Trans-Pacific Partnership: A Closer Look

Economists, policymakers and market participants are divided about the recently announced Trans-Pacific Partnership (TPP), which is a proposed trade agreement between 12 Pacific Rim nations covering a wide spectrum of economic policies, including intellectual property, labour relations, environmental law and investor-state dispute settlement. While the negotiators of the agreement have heralded the TPP as a victory for free trade, economic development and collaboration, its detractors warn it’s just another ploy by major corporations to expand their power and influence over the world.

The TPP Signatories

A total of 12 nations are involved in the Trans-Pacific Partnership agreement. They are: Australia, Canada, Japan, Malaysia, Mexico, Peru, United States, Vietnam, Chile, Brunei, Singapore and New Zealand. At least six other countries have also expressed interest in joining the framework.

Before this far-reaching agreement can take effect, the TPP must be ratified by each member country.

TPP Fine print

That the TPP was primarily driven by the United States has caused many to recoil at the prospect of greater monopoly powers for US multinationals. Under the TPP, goods and services would be allowed to flow to and from member countries with reduced tariff protection. This will impact industries like dairy, agriculture, beef and poultry. Countries like the United States, Japan and Canada also agreed to open up their automotive industries, which will reduce the price of cars and trucks at the expense of local jobs.

Perhaps the most concerning aspect of the TPP is the investor-state dispute settlement mechanism, which grants foreign companies (i.e. US multinationals) more power to sue the government. This provision has been widely regarded as a major win for US negotiators, mostly due to the number of US-based multinationals operating in various TPP nations. In exchange for the provision, the US agreed to implement restrictions on the tobacco trade.

As one can imagine, an agreement of this magnitude is extremely complex and will likely continue to divide supporters and detractors long after it has been implemented. Therefore, in the following sections we touch upon the pros and cons of the TPP agreement, giving our readers the chance to decide for themselves which side of the argument they fall on.

Pros

Most economists generally agree that free trade boosts exports and economic growth, thereby creating a net positive effect on participant countries. If ratified, the TPP will likely play out the same way. The agreement is expected to boost exports by $305 billion per year by 2025. It will also significantly reduce tariff restrictions on exports. For consumers, this means more choice at significantly reduced costs.

The TPP is also expected to promote trade in knowledge-intensive industries, thereby increasing intellectual property and foreign investment.

Long-term, free trade also has a net positive impact on job creation, despite painful cuts in certain sectors. The agreement is expected to add hundreds of billions of dollars per year to worker wages.

Given that all countries also agreed to cut down on wildlife trafficking, the agreement has the potential to reduce environmental degradation.

Cons

In free trade, there are winners and losers. If the TPP is ratified, the initial losers are expected to be low-income workers, especially in advanced industrialized countries like Canada and the United States. Unless laid off workers upskill and move into more in-demand industries, free trade usually contributes to greater income inequality in advanced nations. The TPP could increase income inequality even more than other trade agreements because it protects patents. This will lead to higher prices in select industries such as healthcare and pharmaceutical drugs.

Despite efforts to cut down wildlife trafficking, it’s difficult to imagine that a free trade agreement of this magnitude would contribute positively to the environment, at least initially. An increasingly globalized world often leads to more environmental degradation, especially in emerging markets, as companies respond to competitive pressures from overseas.

As mentioned in the fine print section, one of the biggest fears with the TPP agreement is that it will embolden foreign corporations to undermine domestic courts and challenge domestic health and environmental policies. Therefore, the image of the predatory American corporation will likely permeate as a result of the TPP agreement.

The lack of transparency has also raised red flags. That we have had to rely on leaked documents to piece together the agreement has created all kinds of resentment among the public. However you feel about the TPP, the closed door negotiations that have become the norm in free trade agreements is extremely discomforting.

Bottom Line

Aside from the sheer size of the pact – the countries involved account for around 40% of global GDP – the TPP argument is really just an extension of the globalization debate. Its supporters see it as a way to secure future growth for all countries involved. Its critics detest the agreement’s lack of transparency and potential to give corporations more monopoly power. If history is any indication, the truth probably lies somewhere in the middle.