This article was originally published in a condensed version by Lloyd's List
In the film, "Anchorman", Ron Burgundy tries to impress new journalist Veronica Corningstone by uttering the classic line that "I'm kind of a big deal", as a shorthand way of explaining his status in the city of San Diego. In a similar way, given the absence of a completed text, the announcements regarding completion of negotiations on the Trans Pacific Partnership Agreement (TPP) have focussed on to the size of the deal and "big picture" outcomes. At this stage it is difficult to give a comprehensive assessment of the TPP, let alone when it may come into effect (if at all). However, even in the absence of the express details of the TPP, there is still enough available on the public record to provide some commentary.
A personal view
At the outset I will readily admit (as I have in the media) my view that the TPP is, on balance a good thing and that there is nothing intrinsically evil to the TPP such as has been claimed in many forums. Any deal involving 12 nations such as those in the TPP is an extraordinary achievement. As with any deal involving so many sovereign nations there are compromises and there are areas where the "major" nations have been able to preserve a degree of their usual protectionist policies. That said, the deal is ambitious in setting a framework for the major regional deal which could increase in size in the near future and which, together with the RCEP (including China and India as well as Australia) could bolt together into a massive agreement across the whole Asia – Pacific region.
I know that many suggest that the deal merely enshrines major commercial interests and entails an unacceptable relinquishment of sovereign and individual rights. While I can empathise with those concerns and respect the assessment that our FTAs have yet to deliver anticipated benefits, I see nothing which suggests that our FTAs have had the alleged calamitous effect or that our Government has acted other than in the perceived national interest. These FTAs need to be seen in a much longer term view as setting the scene for an improved economic outcome for the majority.
I also know that many respond to FTAs with the same mantra as to "it could have been better" and "some industries missed out", "there should be more socially responsible outcomes" and "there will be more foreign investment". Of course, in the abstract all of those comments are correct but I believe you need to look at the broader, holistic outcomes and recognise that we live in a "second best world" where nothing is perfect and you do the best deal that can be done and which can actually be completed. A "perfect" FTA is the "unicorn" of trade negotiations – wonderful and delicious but mythical. Ultimately, Australia has a limited and mature economy so that growth needs to look overseas to world markets which involve compromise and the best chance to advance interests is through initiatives such as FTAs. Further, not only do FTAs deliver economic and trade benefits, but they also set aspirational targets and "turn heads" to the opportunities created in affected markets as well as creating competitive tensions to those not included in the FTA.
The big picture
There are 12 nations who are parties to the TPP being Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. These countries represent 11.2 per cent of the world’s population, around 40 per cent of the global economy, 25.5 per cent of total world trade, and approximately 70 per cent of Australia's trade flows through the Asia-Pacific region. According to the DFAT, Australia's exports of goods and services to these countries were worth $109 Billion last year, being a third of Australia's total exports while Australian investment in these countries was 45% of all outward investment. Further, five of the countries were among Australia's top 10 trading partners for goods and services in 2013-14.
Australia already has FTAs with a number of those countries but the TPP will improve the outcomes from those FTAs. Importantly the TPP now provides for new trade deals with Peru and Mexico with whom Australia has not previously had FTAs and replaces an older, little - known and very limited Trade Agreement with Canada.
There is no need to provide details here on the reported commercial outcomes of the TPP. Those can be readily found on those sections of the DFAT website click here to read.
The worthwhile but "not so obvious" outcomes
There is an argument that while the TPP may not deliver immediate massive gains in market access, it does set an excellent framework for future developments as well as including some novel and worthwhile inclusions. The latter could be seen as the "not so obvious" outcomes and are worthy of separate notice.
- Australia appears to have held the line on its commitment on the period of intellectual property protection on "biologics" despite significant pressure from the US. Assurances from the Trade Minister are to the effect that it will mean no additional costs to our PBS.
- The TPP includes ground – breaking new Chapters on "State Owned Enterprises" (SOEs) and "Small and Medium Sized Enterprises" (SMEs). In relation to SOEs (and similar entities), the TPP reportedly contains provisions requiring parties to the TPP to take steps to protect against the undue and anti – competitive influences of SOEs. The SME provisions reportedly including outcomes which help make the task of SMEs easier in the TPP region (including in Government procurement markets). In both cases, it appears to be the first time that an FTA explicitly recognising the significance of these issues. It will be interesting as to whether such provisions may then appear in the RCEP.
- The TPP is claimed to include provisions which assist Global Value Chains (GVCs) in the region. A GVC is a combination of "interlinked" stages of production and manufacture of goods and services across many countries so that countries may take advantage in their areas of comparative advantage which assists growth, wages and incomes. According to the DFAT release on the topic the TPP establishes one set of rules between the 12 TPP countries and others that may join the TPP including one set of Rules of Origin and one set of documentation required to claim preference under TPP (which may not include Certificates of Origin). DFAT describes it as "the most significant harmonisation of trade rules since the WTO Uruguay Round over 20 years ago". In one example, wine producers will only need one type of labelling across TPP nations.
- The TPP includes Chapters on both "environment" and "labour" which are not always in FTAs as they are not seen as being part of a "trade" agreement. However the presence of such provisions in the TPP are admirable. The "labour" provisions reportedly seek to preserve the rights of workers according to international standards and prohibit slavery and exploitation of children and others. The "environment" provisions recognise the need to eliminate trade in "illegally logged" wood (as we do already) and to encourage sustainable farming and fishing practices.
- The TPP will assist in the ability of service providers to provide their services across the whole region. By way of example, for Australia, this will allow Australian services in mining and agriculture to be provided into those parts of the region where they do not currently provide such services but where they are needed (such as in Mexico). The benefits to service providers in other countries could also be significant. In an article on its "Trade and Investment Watch" blog (Read here) the renowned and objective Peterson Institute outlined the massive benefits for US service firms under the TPP and its rationale equally applies to service providers in other TPP countries, even if the scope of the benefits may be different.
But there's an ISDS!
Yes, yes there is. Again that is not an outcome which is inconsistent to other FTAs or other Agreements. There has been much said about the prospects of actions by companies against Governments under such provisions but that also works in favour of our exporters. We have also yet to see the promised disastrous outcomes as much of the litigation has yet to be completed. Reportedly the interests of the tobacco industry have been excluded which could set the scene for exclusions of rights from other legal industries still seen as objectionable. Plus, if properly drafted and considered an ISDS provision also encourages investment by traders. We'd best wait to see the text on this one.
The text boss, the text!
Yes, it has yet to be provided. No great surprise there. It was being actively negotiated until just before the announcement so it is probably not in any shape to be circulated. Imagine a lot of completed text with hand – written amendments and probably some emoticons. They do take a while to be completed, translated and checked. US sources suggest release later this month or early November. I hope so and I hope it won't take as long as it took to have the ChAFTA text released. I don't subscribe to the view that the withholding of text earlier in negotiations was sinister – I don’t think it would help understanding to provide a draft text and it would probably have sent the grammar and spelling nerds into an unhappy debate.
Will it upset China?
I would doubt it – it has hardly been a "stealth" project by TPP nations and has been in the public domain for years. China is still cutting its teeth on FTAs and related trade deals and the TPP may well encourage more initiatives by China on its own, with ASEAN and with progress in the RCEP negotiations.
For us, it's all about the US – right?
No – we really need to get over this US – obsession! From an Australian perspective there has been an understandable focus on US concessions as this is the first opportunity to engage on trade since the commencement of the AUSFTA some years ago. From that perspective, the TPP has not delivered a massive set of market access outcomes although it has delivered on some sore points. For example, sugar exporters wanted more than was granted but it is worth noting that what has been granted is twice what is currently on offer to our exporters and is equal to the deal afforded by the US to Brazil, the world's biggest sugar exporter. However, it does need to be remembered that the TPP includes countries with which Australia already has FTAs and those countries have improved the outcomes provided under those FTAs. One good example is in our trade with Japan under JAEPA. That deal is already excellent and only came into effect earlier this year but the TPP already includes further improvement in those JAEPA outcomes. This is an important reminder – all new FTAs must (and will) improve the position status quo otherwise there is no point in the new FTAs!
When will it start?
Good question and it does involve some crystal ball work. Securing domestic approval in all 12 nations will not be easy and the press from the US suggests that the TPP may become an election issue and passage through Congress may not be easy. It does not seem to be popular in NZ and there are certainly many interests against it here. There is a provision which says that if all approvals are not secured in 2 years from signing then it would come into effect in nations which have approved the deal, when nations representing 85% of the GDP in the TPP have approved the deal. That puts lots of focus on the US, Canada and Mexico. Which is not to say that other nations may not join and South Korea is reportedly keen to join.
Was it worth it?
Apologies but I have yet to install the "Nostradamus" App on my phone. The benefits will take some time to be established and yet not all of them will be able to be measured. However, as indicated at the outset, I believe that the reported outcomes are more than worthy and the "not so obvious" outcomes add to that assessment. It also needs to be remembered that this is only the starting point (call it TPP1.0). Having set the framework I think that the best may yet to be concluded. Ultimately, I think that everyone's interests are best served by countries working collaboratively not only to improve their economic performance and the interests of their populations, but also on measures to reduce the adverse aspects of economic development. In my view, the TPP provides for many of these aims and sets a framework for further improvements.