 12 Pacific Rim nations

 

Trans-Pacific Partnership meeting, 2012 (Wikimedia Commons)

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In February 2016, after seven years of negotiation, the Obama administration reached a formal agreement with 12 Asia-Pacific countries known as the Trans-Pacific Partnership (TPP) — a partnership with the stated goal of promoting economic growth. As of late March 2016, the free trade agreement still required ratification from Congress before it could take effect. According to the U.S. Office of the Special Trade Representative, the TPP “writes the rules for global trade — rules that will help increase Made-in-America exports, grow the American economy, support well-paying American jobs, and strengthen the American middle class.” In addition to the U.S., the negotiating parties are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Three other countries — Indonesia, the Philippines, and South Korea — have indicated an interest in joining the partnership.

While prominent business groups such as the U.S. Chamber of Commerce and National Association of Manufacturers support the trade deal, Senate Majority Leader Mitch McConnell reportedly remains opposed to holding a vote on it prior to the conclusion of the U.S. elections in November 2016. If approved, the TPP would be the largest U.S. trade pact since the North American Free Trade Agreement (NAFTA), with TPP nations making up nearly 40 percent of global Gross Domestic Product (GDP). Just as NAFTA opened Mexican and Canadian markets to U.S. manufacturers, the TPP would hasten the integration of U.S. products and services to 12 countries along the Pacific Rim and further position the U.S. to take advantage of global supply chains.

However, trade agreements, including NAFTA, are controversial. Under NAFTA, total merchandise trades between the U.S. and Mexico rose substantially from 1993 to 2013 — from $80 billion to $459 billion, according to a 2014 article in the Berkeley Review of Latin American Studies by Harley Shaiken, director of the Center for Latin American Studies at the University of California, Berkeley. However, economists such as Robert Scott of the Economic Policy Institute argue that NAFTA’s increased trade largely failed to stimulate corresponding job growth or economic development. Others argue that the agreement resulted in lower wages for Mexican workers. A 2003 working paper from the National Bureau of Economic Research looks at how Mexican wages changed in the 1980s and 1990s, after NAFTA.

Notably, China is not part of the TPP. Some trade proponents have argued that if the U.S. wishes to remain an economic and strategic leader, it must use tools like the TPP to counterbalance China’s growing economic influence and foreign policy in Asia. These proponents argue that a failure by Congress to approve the TPP could be tantamount to an American failure that would force Asian nations to reevaluate the U.S.’s position as a dominant global economic player.

But how is the Trans-Pacific Partnership different from past free trade agreements and how would it work? A 2016 report from the Congressional Research Service, titled “The Trans-Pacific Partnership (TPP): In Brief,” outlines the agreement.

Some of the key takeaways are:

  • The TPP would be the largest U.S. Free Trade Agreement (FTA) by trade flows.
  • The agreement would eventually eliminate all tariffs on manufactured products and most agricultural goods. The opening of agricultural and food markets, especially in Japan, would provide significant economic opportunities for U.S. farm and food exporters.
  • Key tariff reductions are set to occur in industries that include beef, poultry, dairy, rice and tobacco.
  • The U.S. already has trade agreements with 6 of the 11 TPP nations: Australia, Canada, Chile, Mexico, Peru and Singapore. Japan’s participation “increased the potential economic significance of the agreement” as it has the world’s third largest GDP after the U.S. and China.
  • If the U.S. fails to ratify the agreement, it runs the risk of losing Japanese market openings to economic competitors in the European Union, Australia and China. Many Asian policymakers “could interpret a failure of TPP in the United States as a symbol of declining U.S. interest in the region and inability to assert leadership.” The agreement could “serve as a counter to growing Chinese economic and political influence.”
  • The 30-chapter agreement contains Intellectual Property Rights protections and provisions for digital trade and e-commerce, including improved consumer protection laws in areas such as fraud, spam prevention and online privacy.
  • Concerns over competition and potential job loss in some industries have been raised, and it is not yet known how the pact would affect food safety regulations or whether it could exacerbate environmental concerns.

Related research: A January 2016 working paper from the Peterson Institute for International Economics, “The Economic Effects of the Trans-Pacific Partnership: New Estimates” describes how much the agreement will affect income and exports for the U.S. and the world. A January 2016 working paper led by a Tufts University scholar, titled “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement,” raises concerns about how the agreement may affect various countries, including the U.S.

 

Keywords: Pacific Rim, free trade agreements, NAFTA, exports

    Writer: | Last updated: March 30, 2016

    Citation: Fergusson, Ian F.; McMinimy, Mark A.; Williams, Brock R. “The Trans-Pacific Partnership (TPP): In Brief,” Congressional Research Service, February 2016.
     

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