Trans-Pacific Partnership: More Members, More Gains, More Complications
The mid-November meeting of the Asia Pacific Economic Cooperation (APEC) forum produced some welcome news for the Trans-Pacific Partnership (TPP), a potential agreement that could clear the way for more trade and investment across the Pacific. Most important, three countries—Canada, Japan, and Mexico—announced that they would explore the possibility of joining the negotiations, which already involve countries that account for a significant share of global exports and imports. However, the participation of these new countries is likely to complicate and delay the conclusion of the negotiations.
The current TPP negotiations comprise nine countries: Australia, Brunei, Chile, New Zealand, Malaysia, Peru, Singapore, the United States, and Vietnam. Adding these three would increase by half the number of TPP consumers, boost total TPP goods exports and imports by 63 and 49 percent respectively, and add 30 and 47 percent to TPP services exports and imports. With the addition of these countries the TPP's share of world goods exports would grow from 15 to 24 percent (based on 2010 WTO data).
The three candidate countries already participate intensely in formal trade relationships with the TPP core: Japan has economic partnership agreements with all but the United States and its fellow candidate, Canada. Joining TPP is a natural complement to Japan's strategy of promoting economic integration in the Asia-Pacific region. Mexico and Canada both have trade agreements with all the Western Hemisphere countries but not with three current TPP participants: Brunei, Malaysia, and Vietnam. Canada has a trade and economic cooperation agreement in place with Australia. Both NAFTA partners are in negotiations with Singapore. Mexico was the first country to enter into a free trade agreement with Japan; Canada and Japan initiated a joint study on an Economic Partnership Agreement early in 2011.
Each candidate country will face two major hurdles to joining the TPP talks. First, they must consult with each TPP core country. All nine must approve any new candidate's entry and determine when new entrants will be allowed to start negotiation. Second is whether domestic politics will ultimately allow them to do so.
Japan has long indicated its interest in joining, delaying this decision as a result of the tragic earthquake and nuclear disaster earlier in the year. While there is support for bolstering exports, Prime Minister Yoshihiko Noda faces serious domestic misgivings about the TPP, particularly from the agricultural sector. Rice is the primary but not exclusive area of concern. Japanese entry to the negotiations will raise concerns about its commitment to reform in other areas, such as autos and services. US industry reaction to Japan's announcement reveals some of the tough trade issues that will have to be addressed to the satisfaction of the core nine, including restrictions on beef imports, restrictions in the auto sector, and barriers in the services sector. Japan will also be subject to provisions on state-owned enterprises that will be negotiated in the TPP.
While Prime Minister Stephen Harper has stated that the TPP criteria would be "easy" for Canada to meet, he faces a significant challenge from those who benefit from Canada's protected agricultural sectors, mainly dairy. Canadian participation in the TPP was previously opposed by New Zealand, which held that Canada's protected dairy sector must be liberalized before commencing talks. Dairy is a sensitive issue in Canada, with agricultural groups insisting that supply management is not up for negotiations, and opposition to the TPP has already begun.
The idea of adding new partners introduces tension to the TPP talks, whose members had expressed a goal of a high standard agreement, negotiated quickly. US Deputy National Security Adviser for International Economic Affairs, Michael Froman, was quoted as welcoming the expressions of interest by the three countries but emphasized that the expressions of interest from new members should not "delay or dilute the path we're on."1
The nine core countries are aiming to complete a text for review at the next APEC forum in mid-2012. Like previous TPP goals, this target is both laudatory and overly ambitious. The current participants already have a long list of "sticking points" that will be difficult to resolve quickly; deciding how to address the issues raised and complications that could arise from the inclusion of the three candidate countries will likely further encumber the negotiating process. We believe that substantial progress can be made in the coming year but that the TPP accord is unlikely to be finalized until 2013.
Jeffrey J. Schott, Barbara Kotschwar, and Julia Muir will publish a Policy Brief on the TPP, tentatively entitled "Understanding the Trans-Pacific Partnership."
1. "White House Eyes Mid-2012 TPP Deal, Cautious on Prospect of Japan Joining Talks." Inside US Trade World Trade Online. November 13, 2011.