Critics scoffed two years ago when President Obama announced his National Export Initiative aimed at doubling U.S. exports between 2010 and the end of 2014. Having strongly criticized the North American Free Trade Agreement’s impact on the U.S. economy during his 2008 presidential campaign, Obama refused, until last fall, to bring to the U.S. Congress the three final bilateral free trade agreements negotiated by the Bush administration: with South Korea, Colombia and Panama.
But with the enactment of the Korean pact in March and the Colombia agreement taking effect this month, the trade community’s attention is shifting gradually toward the Trans-Pacific Partnership, an initiative that promises to be not only more far-reaching in its geographical scope but more ambitious in its approach to integrating the economies of its member states.
As constituted, the TPP would comprise the U.S. and eight other countries bordering the Pacific Ocean: Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. Japan, Canada and Mexico also have expressed interest in joining the accord.
With dark clouds hanging over the European economic horizon, the TPP’s pan-Pacific agenda promises to focus the attention of many U.S. exporters on these much faster-growing economies. Tami Overby, vice president of Asian affairs at the U.S. Chamber of Commerce, believes U.S. exporters could use the improved market access promised by the TPP to expand their sales significantly in the region. Of the 95 percent of the world’s population that lives outside the U.S., Overby said, two-thirds live in Asia, where they produce two-thirds of the GDP produced outside the U.S.
“If we want to grow, we must tap it into this,” Overby said.
That’s equally important for transportation and logistics providers — from ocean and air carriers to 3PLs — especially those with heavy exposure in Europe.
With the exception of Malaysia, Vietnam and Japan, the other countries involved in TPP discussions already have enacted their own FTAs with the U.S. Why then is there so much excitement about the TPP in the U.S. business community? With the apparent demise of the World Trade Organization-sponsored multinational Doha Round negotiations, the TPP is expected to fill many of the gaps that haven’t been addressed in the texts of current U.S. bilateral agreements, while expanding the range of U.S. trade pacts to include Japan, Malaysia and Vietnam.
Although details are fuzzy, the TPP will address the issues beyond tariff rates that have risen to the forefront in today’s global information-age economies. The U.S. business community is pushing for a “highly ambitious text” that will provide more extensive protection for innovation and intellectual property rights for U.S. investors and exporters in these far-flung Asian markets, Overby said.
As consumers throughout the region acquire greater spending power, some two-thirds of U.S. exports to Asia are projected to be in high-technology sectors, where U.S. companies can leverage their comparative advantages in research and development. “The TPP will help bring innovation and jobs” for U.S. exporters, Overby said.
In budding TPP discussions, U.S. trade negotiators also are pressing to level the playing field for U.S. exporters that compete against local state-owned enterprises. Non-Asian companies in the region often are subject to discriminatory treatment from local governments that own and operate their own enterprises. Local companies also can acquire access to low-interest government loans and other preferential treatment that makes it harder for U.S. exporters to compete.
Those sorts of practices may gradually disappear if the TPP takes effect. “The Trans-Pacific Partnership is an attempt to constrain the role of state-owned enterprises, which have emerged as major competitors in recent years for U.S. companies” in foreign markets, said Brian Pomper, an international trade specialist and partner at the Akin Gump law firm in Washington.
“Every country has state-owned enterprises,” Overby explained. The issue at stake is “the relationship between the enterprise and the government that owns it. Is there transparency in financing? Does the state-owned enterprise have hard budget constraints, or soft constraints, or no constraints?”
One of the most alluring aspects of the TPP is its vast geographical scope. For each of the nine TPP countries already involved in talks, nearly 50 percent of its total current exports to other TPP members are shipped to just one of the other eight TPP countries. In other words, these nine countries are selling almost half of their exports to just one other trading partner expected to be in the TPP.
“The goal of the TPP is to make it just as easy to get into all nine (TPP) markets as it was to get into that first market,” Overby added.
Unlike a conventional free trade agreement, the TPP has “open trade architecture,” Overby noted. In theory, “any country can join the TPP when they are ready to join it.”
A number of outstanding issues between Japan and the U.S. stand in the way of Japan’s ability to join the TPP, including the usual reluctance of Japanese negotiators to open their markets to agricultural imports. “But there is hope that when Japan resolves those issues, Japan will join the TPP,” Overby said.
Negotiators hope to complete their talks with Japan by the end of this year. U.S. trade negotiators, Overby acknowledged, are torn in two directions: a need to complete TPP talks as soon as possible, but an equally strong desire to negotiate a truly comprehensive, high-quality deal.
“We don’t want talks to drag on, so we have a sense of urgency as well,” she said. “The ultimate goal is to keep adding new partners, while maintaining the highest standard and comprehensiveness as we can. If we only end up with these 9 partners, we fail.”
Will Mexico, the second most populous Western Hemisphere candidate for the TPP, be able to negotiate its own membership in the TPP? How will the Chinese react to the TPP? Mexico applied to join the TPP late last year, and the first stage of consultations is complete. Formal negotiations for Mexico’s participation are expected to begin soon.
But 2012 is an election year in Mexico, and doubts about the wisdom of the TPP have been surfacing among critics of the pro-trade policy of outgoing President Felipe Calderon. Enrique Dussel Peters, coordinator of the Center for China-Mexico Studies, said neither Mexico nor China — another potential TPP member — should participate in the TPP because doing so would go against both countries’ economic interests.
Unfortunately, Peters warned, Calderon’s first reaction “was for Mexico to participate in the TPP, without him taking into account the implications that it would have for China, (Mexico’s) second-largest trading partner.” Peters said China could feel threatened by the TPP, And that could hurt Mexico’s relationship with the country.
Other Mexican free trade critics are seizing on the TPP talks as further evidence that the outgoing Calderon regime has bungled the country’s opportunities for growth by focusing too hard on negotiating a long sequence of free trade pacts.
“Blinded by free trade, Mexican bureaucrats propose signing more and more free trade agreements, rather than designing a policy for competitiveness that strengthens the country’s production plants and generates more value added, wealth and employment,” said Arnulfo Gomez, a trade researcher at Anahuac del Norte University.
Peters said trade relations between the U.S. “which pulls the strings of the TPP” and China “are passing through a difficult period, as are trade ties between the Chinese and Mexicans, whose relationship is very tense.” For China, Peters added, “there is nothing relevant about the TPP, which China considers an initiative of the U.S.”
Although the TPP is a proposal to integrate the U.S. economy with those economies of Pacific region countries that aren’t necessarily in the Southeast, China doesn’t need the TPP, because the country stresses bilateral trade agreements more than regional agreements, Peters added. To date, China has negotiated 14 bilateral or multilateral free trade agreements with 31 economies, including a multilateral pact with the Association of Southeast Asian Nations, and bilateral pacts with Chile, Costa Rica, Peru, Singapore and New Zealand.
Contact Alan M. Field at email@example.com.