The Trans-Pacific Partnership (TPP) was afree trade agreementamong the United States and 11 other countries that border the Pacific Ocean: Australia, Brunei,Canada, Chile, Japan,Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The countries involved produced 40% of the world's totalgross domestic productof $107.5 trillion. They supplied26%of globaltrade to793 million of the world’s consumers.
The negotiations were successfully concluded on October 4, 2015. Officials from each country signed the agreement on February 4, 2016. However, each nation's legislature had to approve the agreement before it went into effect. Before that could happen, on January 23, 2017,President Donald Trumpsigned an executive order to withdraw the United States from the agreement.
The TPP Lives on Without the U.S.
On March 8, 2018, after Trump withdrew the U.S. from the deal, theother 11 TPPcountriessigneda modified agreement. On December 30, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)entered into force.The trading bloc represents 500 million consumers and 13.5% of global GDP.
Note
Seven of the countries have ratified the agreement so far. The remaining countries (Brunei, Chile, Malaysia, and Peru) have yet to ratify.
What's in the CPTPP?
The CPTPP removes 99% oftariffson goods and services, just like the original TPP did. It also sets reciprocal trade quotas. These measures make it more difficult for U.S. businesses, especially farmers, to export to CPTPP members. U.S. exports will be more expensive, thanks to tariffs, than those of signatories like Canada.
Note
Unlike most agreements, the CPTPPremoves non-tariff blocks to trade. It also harmonizes regulations and statutes. It shares those features with the Transatlantic Trade and Investment Partnership.
The CPTPP covers a broad range of goods and services. These include financial services, telecommunications, and food safety standards. In this way, it affects foreign policy and even laws within countries. For example, it suggests that countriesset up an agencylike the U.S.Office of Information and Regulatory Affairs that can analyze the costs andbenefits of new regulations.
All countries agreed to cut down on wildlife trafficking. That helps elephants, rhinoceroses, and marine species the most. It prevents environmental abuses, such as unsustainable logging and fishing. Countries that don't comply will face trade penalties.
The CPTPP and China
All parties have signaled that other members can join in the future. So far, Taiwan, Thailand, and Indonesia have indicated an interest.
China expressed a willingness to join the CPTPP. As one of theworld's largest economies, analysts estimated that China's membership would quadruple the economic gains of the agreement. It would also significantly alter the balance of power ininternational commerce.
A big concern is whether China would use the CPTPP to avoid the tariffs imposed byTrump'strade war. China could send raw materials to CPTPP members, such as Vietnam. Factories there would send finished products to America, avoiding the tariff.
TPP Pros and Cons
Pros
Boosted U.S. exports and growth
Removed tariffs
Added billions in income to U.S. workers
Bigger than NAFTA
Offset China's economic power
Cons
High-income workers benefited the most
Reduced availability of generics
Reduced incentives to protect the environment
Superseded financial regulations
Pros Explained
- Boosted U.S. exports and growth: The original TPPwould have boosted U.S. exports and economicgrowth. This would have createdmore jobs and prosperity for the 12 countries involved. Itwould have increased exports by$305 billion per year by 2025. U.S. exports would increase by $123.5 billion. It would benefit themachinery, auto, plastics, and agriculture industries.
- Removed tariffs: It would have increased exports by removing 18,000 tariffs placed on U.S.exportsto the other countries. Of these, the United States had already allowed 80%of these imports to enter without tariffs. The TPP would have evened the playing field.
- Added billions in incomes to U.S. workers: The agreement would have added $223 billion a year to the incomes of workers in all the countries, with$77 billion going to U.S. workers.
- Bigger than NAFTA: The TPP trade area would have beenbigger than theNorth American Free Trade Agreement (now the U.S.-Mexico-Canada Agreement), currently theworld’s largest.
- Offset China's economic power: Notably, the TPP excludedChina. That was deliberate. It was meant to balance thetrade dominance of both China andIndiain East Asia. The TPP would have given the United States an excuse to intervene in trade disputes in the oil-rich South China Sea. China has been beefing up its military to back its incursions in that area.
Cons Explained
- High-income workers benefited the most: Early analysis of the deal suggested that the income gains would have gone to workers making more than $87,000 a year. Free trade agreementscontributetoincome inequalityin high-wage countries. They promote cheapergoods from low-wage countries.This would have been particularly true for the TPP because it protected patents and copyrights. Higher-paid owners of intellectual property would have received more of the income gains.
- Reduced availability of generics: The agreement regarding patents would have reduced the availability of cheap generics. That could have raised the cost of manydrugs.
- Reduced incentives to protect the environment: While some aspects of the TPP aimed to protect the environment, competitive business pressures from increased international trade could have reduced or outweighed the incentives to protect the environment in some countries.
- Superseded financial regulations: Last but not least, the trade agreement could have supersededfinancial regulations.
U.S. Negotiators Fought Hard to Get a Good Deal
The following five sticking points stood in the way of the deal:
Shorter Patents
The United States agreed toshorterpatents,especially for biological drugs. Pharmaceutical companies could have kept their formulas secret for five to eight years. This is less than the standard 12-year period of exclusivity.
State-Owned Enterprises
Allstate-owned enterprises agreed to comply with global trade standards that protect their workers and the environment.The United States had to overcome objections from countries that didn't want to allow labor unions.
Agricultural Tariffs
The United States, Japan, and Canada agreed to lose some tariff protection fordairy, beef, and poultry producers. This was the biggest sticking point, and the fact that farmers were willing to lose tariff protection was a big win for negotiators.
Auto Industry
These countries also agreed to open up theirautomotive industries. That could cost local jobs while lowering the price of cars and trucks.
Disputes
The United States won the battle over theInvestor-State Dispute Settlement Mechanism. That givesforeign companies more rights to sue host governments.
Tobacco
In return, the United States agreed to restrictions on thetrade of tobacco. In the past, U.S. cigarette companies have used arbitration panels to sue countries that tax or otherwise restrict cigarette advertising.
Frequently Asked Questions (FAQs)
Who voted for the TPP?
The Trans-Pacific Partnership deal negotiated by the Obama administration did not receive a vote. Senate Majority Leader Mitch McConnell blocked the deal from reaching the Senate floor while Obama was president. Later, the Trump administration officially withdrew the U.S. from the TPP.
Who wrote the TPP?
The Office of the U.S. Trade Representative (USTR) negotiates all international trade deals. It also monitors the implementation of trade deals and enforces them. This office is a part of the executive branch, so the authority to negotiate trade deals ultimately rests with the president.
