TPP deal reached: What we know so far

TPP deal reached: What we know so far

After 5 years of negotiations, the 12 nations which make up the TPP finally reached a deal in the early hours of Monday morning. While the text of the deal is undergoing a legal review and will be released next month, here’s an initial look at the facts surrounding the negotiations.

The TPP originally began as a trade agreement between Brunei, Chile, New Zealand and Singapore. It was taken up by the US and pushed forward during the Obama administration as a cornerstone of the ‘pivot to Asia’ policy. The current TPP market covers around 40% of global world trade.

The deal will gradually remove over 18,000 tariffs across participating countries making way for industries to take advantage of increased free trade across the region. For manufacturers, producers and the service sector, the TPP will make it cheaper to export their goods and services across TPP countries, within the treaty’s terms.

Consequently, products originating from the TPP zone will become cheaper for the average consumer – think Chilean wine in Vietnam or New Zealand butter in Japan.

More important than tariffs, the deal sets common standards across member states in areas such as intellectual property rights, labour laws, the environment, e-commerce, and the deregulation of state owned enterprises.

In this sense, the TPP was seen as an opportunity to set the model for trade standards in the region and will hopefully encourage other countries to join the TPP under this framework. Thailand for example, has already expressed a keen interest.

The TPP is also serving greater US strategic interests in the Asia Pacific by bringing these countries closer to Washington. GRI previously predicted that the US would shift its red lines in order to guarantee the passage of the deal and this appears to be what happened: the U.S. ceded its 12 year monopoly period on biologics data exclusivity compared to the 5 years sought by Australia and New Zealand. The US tobacco industry’s demands also seem to have been sacrificed.

China, meanwhile, has cautiously welcomed the deal despite not being part of the 12 nation group. It had previously been invited to join, but backed out when Beijing realised the extent of the restrictions it would have placed on its financial sector. China continues to pursue its own multinational FTAs in the region along with its ‘Silk Road’ initiative whose key focus in on trade.

If anything, the TPP deal sends a strong message to Beijing that the US is still capable of writing the economic rules of the region, despite being displaced by China’s rise.

The TPP must now be ratified through each member state’s legislative processes and this could prove a key point of contention in the months that follow. The first test will be in Canada where is federal election will take place before the text of the deal has been released. Obama also faces further challenges in Congress as was demonstrated by the vote on Trade Promotion Authority granted earlier this year.

Several US industries which were sacrificed during the negotiations have already called on Congress to vote against the TPP. However, the Obama administration will hope that the TPP’s geopolitical importance will help allay industry concerns and push Congress to approve the deal.

As more details of the TPP emerge, look out for more analysis over the next few months from GRI.

Categories: Economics, International

About Author

Nicolas Jenny

Nicolas Jenny specialises in European and Asian political risk analysis. He has lived extensively throughout the region and speaks English, French and Mandarin. He holds a double master’s from Sciences Po Paris and Fudan University and a BSc in politics from the University of Bristol.