Trans-Pacific Partnership

14 Oct, 2015

Earlier this month, President Obama came closest to secure the biggest legacy any US president can ever hope for. The United States, Japan and other ten countries concluded negotiations on the Trans-Pacific Partnership (TPP). TPP is the biggest regional free trade deal in history and if approved it will set new terms for the trade of nearly $28 trillion in trade and investment between the countries under the agreement.
The countries involved in this deal aggregately produce 40 percent of the world's total GDP of $107.5 trillion, 26 percent of its trade, and 793 million of its consumers. Quite interestingly China is missing from the list. The article will come back to China in a bit but first let's discuss the main points of this agreement.
The deal has five main features, and according to its supporters these five features make this deal a landmark agreement that has set a new standard for global trade while taking up next-generation issues. The members of TPP will have a comprehensive access to the market. TPP will eliminate tariff and non-tariff barriers to trade in goods, services, and investment.
The second feature is that this deal has the commitment to facilitate the regional value chain management, and it will help to create cross-border integration and opening up of domestic markets. The TPP has also addressed the new challenges to trade by dealing with the issue related to the development of digital economy, and the role of state-owned enterprises in the global economy.
TPP also focus on inclusive trade and the pact seeks to ensure that economies at every level of development and businesses can benefit from trade. The Pact according to its supporters will also become a serious platform for regional integration between various regional economies.
The absence of China from TPP is quite evident from the get go. The defenders of TPP argue that the absence of China is not geopolitical, but that TPP aims to achieve a very high standard trade agreement. However, once China is up to the par, it can join the pact, though critics rightfully argue that how could a country like Vietnam, who is a member of the pact, has achieved these high standards.
The words echoed by President Obama have clarified the absence of China from the pact. "When more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy," he said.
However, it is very naive to accept that China can stand out from this trading network even though recently it has faced economic issues even as China has recently overtaken the US as the world's largest trading nation.
On the other side, the choice of five Asian members of TPP is also quite strange. All these Asian countries have very little in terms of trade or investment with Latin America. China is the only country with whom these Latin American countries have a deep trade and economic ties.
It is very clear the Asian countries that have become members have done it on for geopolitical reasons. They are hoping that securing a trade deal with the USA can help them against China in the South China Sea.
Another interesting fact is that Peru, Chile, and Mexico are also the members of Pacific Alliance (another trade agreement). But the reality is that trade and other forms of economic exchange among the members are tiny in aggregate and an equally tiny proportion of their overall trade.
The fact is that at the moment the full document of the deal is not available, and as the debate begins in US Congress, more details will emerge since all twelve countries were very secretive towards the agreement. But the reality is that its a mistake not to include China as a charter member of TPP because China since 2005 is creating its trade agreements with most of the nations included in TPP. By excluding a leader in global supply chain system, it clearly looks like a disaster and hoping for greater trade integration is a hopeless dream and a legacy that can come back and bite.

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