Recently, in June of 2015, President Obama signed the Trade Promotion Authority (TPA) into law. Also known as “fast track authority,” TPA gives the President the ability to negotiate a trade deal that will receive only an up-or-down vote in Congress. The authority Congress is granting to President Obama gives him the leverage he needs to try to finish negotiations on the Trans-Pacific Partnership (TPP) with the eleven other Pacific Rim nations that represent 40 percent of the world’s GDP.
While TPA has given negotiators a renewed sense of optimism, final hurdles towards enactment of the TPP have been revealed and returned a sense of nervousness to negotiations. The latest round of formal negotiations concluded July 31 in Maui without a final agreement being reached. The outstanding issues mainly involve some of the larger nations. First, the United States is reported to be the sole holdout on a pharmaceutical patent protection agreement that it believes hurts American pharmaceutical companies. New Zealand, the world’s largest exporter of milk, is reportedly insisting on a more open dairy market between the countries. Similarly, Australia is rumored to be holding out for freer sugar trade, a policy the U.S. and its strong sugar lobby are against. Lastly, Japan and the United States have reportedly failed to agree on the rules of origin for cars, which determine when a product is designated as coming from within the free trade area, and therefore not subject to duties.
Last month, former-U.S. Trade Representative Ron Kirk told CNBC that “almost 90 percent of the vast Pacific free-trade agreement had been negotiated . . . leaving the talks in the difficult, final stages of a marathon.” Some negotiators remain optimistic, such as U.S. Secretary of State John Kerry who said he expects the TPP to be signed by the end of 2015. However, others are less optimistic, citing upcoming major elections in Canada in 2015 and Japan, followed by the U.S. in 2016. They argue that the elections will cause the country’s negotiators to dig in on issues important to their voters and will refuse to compromise. Plans for future negotiations have not been made yet, causing many to speculate that the final negotiations may still labor on for several more years.
If negotiations are ultimately successful and TPP becomes law, it will have a tremendous impact on U.S. trade. As a group, these countries are the largest goods and service export market of the United States. U.S. goods exports to TPP countries totaled $698 billion in 2013 representing 44 percent of total U.S. exports.
The TPP is a very progressive agreement, as it would provide protections for children against forced labor, and would create a free and open internet. In addition, TPP will offer protection to consumers from fraud and deception, and will require comprehensive anti-corruption and transparency measures. In regard to trade barriers, the TPP is working to negotiate comprehensive and preferential access across an expansive duty-free trading region for industrial goods, food and agriculture products, and textiles, which will allow exporters to develop and expand their participation in the value chains of the fastest-growing economies in the world. Specifically, the TPP seeks to eliminate tariffs in order to create a commercially-meaningful market access for U.S. products exported to TPP countries. Similar to NAFTA, it would address longstanding non-tariff barriers, including import licensing requirements and other restrictions.
In short, the overall economic impact of the potential TPP agreement will likely depend on a number of factors, including the extent of trade liberalization achieved in the agreement, as well as the current level and potential growth of trade and investment among TPP members. However, if the negotiating countries can come to an agreement on the several final issues, the TPP has the potential to become the largest and most progressive U.S. FTA.
By: Adrienne Braumiller, Partner
