TPP Nears the Goal Line: The Trade Deal at a Glance




After years of negotiations and disputes, the Trans-Pacific Partnership (TPP) agreement may be entering its final stages in Atlanta in the first weekend of October.

Once concluded the deal would lower trade and investment barriers in the 12 partner countries, which account for nearly 40 percent of global GDP: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Research from the Peterson Institute for International Economics (PIIE) suggests that TPP would yield long-run benefits for all the economies involved. In particular, Peter A. Petri estimates that US incomes adjusted for inflation would rise by around $77 billion per year starting in 2025. TPP countries account for about 36 percent of total two-way trade in goods and services with the United States.

The deal’s stated objectives include expanding opportunities for trade and investment in goods and services among the 12 countries, regulating activities of state-owned enterprises, and strengthening labor and environmental standards. Importantly, TPP also aims to lay the groundwork for negotiations with other major Asian economies like China, India, and Korea.

TPP’s benefits include improving terms of trade—the amount of goods an economy can import per unit of export goods—for US firms doing business abroad. Job gains would come from the productivity improvements resulting from the removal of tariffs and nontariff barriers in services and investment. The gains will occur, says Petri, not necessarily through net job creation: “We do not calculate any increase in the number of people at work.” Rather, the gains will come from a resulting shift in employment to industries where the United States is more competitive. “These long-term shifts will benefit workers directly,” says Petri. “Export jobs pay up to 18 percent more than those in import-competing industries.”

The results would also benefit US trading partners, Petri says. “The mechanisms will be similar—more productive firms, sectors, and jobs—but the industries will be different. To be sure, some countries excluded from the agreement will lose, but their losses will be small compared to global gains and will hopefully encourage them to join future agreements.”

In the final phase of discussions, the key hurdles for negotiators, according to Jeffrey J. Schott, have come down to US pharmaceutical industry demands for considerably longer drug patents than are allowed in many would-be partner countries; greater market opening for imported dairy products, rice, and sugar; and rules governing how much of a vehicle needs to be produced in a certain country before it can be said to have been manufactured there (rules of origin).

If an agreement is reached, TPP has a long way to go before reaching Congress for possible ratification. Once negotiators reach an agreement, President Barack Obama must give Congress at least 90 days before he can sign it. Thus, TPP can be signed in the first weeks of 2016 at the earliest. Following the president’s signature, US congressional deliberations on TPP implementing legislation cannot proceed until the first quarter of 2016 at the earliest.

Because of considerable opposition to TPP among lawmakers on Capitol Hill and among some presidential candidates, proponents may feel pressure to move quickly as the 2016 presidential election campaign unfolds. Delays may make it less likely for Congress to want to vote on TPP implementing legislation. In an optimistic scenario, Congress could pass implementing legislation by summer 2016, paving the way for entry into force in 2017.

The contentious debate earlier this year over Trade Promotion Authority (TPA)—the legislation that confers “fast-track authority” to the president and sets procedures for the expeditious ratification of trade pacts—proved that garnering TPP support will be difficult. The TPA allows for an up or down vote on the implementing legislation once it is drafted, but it does not set time limits on the debate held prior over the final provisions of TPP.

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