Trans-Pacific Partnership- TPP, Historical Trade Agreement

Trans-Pacific Partnership is a trade agreement between 12 countries which constitutes 40% of world trade and involves 800 million people. The aim is to ease the flow of goods, services and investments among them, and to strengthen the rules on labour standards, environmental issues, origin criteria and intellectual property.

US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.

The TPP reflects the high ambitions of the major countries in rule-making. Barack Obama, the US President, said “When more than 95 per cent 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.”

To encourage trade between member countries, critics are not ready to say the agreement as a free-trade agreement but trade-mange agreement. It began with a trade agreement between just four nations – Brunei, Chile, New Zealand and Singapore – that came into effect 10 years ago.

The whole agreement is really not clear to anyone, as the official agreement or the statement from the countries were not public. This is the the reason for the outrage in few places of US.

Which goods and services are affected?

Most goods and services seem to be involved, but not all tariffs are going to be removed and some will take longer than others.

For example, the signatories have said they will either eliminate or reduce tariffs and other restrictive policies from agricultural products and industrial goods.

On textiles and clothing, they will be removing all tariffs, but as per the timeframe the countries sign.

On trade in services, few countries seem to have agreed that free trade would be quite a good thing, and in some areas, they are going to liberalise trade. In others they are probably not going to make their trade practices any more restrictive in the future, and in a final group they have opted out completely and will do what they like. Apparently which services and countries fall into which category will be contained in an annexe to the agreement, but the full text has not yet been published, so it is hard to tell which is which.

Here’s a look at some of the major winners and losers of the free trade agreement that would cut thousands of taxes or tariffs.

Carmakers

  • Some of the world’s biggest car firms based in Japan, such as Toyota and Honda, would benefit from getting cheaper access to the US, which is its biggest export market
  • Japanese carmakers may be able to manufacture US-bound cars with parts bought from elsewhere in Asia, as the deal enforces minimums for locally sourced materials
  • Meanwhile, US vehicle exports would also grow if car tariffs as high as 70% in growing emerging markets such as Vietnam are removed

Farmers

  • Farmers and companies behind foods such as US poultry, that are currently taxed up to 40% in some cases, will benefit if those taxes are cut or eliminated
  • US soybeans, for example, can be taxed as much as 35%
  • Beef farmers are also set to gain on the reduction or elimination of tariffs on the meat into Japan, Mexico and Canada over 10 years
  • Other foods that would see 98% of the taxes eliminated include dairy, sugar, wine, rice and seafood
  • Big food exporting countries such as Australia and New Zealand will benefit from the move

Local job markets

  • Several labour groups are worried the deal would result in jobs leaving developed economies such as the US and being sent to countries with lower wages and less strict labour laws
  • The deal would intensify competition between countries’ workforces
  • Vietnam is considered among the big winners, as analysts predict the deal would boost its growth by 11% in the next 10 years as firms move factories to the low-wage country
  • But for less developed economies, it will also mean they have to abide by international labour laws, such as introducing a minimum wage

Drugmakers

  • The deal gives pharmaceutical companies up to eight years of protection for new biotech drugs (expensive medicines produced in living cells), rather than 12 years of protection pushed by the US
  • Activists argue that blocking rivals from making copies of the drugs will drive up the prices of prescription drugs and make them more expensive for people in poorer countries
  • It could also strain national healthcare budgets and keep life-saving medicines from patients who cannot afford them

Tech firms

  • Tech giants such as Google and Uber will see restrictions removed on sales in foreign markets, along with requirements that they establish local infrastructure
  • The countries also vowed to lower global roaming charges through regulation, which could result in increasing competition among telecoms giants

How it will effect India?

Textiles and Clothing: Vietnam is in the TPP, so it will the trade tariffs on textiles and India may fall back in exports of textiles and clothing.

Services: It will not affect adversely as India is performing extraordinary in this sector form the past few years.

India has a free-trade agreement with many of the member countries in TPP, so it is not devasting as we are assuming.

The TPP and other mega trade agreements under negotiation such as the Transatlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership (RCEP) are bound to challenge India’s businesses in many ways, says our commerce ministry. First, they will erode existing preferences for Indian products in established traditional markets such as the US and the European Union (EU), benefiting the partners to these agreements. Second, they are likely to develop a rules architecture which will place greater burden of compliance on India’s manufacturing and services standards for access to the markets of the participating countries.

Our commerce ministry says these challenges should be treated as an opportunity to respond strategically, and to persuade Indian industry to rise to the challenge of higher standards in both products and services, and the framework of rules. Besides, India wants to find its own way into the global supply chains and markets via the RCEP, a proposed free trade agreement between the 10-members of the Association of Southeast Asian Nations plus Australia, China, India, Japan, South Korea and New Zealand. Parties to these negotiations are engaged in serious discussion and expect to hammer out an agreement by end-2015. India also needs to resume stalled negotiations with the EU.

The ministry has begun the process of sensitising domestic business to the new global realities and challenges posed by these mega trade deals, with a view to muster support for its negotiations in RCEP and with the EU. Indian businesses must recognise that the essence of such negotiations is give and take.

October 19, 2015

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