Five things to know about the Pacific Rim trade pact

Countries contributing to nearly 40 per cent of the global economy have entered into a trade partnership, that will have far reaching implication across the globe and across industries.

Trade negotiators in Atlanta, USA reached an agreement on Monday that would affect everything from pharmaceuticals, automobile, milk, rice, textiles among other products. The deal, known as the Trans-Pacific Partnership (TPP) would more closely link the economies of 12 Pacific Rim nations.

Countries that will be part of the deal are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, USA, and Vietnam.  The deal, which was led by the USA as the chief negotiator, includes the country’s earlier treaty members within North Atlantic countries termed as NAFTA (North Atlantic Free Trade Agreement).

The deal was necessitated to control the growing influence of China in the world market. Commenting on the deal, President Barack Obama said in a statement, “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy, we should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Obama added that the agreement would “level the playing field” for farmers, ranchers and manufacturers by eliminating some 18,000 taxes imposed by various countries on American imports.

It is still early days for India and its industries to evaluate the impact of the deal as the details are being worked out. We provide five highlights of the deal. 

1) What is TPP:

Trans-Pacific Partnership is stated to be one of the most ambitious free trade agreements ever signed. The deal is aimed at deepening economic ties between these nations, slashing tariffs and fostering trade to boost growth. The agreement could create a new single market like that in Europe. It is meant to help overcome the problem of governments setting up trade barriers to give distinct advantages to domestic industries or politically connected companies. The TPP aims to get rid of some of those obstacles—including tariffs, quotas and regulatory red tape—over time.

2) What separates TPP from other trade treaties:

According to vox.com, The agreement is a lot more than a trade deal. It has more than two dozen chapters that cover everything from tariffs to the handling of international investment disputes. The reason these deals have gotten so complex is that people realized that they were a good vehicle for creating binding international agreements. The deal includes a dispute-settlement process that helps to ensure that countries keep the commitments they make under trade deals. Interest groups have realized that this same mechanism can be used to enforce agreements on topics that have little to do with trade. And so a wide variety of interest groups — from Hollywood and the pharmaceutical industry to labor and environmental groups — have lobbied to include rules they favored in trade agreements.

3) Removing entry barriers:

The deal seeks to eliminate or reduce tariffs on a broad series of products including pork, fruits, wines, machinery, minerals and forestry products. Canadian companies are hopeful that the beef industry would see exports to Japan triple, with import duties reducing slowly from 39 per cent to 9 per cent over many years. Similarly, U.S.A and Canada will continue to protect its auto industry keep its tariffs on Japanese cars for 25 years and truck tariffs for 30 years under the TPP. However, tariffs on auto parts will fall more quickly. American auto makers like Ford wants more protection and has been canvassing with congressmen to oppose the deal.

4) Drug protection was the biggest sticking point:

As in the case of most trade deals, drug companies were the biggest hurdle. American drug companies wanted the American government to ask fellow countries to provide the same robust legal protection they enjoy in the new rules which would limit competition and increase drug price. There was a compromise reached, but American companies were last heard complaining.

5) When will the deal be implemented:

It is expected that the final text of the deal will be publicly available after a month. After that, various governments will have to clear the deal in their respective parliaments. The USA which is heading for an election has sought the ‘fast track’ legislation to clear the deal. It would still take early 2016 to clear the bill.

What comes out clearly is that the deal has been put in place to protect Americas dominance in the world market. An editorial in the Washington Post says that the deal demonstrates that it is still possible for the US to exercise world leadership, and to do big things in its own national interest, given consistent White House leadership and sufficient bipartisan support in Congress. It adds that by knitting the U.S. and Japanese economies together in their first free-trade deal — and binding both of them closer to rising Asian nations — the TPP would create a counterweight to China in East Asia.

Is it now time for Asian economies to show their collective muscle?