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The Trans-Pacific Partnership: Where economics and geopolitics meet

The Trans-Pacific Partnership: Where economics and geopolitics meet

The Trans Pacific Partnership

The Trans-Pacific Partnership (TPP), repeatedly described as the 21st century platinum-standard trade agreement, is in trouble.

The latest round of negotiations has ended in Singapore without agreement, putting yet another deadline for completion beyond reach. Meanwhile, the 'fast track' Trade Promotion Authority President Obama needs to give his negotiators the authority to make deals is being undermined by the President's own supporters in the House and Senate. 

Paul Krugman says we shouldn't 'cry for TPP. If the big trade deal comes to nothing, as seems likely, it will be, well, no big deal'.

His arguments will be familiar to regular readers of The Interpreter: the trade benefits of the TPP are much less important than behind-the-border issues such as property rights for makers of pharmaceuticals, movies and software. These are rights designed to divide the spoils of intellectual-property monopolies rather than enhance the benefits of freer trade, and they comprise 24 of the TPP's 29 draft chapters.

Krugman again: 'So what I wonder is why the president is pushing the TPP at all. The economic case is weak, at best, and his own party doesn't like it.'

The TPP, however, has more diplomatic content than Krugman acknowledges. It is the economic component of the 'Asia pivot', tying together America's East Asian friends. Japan joined the negotiations last year. Singapore, Vietnam and Malaysia have been in it from the start and the Americans have been trying hard to get Indonesia and other East Asians to join in. Korea is a de facto party, having recently completed a comprehensive bilateral preferential trade arrangement (PTA) with the US. 

The TPP clearly has a substantial geopolitical element, but does it get this tricky topic right? [fold]

The conspicuous exclusion is China. American policy insiders are adamant that this is not part of a process of containing China, but this would certainly be the outcome, whether intended or not. An alternative (or additional) explanation is that the objective is to get the rules set before inviting China to join the party, thus giving China an invidious choice: remain outside the top tier trade club or agree to a set of rules you had no part in developing and which will be a poor fit for your way of doing business.

This seems a strange way of encouraging China to become a 'responsible stakeholder' in the international economy. 

The TPP might still go ahead. To the extent that US vested interests can influence Congress, perhaps those which benefit from stronger intellectual property rights (for example, Hollywood and the pharmaceutical companies) might be able to swing Democrat opponents around. 

But why the tearing hurry? President Obama has a political imperative to produce some achievements during his final term. But leaving that powerful personal motivation aside, some delay in order to get the rules right might be a price worth paying. 

At present there is a Catch 22: Congress will not give the necessary support unless the rules are heavily skewed in America's favour. On the other hand, other countries may either not sign up or, more likely, sign up but feel unhappy that they have been steam-rolled into a treaty which distributes the benefits inequitably, thus diminishing the geopolitical dividend.

They may sign up even if the TPP is unfavourable to them, seeing it as part of a wider relationship with the US. Australia is probably in this category: we will sign up because of the need to be seen to be a 'team player' in a larger game.

Yet there is a powerful economic case for persevering with a truly comprehensive TPP, even if it takes longer to hammer out.

In addition to the extra market access that should come, a multi-country agreement would help untangle the noodle bowl of bilateral PTAs. Of course you don't want to adopt a WTO-like timeline. After over a decade of effort with the Doha Round, the WTO in December gave birth to a wimp of an agreement in Bali to smooth some administrative procedures.

But a high-standard agreement reached without time pressures might, for example, give the Japanese the opportunity to put some substance into Abenomics' third arrow (structural change), thus allowing for some progress in the opening up of previously sacrosanct areas such as rice. The Japanese joined the negotiations only recently, and need time to get the domestic politics aligned.

Perhaps our negotiators ought to start exploring this idea, starting by proposing that China be given a welcoming invitation to join in the negotiations. It is, after all, our largest trading partner. Doubtless this would put any agreement on a slower track. But the outcome might be an agreement which truly brings together economic and geopolitical objectives.

Photo by Flickr user Caelie_Frampton.


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