Trans-Pacific Partnership (TPP)

The trade ministers of the 12 participating TPP countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam) reached an agreement on Monday October 5, 2015.

We have long supported the TPP effort because we believe it would accomplish four important goals for the United States:

  1. Improve U.S. job creation and enhance U.S. economic growth by lowering trade barriers;
  2. Expand access of US goods and services into foreign markets;
  3. Establish the standard for trade relations in the fastest economic region of the world; and
  4. Reduce the leverage China may have with many of our Pacific-Rim trading and security partners.

Support for the TPP agreement should depend on whether the text achieves these goals and is consistent with the priorities and procedures established by the Trade Priorities and Accountability Act of 2015 (TPA).  The President released the language of the TPP agreement on November 5, 2015.  The document is several thousand pages.  Our working group is still evaluating the specific language.

Fortunately, TPA language assures ample time to evaluate the deal’s merit.   We do not believe the agreement will come up for a vote for many months.  As we examine the terms to which the Obama administration has agreed, we are focusing on a few key provisions and assessing the entire package against the backdrop of the goals we outlined above. 

There are several potentially controversial elements of the agreement. We highlight a few here:

  • Agriculture

Tobacco may prove problematic.  The Obama administration has agreed to deny tobacco access to an investor dispute resolution mechanism integral to TPP that will make it easier for other nations to regulate tobacco.  We do not believe specific industry carve-outs are a good precedent to set.

  • Autos/Currency

There is no enforceable currency manipulation language in the agreement despite strong lobbying by the automotive industry.  The working group does not have any problems with the reported currency language, which was concluded separately, but is referenced in the agreement.  We have long opposed including enforceable currency manipulation language in trade agreements. 

  • Biologics

The U.S. pushed for a 12-year data exclusivity period but the Australians insisted on 5 years despite U.S. efforts to compromise to 8 years, which is Japan’s current exclusivity period.  The final results appear to be the 5-year exclusivity with a 3-year “additional regulatory period.”  It is unclear what commercial benefit derives from the additional regulatory period.

It does appear that the agreement has many positive elements, including helpful State Owned Enterprise (SEO) language, improved standardization of data-flows and e-commerce terms, strong intellectual property protections (other than biologics), enforceable rules requiring countries to base agriculture regulations on sound science, and improved market access for industrial and agriculture products.

On balance, the agreement appears to enhance the primary economic goals we listed above.  But more importantly, we believe it will improve our strategic position in Asia demonstrably by:

  1. Supporting the Japanese government effort to use TPP to accelerate its internal structural reforms to improve its market access and the overall health of its tepid economy.  Combined with an increasing Japanese willingness to share the common defense burden, this agreement will likely greatly improve the US ability to secure the region.
  2. Fostering much stronger relations with Vietnam, a country that may prove instrumental in helping assure that the US can stymie efforts by some to assert sovereignty in international waters.
  3. Building confidence with Malaysia to not only secure the critical sea-lane of the Straits of Malacca but also help our diplomatic efforts to close down human trafficking through Malaysia.
  4. Allowing the United States and its partners to set the standards of trade and commerce in the region and attract others including South Korea, Taiwan, and perhaps even China to abide by our rules.

TPP negotiations did not occur in a vacuum.  China has historically resisted TPP diplomatically and has pushed its own alternative, the Free-Trade Area of Asia Pacific (FTAAP) and other Asia-focused economic policies and institutions such as the AIIB. 

As policy makers evaluate the full text of the agreement, they should keep these strategic objectives in mind.  There is plenty of time to digest the data before any vote is expected.  The earliest the agreement can be submitted to Congress under TPA is in February, but we believe it is unlikely to move that quickly.  Ultimately, we strongly believe that support for the agreement should depend on the strategic and economic gains the agreement may afford.