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Potential effects of the Transpacific Agreement (TPP)

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Potential effects of the Transpacific Agreement (TPP)

Author: Marwin Flores Orellana - La Razón

Date: 1-4-16

Translated by Anoosha Boralessa (10 April 2016). Not reviewed by or any other organization or person.

It is possible that the Transpacific Agreement may stimulate global trade flows. However, those of us that think that this mega – agreement, as in previous cases, will provide unequal benefits, have good reasons to be worried.

After more than seven years of negotiations, on 3 February, in the city of Aukland, New Zealand, representatives of some countries in the Pacific Ocean (the United States, Canada, Mexico, Peru, Chile, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam) signed the Transpacific Economic Partnership Agreement (the English Acronym for which is the Trans-Pacific Partnership). This is a mega trade treaty that includes the participation of 12 countries that taken together represent more than a third of the Gross Domestic Product (GDP), a quarter of global exports and a potential market of around 812 million inhabitants.

Although there are detractors and defenders of the Agreement, it is important to analyse, from a commercial and integrationist perspective, what would be the effects of its implementation on the global and regional economy.

From an economic perspective, TPP proponents are supported by projections of quantitative models drawn up by P. Petri and M. Plummer. These forecast real long-term increases of 0.5% - 8% in the economies of signatory countries. On the other hand, opponents are validated by the research of J. Capaldo and J. Kwame, whose models forecast high rates of unemployment and a drop in wages as well as a drop in the real income of participating countries, especially those of the two main players, such as the United States and Japan. Thus, models elaborated by Preti and Plummer assume that labour markets are sufficiently flexible to be able to withstand possible losses of sources of labour, given that the latter would be compensated by the creation of new jobs in other countries. However, research carried out by Harvard University concludes that “the agreement will increase salaries in the TPP countries, but does not forecast a change in employment levels”.

As far as trade goes, there are no significant inconsistencies between academics. For the most part, differences arise in the hypothesis of how economies will respond to changes in the volume of exports and imports brought about by liberalization. These studies affirm that most of the economic benefits of the TPP will come from reducing non-custom barriers (such as regulatory barriers on services) and reducing the obstacles to foreign investment.
As for integration processes that are being generated, the very rationale for the TPP undermines negotiations that have taken place within the WTO (the World Trade Organization) in the multilateral context, where recent examples, such as what was raised at the last meeting held in Nairobi, show that the major powers are trying to reduce their capacity to make concessions that are significant to multilateral trade, by delaying in this way the effects achieved in the Doha Round.

If we go back in time, the first major attempt for a regional treaty was the Free Trade Areas for the Americas (FTAAs). Here, the United States undertook a foreign policy based on bilateralism, originated in the Free Trade Treaties (FTAs). However, it was difficult to think that postponing this type of agreement would lead to a new level of international negotiations, where those issues that at that time were impossible to include, such as e-commerce, technological innovation and internet rights, are currently an integral part of the 30 chapters that the TPP covers (Market Access, Rules of Origin, Technical Obstacles to Trade, Sanitary and Phytosanitary Measures, Trade Defense, Competition, Government Tenders, Investments, E-commerce, Telecommunications, Temporary Entry, Financial Services, Legal Matters, Intellectual Property, the Environment, Labour and Cooperation, Regulatory Consistency, Competition, Development and Small and Medium sized Companies).

As for the region, implementing the TPP involves analysing certain aspects. First, the TPP will offer the opportunity to cumulate origin in manufacturing products. This will facilitate a greater participation in value chains of the remaining members, by converting it into a huge factory for goods with high added value. Second, another great strength that we note is that member countries will be able to connect international value chains by producing inputs that will form part of another product. But at this point, the problems begin: a manufacturer will prefer supplies from Chile instead of Bolivia, even though the Bolivian product may be cheaper. This is called “diversion of trade” and is detrimental to countries that are not party to the Agreement. This type of policies is normally included in FTAs because the TPP surely will contain clauses that limit the possibility of non-signatory countries connecting themselves productively with the others, which would confirm the precept established by Joseph Stiglitz who mentioned that “the TPP is nothing more than an agreement to manage trade and investment relations, where the most powerful and biggest multinationals will impose their rules.”

It is possible that the Transpacific Agreement stimulates flows of world trade by providing the regional economy with long-term development, a step towards a new era of trade integration, However, we believe that this mega-agreement, like previous agreements, will provide disparate benefits and we have good reasons to be worried.

 source: La Razón