The Trans-Pacific Partnership: boom or bust?
G20 Summit

The Trans-Pacific Partnership: boom or bust?

When the 12-country consortium of trade ministers met on 28 July 2015 in Lahaina, Hawaii, there was abundant optimism for a successful conclusion to the largest multilateral trade agreement, the TPP. The stalled talks were resuming after the United States Congress had voted to grant President Barack Obama ‘fast-track’ trade-promotion authority (TPA) on 18 June. The president was granted the right to negotiate trade agreements without having to submit to amendments from congress after a pass-or-fail vote on trade agreements. This crucial political battle resulted in victory for Obama and the consortium because it allowed negotiations to aim for a conclusion by the end of the year. However, the Hawaiian TPP trade talks did not end as well as anticipated. The remaining challenges facing the member states to conclude the agreement are indeed political.

Nonetheless, they were able to agree on highly contentious and significant matters on environmental protections to produce some effective outcomes in Hawaii.

Prospects for a successful conclusion were diminished by the revelation of a deal between the US and Japan over country-of-origin thresholds for auto parts, which has the potential to harm the important auto industries in Canada and Mexico. These two countries are the largest trading partners of the US and signatories to the North American Free Trade Agreement (NAFTA), which provides for 62.5 per cent of auto parts to be made in the three-country trade zone. The US and Japan discussed lowering the content threshold to between 30 per cent (Japan’s demand) and 55 per cent (US demand), but they did not arrive at a final amount.

Disagreements ensued between Canada, Mexico, Japan and the US when these discussions were revealed to have taken place without Canada or Mexico being party to them.

Japan had been advised by the US that the NAFTA partners were briefed on the bilateral dealings when, in fact, they were not. The secrecy surrounding these meetings served to undermine the negotiating process. Auto manufacturing is Canada’s largest manufacturing sector and is a rapidly expanding one in Mexico, dubbed the ‘new Detroit’. These two trading partners are involved in intense discussions to counteract the deal to reduce the content threshold. Japan agreed to reduce tariffs on pork and beef as well as increase quotas for rice imports, which have always been highly protected. Could this be a trade-off that Japan was willing to accept, since their advantageous pricing for automotive parts from Thailand would be more lucrative than protecting their food and agricultural sectors? The geographical advantage for Japan to expand their mature auto industry to their TPP close neighbours is considerable. There is far too much at stake, because the TPP offers overarching benefits by expanding markets to a large and growing middle class among its signatories. The solution may be to agree to an amount closer to the 55 per cent content proposed by the US that will not be as harmful to the Canadian and Mexican automotive industries.

Significant gaps in patent rights
The US is highly protectionist of intellectual property rights, particularly in pharmaceutical patents: six of the 10 largest pharmaceutical companies in the world are US conglomerates. There is an enormous gap in patent rights among several TPP countries. The US insists on maintaining its 12-year patents, whereas Canada has 10-year patent protections and Australia, New Zealand and Malaysia are aiming for five-year patent rights. The remaining seven countries are content with eight-year patents. Several bilateral negotiations with the US at the forefront will be under way over the coming weeks to bridge the gap prior to the next ministerial meeting likely to be held in September. The US has the largest number of patents and spends more on research and development than any country. Could there have been tacit conditions to protect intellectual property rights attached to the Republican-dominated US House of Representatives’s rare assent to Obama’s request for fast-track approval? These highly contentious differences about intellectual property rights and the scope of intrusion into national sovereignty have the potential to impede progress for a successful outcome at the next meeting of trade ministers.

Protecting supply chains
The age-old dilemma of dismantling supply management systems presents a political dilemma for all governments. For Canada, it is particularly difficult in the midst of a federal election scheduled for 19 October 2015. Despite the higher costs of milk, eggs, cheese and poultry to Canadians, these farmers are a strong voting block that continue to demand protection. The Canadian government has announced that they have no intention of bargaining away these entrenched supply-management systems to reach agreements in the TPP. Mexico stands with Canada as it seeks to protect its own agricultural supply-management systems. Yet New Zealand dismantled supply management many years ago and successfully developed a highly efficient dairy export sector, which it is anxious to expand. It is demanding the elimination of all tariffs and quotas for agricultural, dairy and poultry sectors. There is a serious stalemate on this matter that requires resolve and compromise from all parties for the talks to continue.

These important differences could unravel other concessions and mutual accommodation. The clock is ticking, as the pact is in jeopardy should it not be finalised by the end of 2015, before the US presidential campaign moves into full orbit. In addition to the Canadian election, in Japan Prime Minister Shinzo Abe faces a re-election bid to remain the Liberal Democratic Party President on 30 September 2015. The impediments to a successful conclusion are political matters involving the wealthiest countries – the US, Japan, Canada and Mexico. Three are already trading partners, and the fourth country is an economic powerhouse in the Pacific region with much to gain. Another important factor is that the successful economic integration of these countries would foster a wider trading region that might eventually include China as a partner. This is Obama’s long-term strategy to strengthen the US economic and political power against a rising China. The next few months will require tremendous political will to overcome several obstacles and arrive at mutually agreed upon concessions to conclude this important trade pact.

Agreements reached in Hawaii
The positive aspects of the Hawaiian ministerial conference cannot be overshadowed by the disagreements. The talks did not completely dissolve as the member states indicate they remain committed to the process. The trade ministers continue to negotiate with determination to resolve their differences. The environmental accords are extensive and as such are tremendous accomplishments with far-reaching consequences. They set precedents that can positively affect many other countries going into the United Nations Paris Climate Conference (COP21) in December 2015. Dispute settlement mechanisms were strengthened, which may appease those concerned about the extensive and potentially abusive power of large corporations over national sovereignty. After eight years of negotiations, these 12 Pacific Rim countries have come to agree on as much as 98 per cent of the agenda. There is much for each to benefit from a fair and open trade agreement that has legally binding protections for sovereign laws to create peace and prosperity in the region. Hopefully, the political obstacles will be resolved fairly.