TPP trade deal: seven things you need to know

Shawn Donnan in Atlanta

The US, Japan and 10 other Pacific Rim economies, representing some 40 per cent of the global economy, reached an agreement on Monday on what is the biggest trade deal signed anywhere in two decades.

Here are seven things worth knowing about the Trans-Pacific Partnership.

1. The TPP is as much about geopolitics as it is about trade.

Often called the “economic backbone” of US President Barack Obama’s “pivot” to Asia, the goal for the US and Japan is to get ahead of China, which is not included in the TPP, and to create an economic zone in the Pacific Rim that might balance Beijing’s economic heft in the region. It is also about writing the rules of the 21st-century global economy for everything from cross-border data flows to how state-owned enterprises are allowed to compete internationally.

“We can promote growth through trade that meets a higher standard,” Mr Obama told the UN General Assembly last week. “And that’s what we’re doing through the Trans-Pacific Partnership — a trade agreement that encompasses nearly 40 per cent of the global economy; an agreement that will open markets while protecting the rights of workers and protecting the environment that enables development to be sustained.”

2. China is not in it. But it may be some day.

While the TPP has in the past been discussed as a US-led move to contain China, the view in Washington has softened in recent years. China has said it is watching the development of the TPP carefully and is engaged in its own rival trade negotiations. Many in the US business community feel the real promise of the TPP lies in opening it up to other countries to join, particularly China.

The current members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. But already lined up to potentially accede are Asian economies such as South Korea, Taiwan and the Philippines, and Latin American ones like Colombia.

3. Embedded in the TPP is a free-trade deal between two of the world’s three largest economies.

Japan and the US have never before sealed a bilateral trade agreement. But when Japan joined the TPP negotiations in 2013 it prompted separate talks over everything from the trade in cars to that in beef, rice and pork.

The result would be a de-facto trade agreement between two of the world’s three largest single-country economies that would likely, over time, see barriers to trade fall between the two countries.

It would also be likely to further integrate Japan’s economy and supply chains with those in North America. One of the final bones of contention has been over the local-content rules for automobiles and car parts. It pits parts makers in Canada and Mexico, which thrived under the now 20-year-old North American Free Trade Agreement, against Japanese carmakers, which despite a significant presence in North America still have supply chains that stretch into non-TPP countries such as China and Thailand.

4. This would be a pivotal deal for Shinzo Abe, Japan’s prime minister.

To try and secure the TPP Mr Abe has been forced to take on some powerful political players in Japanese politics, including the agriculture lobby. But he has argued again and again that it would help Japan undertake much-needed structural reforms that would boost the economy’s growth potential.

That is certainly something he needs. Japan’s gross domestic product contracted at an annualised rate of 1.2 per cent in the second quarter of this year and data suggest the third quarter will not be much better, slipping Japan into a technical recession.

5. The TPP is controversial in many of its member countries.

In the Canadian election campaign now under way the TPP negotiations have provided one of the main points of economic debate. That matters. The race is now in a three-way statistical dead heat with Tom Mulcair, the head of the New Democratic Party, vowing to walk away from the TPP if his party wins on October 19.

“The NDP, when we form government on October 19, will not be bound by this secret agreement that [prime minister Stephen] Harper has been negotiating,” he said.

But Canada is far from the only place where the TPP is provoking controversy.

In the US, Australia and other countries opponents have seized on a provision that would allow foreign corporations to challenge decisions by governments before international arbitration panels. In Australia the issue is particularly sensitive since tobacco giant Philip Morris has mounted a case against the government there via an obscure Hong Kong investment treaty over Canberra’s introduction of plain packaging.

The US has agreed to carve tobacco and regulations related to public health out of the TPP’s investment dispute system. But that is not the only controversy.

6. The TPP is only flirting with the issue of currency manipulation . . .

Among the issues that have generated the most controversy in the US is that of currencies and the question of competitive devaluations.

With a wary eye on a weak yen and competition from Toyota and others, the US automobile industry and its supporters in Congress have been pushing for the TPP to include an enforceable ban on currency manipulation.

And now the other TPP battles begin

That is not likely to happen as a formal part of the TPP. But according to people close to the discussions finance ministers and central bank governors from the TPP countries have agreed to a parallel agreement that would commit them not to engage in competitive devaluations to benefit their own exporters.

All are members of the IMF and many belong to the G20, each of which have their own rules on currency manipulation. But people close to the discussions insist these will be at a higher standard and include provisions for separate and regular consultations.

None of the TPP countries, however, are willing to make those commitments enforceable via trade sanctions, one of the key demands of the auto industry and its supporters.

7. The TPP would break new ground on environmental and labour standards for trade agreements.

Since 2007, the US has been required to include discussions of environmental and labour standards in its trade negotiations. But the TPP would for the first time make those commitments enforceable and potentially subject to trade sanctions if they are not met.

Many environmental activists remain sceptical, but the US insists that the TPP would help reduce trafficking in endangered species and tackle other problems such as overfishing in the TPP countries. If countries do not abide by their commitments Washington would use the agreement to call them on it.

New labour provisions in the TPP also would force big changes in practices in countries such as Malaysia and Vietnam.

In order to participate those countries would have to prove they are abiding by International Labour Organisation standards.

TPP countries would be required to have minimum wages. They also would have to enforce bans on practices that now result in forced labour such as employers holding migrant workers’ passports and charging special recruitment fees that can leave workers in immediate debt. In Vietnam, the government would have to allow greater freedom for workers to unionise and allow the creation of a rival to its single current trade union federation.