A Report on Trans Pacific Partnership
Table of Contents
We would like to thank our professors at IIFT in general, and to Dr Vijaya Katti in particular, as their guidance, enthusiasm and counselling helped us enormously in preparing this report.
Dr Vijaya Katti’s initiative to expose us, by inviting various guest lecturers, on the subjects in WTO and Regional Trade Agreements, helped us in forming our views while making this report. Such enlightening lectures from the leaders in the field, helped us gain a proper perspective on the issues related to WTO and RTA. We are also obliged to all the guests who came to explain important details of WTO and RTA, especially Mr Abhijeet Das and Mr U S Bhatia.
We have freely referred to publications from United Nations, WTO, papers, newspapers and other resources and have quoted them in the work. Any inadvertent omission on our part to acknowledge the original source of data is deeply regretted.
In today’s era, the acknowledgement section for any research project of this nature cannot be complete without mentioning the most popular search engine “Google” and most comprehensive online encyclopaedia, “Wikipedia”. We acknowledge the developers of these sites for the yeoman service provided.
By:
Dona Ghosh
Harilal
K V Tirumala
Ramesh Holeyachi
Suvidh Shah
The impact of globalization on international relation is well demonstrated by the new popularity of bilateral and regional economic integration agreements like Regional Trade Area, Preferential Trade Area, Free Trade Area, Custom Union, Economic Union and many more. They have proliferated dramatically in the last three decades.
The Trans-Pacific Partnership (TPP), also known as the Trans-Pacific Strategic Economic Partnership Agreement, is a multilateral free trade agreement and regional trade agreement that aims to further liberalise the economies of the Asia-Pacific region.
While a free trade agreement (FTA) is a trade bloc whose member countries have signed a free trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most goods and services traded between them.
While regional trade agreement (RTA), as name suggested, is generally confined to one geographical region, although it is not necessary condition. It does not violate WTO regulation since it permits law tariff rates among RTA countries without attracting Most Favoured Nation clause.
The original agreement between the countries of Brunei, Chile, New Zealand and Singapore was signed on June 3, 2005, and entered into force on May 28, 2006. Six additional countries – Australia, Malaysia, Peru, Japan, United States, and Vietnam – are negotiating to join the group.
Green Current P-4 countries Orange Negotiating countries
The TPP was previously known as the Pacific Three Closer Economic Partnership (P3-CEP), its negotiations launched on the sidelines of the 2002 APEC Leaders' Meeting in Los Cabos, Mexico, by Chilean President Ricardo Lagos and Prime Ministers Goh Chok Tong of Singapore and Helen Clark of New Zealand. Brunei first took part as a full negotiating party in the fifth round of talks in April 2005, after which the trade bloc became known as the Pacific-4.
Although all original and negotiating parties are members of the Asia-Pacific Economic Cooperation (APEC), the TPP is not an APEC initiative. However, it is considered as a pathfinder for the proposed Free Trade Area of the Asia Pacific (FTAAP), an APEC initiative. TPP negotiations have occurred on the sidelines of APEC summits since 2002.
| Country | Membership | Date of Accession/Declaration of Intention |
| | Original Signatory | 28 May 2006 |
| | Original Signatory | 28 May 2006 |
| | Original Signatory | 28 May 2006 |
| | Original Signatory | 28 May 2006 |
| | Negotiating | 20 November 2008 |
| | Negotiating | 11 November 2011 |
| | Negotiating | October 2010 |
| | Negotiating | November 2008 |
| | Negotiating | February 2008 |
| | Negotiating | November 2008 |
The content and spirit of the TPP can be traced to four nations free trade agreement called the Trans-Pacific Strategic Economic Partnership Agreement or popularly known as p -4 agreement. Its four countries- all APEC members- Brunei, Chile, New Zealand, and Singapore, were from different corners of the globe.
The P-4 Agreement is the first multi-party free trade agreement linking Asia, the Pacific, and Latin America. In addition to its geographic diversity, the P-4 Agreement is interesting because of the comprehensiveness and depth of its coverage. Unlike most FTA s, the P-4 Agreement provides for nearly total liberalization of all goods, including agriculture
Originally, it did not cover financial services or investment, but provided that these areas would be negotiated two years after the agreement came into force and by 2007, those negotiations were substantially completed.
Although the P-4 Agreement is comprehensive in its scope— particularly after the financial services and investment negotiations have taken place—its uniqueness is more attributable to its structure than its content.
Ø Although the participating countries are all APEC members, the P-4 Agreement deliberately joins countries spanning the globe.
Ø Its intention was to form a high-standards agreement that could serve as a model for a broader APEC-wide agreement, and to which other APEC members could accede. Thus it had the potential to serve as an APEC wide model for an ultimate Free Trade Area of the Asia-Pacific,
Ø It included an open accession provision in the agreement so that, in future any Asian Pacific countries or even outside of it, can join in it. This was something very unique in an FTA agreement.
But according TPP negotiators, what happening at present is not an expansion of P 4 agreement as such, by more countries coming it to its fold , they claim they are negotiating a new treaty in itself.
Nonetheless, the genesis of the TPP is clearly the P-4 Agreement. In addition to the obvious fact that all the P-4 countries are involved in the TPP negotiations, the P-4 Agreement contains the key ingredients that are being sought in the TPP: geographic diversity, a High-standards agreement and a model for expansion.
The objective of the original agreement was to eliminate 90 percent of all tariffs between member countries by January 1, 2006, and reduce all trade tariffs to zero by the year 2015. It is a comprehensive agreement covering all the main pillars of a free trade agreement, including trade in goods, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, trade in services, intellectual property, government procurement and competition policy.
Trans Pacific Partnership is Regional Trade and Free Trade Agreement. It includes comprehensive features of trade and trade related matters like investment, finance, intellectual properties, and environment and so on. Hereby we discuss each feature in detail:
It envisages eliminating tariffs and other barriers to trade in goods to have comprehensive, duty free access to each other’s goods markets. It envisages no exemption including agriculture, textiles, or fisheries. Countries recognize that by doing so, they can best promote trade and investment among us and create and retain the jobs that trade supports.
The TPP tariff schedule will cover all goods, representing some 11,000 tariff lines. The nine countries also are developing common TPP rules of origin, and are weighing proposals now for how to do this most effectively and simply.
Its objective is that restrictions on services lifted simultaneously along with freeing of trade in goods, so as to create new opportunities for workers and businesses and immediate benefits for consumers. Services and investment packages will cover all service sectors.
To ensure the high-standard outcome, the TPP countries are negotiating on a “negative list” basis, which presumes comprehensive coverage but allows countries to negotiate specific exceptions to commitments in specific service sectors.
Government procurement packages are being negotiated with each country seeking to broaden coverage to ensure the maximum access to each others’ government procurement markets, while recognizing each others’ sensitivities.
The competition will promote a competitive business environment, protect consumers, and ensure a level playing field for TPP companies. Negotiators have made significant progress on the text, which includes commitments on the establishment and maintenance of competition laws and authorities, procedural fairness in competition law enforcement, transparency, consumer protection, private rights of action and technical cooperation.
Establishment of customs procedures that are predictable, transparent and those expedite and facilitate trade, which will help link TPP firms into regional production and supply chains. It will ensure that goods are released from customs control as quickly as possible, while preserving the ability of customs authorities to strictly enforce customs laws and regulations. TPP countries also have agreed on the importance of close cooperation between authorities to ensure the effective implementation and operation of the agreement as well as other customs matters.
It envisages enhancing the viability of the digital economy by ensuring that impediments to both consumer and businesses embracing this medium of trade are addressed, including provisions addressing customs duties in the digital environment, authentication of electronic transactions, and consumer protection. Additional proposals on information flows and treatment of digital products are under discussion.
TPP envisages investment in financial institutions and cross-border trade in financial services will improve transparency, non-discrimination, fair treatment of new financial services, and investment protections and an effective dispute settlement remedy for those protections. These commitments will create market-opening opportunities, benefit businesses and consumers of financial products and at the same time protect the right of financial regulators to take action to ensure the integrity and stability of financial markets, including in the event of a financial crisis.
TPP countries have agreed to reinforce and develop existing World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) rights and obligations to ensure an effective and balanced approach to intellectual property rights among the TPP countries. Proposals are under discussion on many forms of intellectual property, including trademarks, geographical indications, copyright and related rights, patents, trade secrets, data required for the approval of certain regulated products, as well as intellectual property enforcement and genetic resources and traditional knowledge.
TPP countries have agreed to reflect in the text a shared commitment to the Doha Declaration on TRIPS and Public Health.
TPP agreement will provide substantive legal protections for investors and investments of each TPP country in the other TPP countries, including ongoing negotiations on provisions to ensure non-discrimination, a minimum standard of treatment, rules on expropriation, and prohibitions on specified performance requirements that distort trade and investment .It will also include provisions for expeditious, fair, and transparent investor-State dispute settlement subject to appropriate safeguards, with discussions continuing on scope and coverage. The agreement also will protect the rights of the TPP countries to regulate in the public interest.
TPP countries are discussing elements for a labour chapter that include commitments on labour rights protection and mechanisms to ensure cooperation, coordination, and dialogue on labour issues of mutual concern. They agree on the importance of coordination to address the challenges of the 21st-century workforce through bilateral and regional cooperation on workplace practices to enhance workers’ well-being and employability, and to promote human capital development and high-performance workplaces.
TPP countries have agreed to seek a common set of rules of origin to determine whether a product originates in the TPP region. They also have agreed that TPP rules of origin will be objective, transparent and predictable and are discussing approaches regarding the ability to cumulate or use materials from within the free trade area in order to make a claim that a product is originating. In addition, the TPP countries are discussing the proposals for a system for verification of preference claims that is simple, efficient and effective.
To enhance animal and plant health and food safety and facilitate trade among the TPP countries, the nine countries have agreed to reinforce and build upon existing rights and obligations under the World Trade Organization Agreement on the Application of Sanitary and Phytosanitary Measures. The SPS text will contain a series of new commitments on science, transparency, regionalization, cooperation, and equivalence. In addition, negotiators have agreed to consider a series of new bilateral and multilateral cooperative proposals, including import checks and verification.
Regarding TBT, it envisages reinforcement and builds upon existing rights and obligations under the World Trade Organization Agreement on Technical Barriers, which will facilitate trade among the TPP countries and help our regulators protect health, safety, and the environment and achieve other legitimate policy objectives. The text will include commitments on compliance periods, conformity assessment procedures, international standards, institutional mechanisms, and transparency. The TPP countries also are discussing disciplines on conformity assessment procedures, regulatory cooperation, trade facilitation, transparency, and other issues, as well as proposals that have been tabled covering specific sectors.
TPP Agreement will promote competitive access for telecommunications providers in TPP markets, which will benefit consumers and help businesses in TPP markets become more competitive. In addition to broad agreement on the need for reasonable network access for suppliers through interconnection and access to physical facilities, TPP countries may decide on a broad range of provisions enhancing the transparency of the regulatory process, and ensuring rights of appeal of decisions. Additional proposals have been put forward on choice of technology and addressing the high cost of international mobile roaming.
A meaningful outcome on environment will ensure that the agreement appropriately addresses important trade and environment challenges and enhances the mutual supportiveness of trade and environment. The TPP countries share the view that it should include effective provisions on trade-related issues that would help to reinforce environmental protection and are discussing an effective institutional arrangement to oversee implementation and a specific cooperation framework for addressing capacity building needs. They also are discussing proposals on new issues, such as marine fisheries and other conservation issues, biodiversity, invasive alien species, climate change, and environmental goods and services.
TPP is envisaged as a living agreement. While establishing a state-of-the-art agreement, it needs to ensure the ability to update the agreement as appropriate. Therefore, the TPP teams are establishing a structure, institutions, and processes that allow the agreement to evolve in response to developments in trade, technology or other emerging issues and challenges. It envisions a continuing joint work program, including new commitments in areas of common interest or to enable us to quickly respond to developments in global trade or technology. At the same time, remain cognizant of goal to eventually expand the TPP to include other economies from across the Asia-Pacific region. Consultations are going on with those countries who have expressed interest in joining to ensure that they are aware of the goals and objectives that we have agreed to pursue.
It has got five defining features that will make TPP a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues that will boost the competitiveness of TPP countries in the global economy.
It includes a comprehensive access like to eliminate tariffs and other barriers to goods and services, trade and investment, so as to create new opportunities for workers and businesses and immediate benefits for our consumers.
To facilitate the development of production and supply chains among TPP members, supporting goal of creating jobs, raising living standards, improving welfare and promoting sustainable growth in the participant countries of the pacific region.
Regulatory coherence: Commitments will promote trade between the countries by making trade among them more seamless and efficient.
Competitiveness and Business Facilitation: Commitments will enhance the domestic and regional competitiveness of each TPP country’s economy and promote economic integration through the development of regional production and supply chains.
Commitments Small and Medium-Sized Enterprises: It will address concerns small- and medium-sized enterprises have raised about the difficulty in understanding and using trade agreements, encouraging small- and medium-sized enterprises to trade internationally.
Development: Comprehensive and robust market liberalization, improvements in trade and investment enhancing disciplines, and other commitments, including a mechanism to help all TPP countries to effectively implement the Agreement and fully realize its benefits, will serve to strengthen institutions important for economic development and governance and thereby contribute significantly to advancing TPP countries’ respective economic development priorities
It is to promote trade and investment in innovative products and services, including environment across the TPP region.
To enable the updating of the agreement as appropriate to address trade issues that emerge in the future as well as new issues that arise with the expansion of the agreement to include new countries.
Agreement between two or more countries to
conduct specified
activities or processes, to
achieve specified
objectives such as commercial interest, long term co-operation, & defence or security co-operation is called Strategic partnership.
TPP is the first entry in a new world that marries the economic and the geopolitical. Just as countries are increasingly using economic tools for strategic ends, trading coalitions will supplement and enrich military alliances as a primary form of strategic ties.
Asian nations are vital to the life-blood of the global economy.
The shift of geopolitical forces from the West to the East is a defining feature of the 21st century’s international landscape - and Asia-pacific will be the main stage for these transformations. This words say that how trans-pacific geo-political & economical getting importance.
The Asia-Pacific region is a key driver of global economic growth, representing nearly 60% of global GDP and roughly 50% of international trade. The average GDP growth rate in the rapidly growing and dynamic countries in this region was 5.1% in 2006, compared economies has increased by 300%, while global investment in the region has increased by over 400%.with the world average of 3.9%. Since 1990, total goods trade by the Asia-Pacific.
The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans -- the Pacific and the Indian -- that are increasingly linked by shipping and strategy. It boasts almost half the world's population. It includes many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is home to several of our key allies and important emerging powers like China, India, and Indonesia
Many critical issues tarns pacific region face today are military competition, nuclear proliferation, violent extremism, financial crises, poverty, weak and ineffective governments, territorial disputes
Security of sea lanes from terrorism, failed states and piracy is a common and collective problem of all states in the region (the south-china sea). The challenges of today's rapidly changing region -- from territorial and maritime disputes to new threats to freedom of navigation to the heightened impact of natural disasters -- require that the United States pursue a more geographically distributed, operationally resilient, and politically sustainable force posture.
"It is clear that America’s success in the 21st century is tied to the success of the dynamic Asia-Pacific region." Assistant Secretary Campbell said. More control in Asia-Pacific is important from a geopolitical, financial and military standpoint of USA.
China’s rapid economic growth and its emergence as a great power is a defining event in the current geopolitical landscape of Asia. The United States hopes that engagement and economic development will lead China to become increasingly democratic and a stakeholder in global economic and political affairs. U.S has fear of prosperous China. In this context, the U.S. has sought to strengthen existing alliances and develop new strategic and defence relationships in the region while better positioning its regional military capabilities by restructuring and redeploying its forces in the region. Ongoing tensions over Taiwan, stemming from Beijing’s opposition to Taiwanese independence, China’s military modernization, its growing power projection capabilities.
TPP could be a means to address long-standing U.S. economic interests in Asia and be used to counter increasing Chinese trade in the region. American economic, political and military expansion in Asia-Pacific is being used to counter growing Chinese influence. The U.S. continues to strengthen old alliances and forge new partnerships. Via various joint safety exercises, it has increased its military presence in the area. Using the U.S. and China vying for much more control, this could additional escalate tensions and lead to a potential confrontation in between the two powers.
Tensions on the Korean Peninsula increased in July and October 2006 as a result of North Korea’s missile and nuclear tests. These events, along with North Korea’s development of long range missiles, demonstrate that North Korea continues to seek to acquire new and increasingly lethal military capabilities.
Radical Islamist groups in Southeast Asia have carried out a number of deadly bombings since 9/11, including the Bali bombings of October 2002 and October 2005 and an attack on the Australian Embassy in Jakarta in 2004 by the terrorist group Jemaah Islamiya (JI). While counter-terror efforts have been increasingly successful, JI is thought to remain capable of conducting operations. The terrorist group Abu Sayaff also remains active in the Philippines.
A regional maritime security initiative has sought to prevent attacks against shipping or ports, particularly in or near the strategically important Straits of Malacca, a maritime gateway through which much of the world’s trade passes.
| Core Strategic Principles of USA |
| 1. to maintain political consensus on the core objectives of alliances |
| 2. to ensure that alliances are quick and adaptive so that they can successfully address new challenges and seize new opportunities |
| 3. to guarantee that the defence capabilities and communications infrastructure of alliances are operationally and materially capable of deterring provocation from the full spectrum of state and non state actors |
The TPP will also have important strategic implications for United States engagement in Asia moving forward. U.S. economic engagement in Asia has been declining over the last decade. For instance, in 2000 the United States was Malaysia’s largest export market and second largest source of imports and by 2010 the United States had slipped to being Malaysia’s third largest export market and fourth largest source of imports. This is an example of a trend of declining U.S. trade across the Asia Pacific region.
The United States helped shape a region wide effort to protect unfettered access to and passage through the South China Sea, and to uphold the key international rules for defining territorial claims in the South China Sea's waters. Given that half the world's merchant tonnage flows through this body of water, this was a consequential undertaking.
TPP will simultaneously allow the US to take full advantage of the shifting momentum in the world economy and provide the necessary economic underpinning for long-term US military and security commitments in Asia–Pacific. Think of TPP as a hybrid: a pinch of NATO mixed with a lot of NAFTA.
USA is modernizing basing arrangements with traditional allies in Northeast Asia and commitment on this is rock solid. And USA enhances presence in Southeast Asia and into the Indian Ocean. For example, the United States will be deploying littoral combat ships to Singapore, and USA examining other ways to increase opportunities for our two militaries to train and operate together. And the United States and Australia agreed this year to explore a greater American military presence in Australia to enhance opportunities for more joint training and exercises. U.S also looking at how we can increase its operational access in Southeast Asia and the Indian Ocean region and deepen its contacts with allies and partners.
Strategically, maintaining peace and security across the Asia-Pacific is increasingly crucial to global progress, whether through defending freedom of navigation in the South China Sea, countering the proliferation efforts of North Korea, or ensuring transparency in the military activities of the region's key players.
The leaders who are involved in engineering the Trans-Pacific Agreement are driven by the aim to establish a next generation Asia-Pacific trade agreement that reflect the priorities of the member countries. It is expressed that it the leaders want this agreement to be a model for ambition of other free trade agreements for future.
Thus, trade buoyancy would undoubtedly stand as a key factor in deciding such a trade bloc. The main determinants of trade that are looked at positive contributions for individual economies are:
| |
| 1. Trade Liberalization through comprehensive market access 2. Regulatory coherence 3. Advantages of TPP 4. Competitive Development of regional production and supply chains 5. Neutralizing beggar-thy-neighbour trade policies 6. Gaining credibility 7. Increasing market size 8. Increasing policy predictability 9. Signalling openness to investors and achieving deeper commitments |
Like any regional trade bloc that looks at being converted to a free trade area, it is imperative that gradual tariff elimination becomes a priority, although the modalities of such market access have not been decided yet. However, it may be rational analysis to forecast two modalities as follows:
| Modalities to cut tariffs |
| 1. This trade bloc may be looking at imposing ad valorem duties than more specific and complex duties as a way of simplifying tariffs. The latter kinds of duties are generally imposed by developed nations and developing nations in MFN trade. |
| 2. The Bloc may phase out of duties for free market access for most goods. Here, it would benefit to highlight how member countries have their economic interest intertwined with the trade bloc. |
Ø As a group TPP countries are the fourth largest goods and services export market of the United States.
Ø USA goods exports to the broader Asia-Pacific have grown over 25% in 2010 from 2009 and totalled to 61% of total US goods exports to the world. More specifically (based on 2009 figures):
· US exports of agricultural products to the region totalled $83 billion in 2010 and accounted for 72% of total US agricultural products to the world.
· Services sector accounted for $177 billion which is 37% of total US private services exports to the world.
· America’s small and medium-sized enterprises alone exported $171 billion to Asia-Pacific
Hence, economically this trade bloc serves the interest of developed nation like USA who is looking at promoting their exports in the wake of huge current account deficits, growing recession and record levels of unemployment. This trade bloc is viewed by USA as a way to boost economic growth.
Vietnam scores positively by being in a trade bloc that looks at greater investment. Being a country which heavily relies on foreign investment and external capital borrowing for their public enterprises restructuring, a free trade association with countries like USA and Australia is a boon.
Ø Minerals account for 60% of total merchandise exports exposing it to global commodity price fluctuations
Ø USA is the largest export market for Peru
While a slowdown in the USA economy may constrain exports; this may be offset by rising strong demand from Asia which is now a destination for around 30% of Peru’s export.
Also Peru’s non-restrictive regime and abundance of natural minerals make it an opportune investment destination. A majority of Australian companies with offices in Peru are engaged in mining activities. The list of Australian companies in Peru includes ALS Chemex, Pasminco Explorations, Rio Tinto, BHP Billiton, Burns Philp, Amcor Packaging, Orica and Downing Teal as well as a number of other companies involved in mining services. Australia is among Peru’s top 10 investors, accounted for largely by the BHP investment in the Antamina copper mine, Xstrata’s investment in Las Bambas and Tintaya mines and Rio Tinto’s mining project La Granja.
Enrolments of Peruvian students in Australian institutions continue to grow strongly. Peru is now Australia’s third largest source of international students participating strongly in Australia’s education sector.
Hence trade liberalization is a key goal that is pursued actively by the member countries either in terms of market access to goods and services or investment.
In the world trade, most of discussions are on based on reduction of tariff cuts. WTO has a great success in it. This is essential part of Globalisation.. It is widely observed that unnecessary differences in product regulations as the main impediments to greater trade and investment. Regulatory Incoherence appears when countries have different regulatory mechanism i.e. laws, governing structure, implementation body on particular product or service. Because of regulatory incoherence, USA suffers the most since it has the highest number of Intellectual Property Rights in the world; so it is more vocal about regulatory coherence.
Regulatory coherence is a concept that has been talked about for years, but really seemed to gain traction in the context of a high-level U.S.-EU dialogue begun in 2007 under the banner of the Transatlantic Economic Council. It says that the United States and the European Union recommitted themselves to a robust regulatory cooperation agenda, promising, among other things, “to remove unnecessary differences between regulations of participant nations to foster economic integration.”
Meanwhile, the pursuit of regulatory coherence as an international trade policy objective has migrated from the U.S.-EU relationship to other U.S. trade relationships, especially in recent times with TPP countries. So USA has focused on regulatory coherence in the context of the aforementioned TPP negotiation, and this has become a priority objective of U.S. business in the negotiation.
Ø For producers, If regulators in the consumer’s territory have a better understanding of how things are done in the supplier’s territory, they may exercise their discretion in ways that facilitate trade.
Ø Regulatory Coherence seems to be popping up everywhere. This has certain obvious advantages for proponents of greater USA initiative in the international trade policy arena. For nations, the pursuit of greater regulatory coherence may actually help to achieve its stated objective of promoting economic growth and increased employment.
Ø From a political standpoint, regulatory coherence is advantageous to the USA Executive Branch, because it is an objective that can be pursued without the need for implementing legislation. While the administration undoubtedly is consulting with the Congress on its negotiating objectives, it does not need to count votes to determine whether advancing a regulatory coherence agenda is viable from a domestic political standpoint.
Ø It is possible that even if this effort does not lead to a noticeable reduction or elimination of unnecessary regulatory divergences, it will help to head off costly and time-consuming dispute settlement proceedings. Through enhanced regulatory dialogue, one country may be able to persuade another to craft a regulation in a way that enhances consistency with trade agreement obligations; alternatively, the proponent of the regulation may be able to demonstrate that what appears to be inconsistent with trade agreement obligations is not really so.
The trade bloc also looks at generating meaningful employment opportunities by expanding business scope. This also includes convergence of regulations on pro- competitive business environment. This has to be coupled with regulatory convergence on green growth. It is here that one finds how the interest of countries like Vietnam is articulated.
For example, Vietnam is a chiefly exporting country that utilises the advantage of cheap labour that process imports and make them into finished products for export. Thus issues like protecting worker’s rights, labour standards and environment are areas that the TAPP would require to address.
The TAPP envisages small and medium sized enterprises to participate more actively in international trade such that these develop as multiple sources of employment generation. A mechanism is supposed to be created for coordinating capacity-building activities aimed at facilitating to trade and invest in the TPP region.
USA has officially acknowledged that it is looking at the TPP as a bloc which is compatible to USA companies that can operate more seamlessly, helping innovate.
A case at this point would be SKAI Ventures, a company that seek out new ideas and innovations with biomedical and bio defence applications to invest in, develop and market as a finished product. CBI polymers are one of its numerous holding companies. Recently, they have helped in the cleanup of the effects of the nuclear catastrophe in Japan after getting clearance of their product DeconGel from the US Department of Commerce. The US government recognised the importance of such businesses which are geared towards innovation. Such businesses need to be encouraged by streamlining and coordinating regulations. These will help innovative companies to introduce their products into new markets.
The nine countries have agreed to develop a single tariff schedule as well as common rules of origin which will make it easier for business to take advantage of the agreement, while taking into account the legitimate policy objectives of each country.
Regulatory and other non-tariff barriers increasingly are major hurdles that companies face in gaining access to foreign markets. Thus it is an important objective to work on improving regulatory practices through:
Ø eliminate unnecessary barriers
Ø reduce regional divergence in standards
Ø promote transparency
Ø Conduct regulatory processes in a more trade-facilitative manner
Ø Eliminate redundancies in testing and certification
Ø Promote cooperation on specific regulatory issues – eg. Many agricultural exporters among nine countries have agreed to include joint work and additional commitments on food safety, animal, and plant health issues of common concern that would build upon existing WTO sanitary and phytosanitory measures.
One of the major advantages that are being spoken of due to this agreement is with regard to the International Production Network realignment which might occur post implementation. The interesting part of the story is that China is being left out of this partnership. Currently China is deeply embedded in the International production networks in Asia. In fact, no network of supply chain in goods manufacturing can afford to miss china. The partnership will be keenly watched to see how this realignment turns out to be, if china is left out. However, at this point, it becomes prudent in this report, to discuss IPNs and their performance in PTAs to throw more light into what might unravel in future.
Twenty-first century trade is a much more complex phenomenon than trade prior to the early 1980s. This complexity is the result of the increased role of international production networks in the global economy, which are characterized by the unbundling of stages of production across borders. Increasingly, multinational firms are not only distributing manufacturing stages to decrease costs and exploit comparative advantages; they are also unbundling and outsourcing services work, primarily office tasks, making global production networks even more sophisticated and complex. These new forms of international trade require reconsideration and reconceptualization of preferential trade. Most of the PTA models assume that countries trade final goods and those producers are protection seekers for these goods. However, there might be some economic sectors, increasingly dependent on imported intermediate inputs that seek lower levels of protection to reduce their production costs. Some empirical evidence (discussed in next sub-heading in this report) suggests that when countries have a significant number of firms involved in production networks there is more pressure for unilateral trade liberalization.
For similar reasons, countries that form part of supply chains involving multiple nations might be more inclined to sign PTAs with their trading partners than to unilaterally liberalize. As various stages of production may take place in a number of different countries, the effects of trade barriers, such as tariffs or other non-tariff barriers, on the cost of a particular stage of production is proportional to the number of times the product crosses other national boundaries.
In addition, countries may sign PTAs in order to secure or “lock in” trading relationships, thus reinforcing their position as the main provider of intermediate inputs. Theoretical conclusions regarding the welfare effects of preferential trade liberalization also change with the presence of production networks. In fact, international production sharing can mitigate the trade-diversion effects of PTAs. The possibility of dividing up the production of final goods into various stages or components alters the calculation of trade creation and trade diversion and, although the outcome is still uncertain, it leaves room for welfare-reducing PTAs, that trade only in final goods, to become welfare improving PTAs, once members engage in trade of parts and components.
International production networks are not a new phenomenon, but their relevance is increasing in particular regions of the world, and their pattern and composition has changed over time. Initially, countries engaging in production sharing were mainly rich countries. From the mid-1980s, however, production networks between developed and developing countries started to increase.
At this point, it becomes important to question if there any link between the recent growth of production networks and the demand for deeper agreements? The theoretical and empirical literature on FDI and offshoring highlights that despite the benefits of exploiting factor price differences and new technological developments, there are additional costs of international fragmentation of production – from the managerial and logistic costs associated with monitoring and coordinating international production to learning about the laws and regulations that are required to do business in another country. These costs might be particularly high for developing nations which are part of North-South production networks, and that may lack the kind of sophisticated business laws and the product and labour regulations which rich countries use to consolidate their trade in intermediate goods. As production networks expand, they result in greater economic integration. Differences in legal systems and economic institutions among countries in such areas as product and services standards, intellectual property rights protection, investment protection, and access to dispute settlement mechanisms become more critical as a potential hindrance to production sharing. To keep the momentum of production networks going, countries increasingly needed to turn their attention to policies beyond tariff reduction.
A good example in this case would be The ASEAN Free Trade Area in 1992 which was only the start of the PTA process, like the TPP stands as of now. It was followed by services and intellectual property agreements in 1995, an investment agreement and dispute settlement mechanism in 1996, and a framework agreement on mutual recognition arrangements for standards in 1998. In sum, the trajectory followed by the ASEAN PTA process began with the regionalization of trade and production and culminated with the creation of formal regional rules and institutions to oversee a thriving and integrated regional economy.
While viewing the current TPP agreement today, one must keep in mind the above discussion on the improvement of production networks that would bring in competitive advantage to the participants. This would give a big fillip to the manufacturing sectors in the participating economies. Some studies that emphasize the role of having a ‘deep’ (a term picked up for this report from the World Trade Report 2011, WTO) agreement and the relation of it to the growth of IPNs are mentioned as an addendum below.
Standard elements of comparative advantage, such as variations in labour supply conditions, wages, or relative factor endowments, help explain not only the proliferation of North-South production networks but also the regionalization of such networks. Studies by Athukorala and Menon (2010) of East Asia, for example, show that even though wages in China; Hong Kong, China; the Republic of Korea; and Chinese Taipei have been rapidly approaching developed-country levels in recent years, wages in countries such as Malaysia, the Philippines, Thailand and Viet Nam remain lower than – or comparable to – wages in Mexico and countries on Europe’s periphery.
The role of distance is also important in explaining the regionalization of production networks. Several economists have pointed out that despite technological advancements, distance still matters and certain countries still suffer from geographic remoteness (Venables, 2001). In addition, there is evidence that geographical distance remains a key factor in determining international transport costs, especially shipping costs, and delivery time (Evans and Harrigan, 2005). Arguably, these types of costs are particularly relevant for production networks, where a good can cross borders several times in the various stages of production.
New geography models of economic agglomeration at the international level are also useful in explaining the regionalization of production sharing. Access to intermediate goods creates agglomeration of production, as firms gain from being close to customer and supplier firms. As more and more firms move to a certain region, they create a demand for suppliers of intermediate goods and services, reinforcing the off shoring attractiveness of that region for other firms in the industry and related fields. In addition, because production networks are formed around centres of economic activity, the distance between these production centres and the periphery matters.
Schatz and Venables (2000) show that major outward investors carry out much of their investment, which relies heavily on intermediate goods trade, close to home (the United States investing in Mexico; the EU in Central and Eastern Europe; Japan in Asia) and this trend captures an important share of FDI flows from developed to developing countries.
In the case of East Asia, Athukorala and Menon (2010) find that the region has benefited from a “first-mover” advantage in hosting assembly operations of multinational corporations. Established companies have attracted other key market players and, in turn, many have upgraded the technology employed by regional production networks and assigned greater global production responsibilities to local affiliates, reinforcing the agglomeration effects.
The development of a strong production network has to be coupled with efficient supply chain network in the form of sea-ways, established trade routes, state of the art-ports. The geographical composition of the TPP shows that all the countries are port countries. They host vibrant trade-flow due to their proximity to sea. Singapore has state of the art port infrastructure. Hence, in terms of supporting infrastructure too, this regional bloc is strategically formed.
The TPP has been envisaged by the leaders as a state of the art agreement. Therefore the TPP teams are keen on establishing structures and processes that account for emerging challenges. The scope of the agreement is not relegated to singular dimensions of diplomatic, strategic or economic goals only. The overall focus is to develop a precedent trade bloc that address wider development issues by harmonising conflicting and converging diplomatic, economic and strategic priorities of member countries. Trade and technology are the fundamental issues that lay the foundation for regulatory coherence on business and other social development parameters such as reduction of poverty, creation of sustainable employment, green business, and women participation in work force.
The TPP has embedded in itself the flexibility to include other economies from across the Asia pacific region. The TPP team is consulting with those that have expressed their willingness to join provided there is no ideological divergence with the goals and objectives laid down in the TPP agreement.
1. Asia-Pacific Trade and Investment Report 2011, United Nations Publication
2. Word Trade Report 2011, WTO Publication
3. Fighting Irrelevance: The rope of RTA in IPNs in Asia, UNESCAP, United Nations Publication
4. www.wikipedia.org
