After more than five years of negotiations, Monday morning 12 countries announced the successful conclusion of the Trans-Pacific Partnership (TPP), a trade agreement that covers nearly 40 per cent of the global economy. This deal is a significant success for the Obama administration, with potentially profound geostrategic implications. The TPP has the potential to be one of the top two foreign policy successes of the Obama administration (along with the Iran nuclear deal) and could be one of his greatest legacies. Unfortunately, the signing is merely the first step –the US president is going to have a huge challenge in getting it through Congress.
Bringing together 12 countries in Asia and Latin America the deal focuses on tariff reductions in some extremely sensitive areas for many of the member states, such as automobiles and agriculture, as well as addressing a number of other trade issues ranging from wildlife conservation to intellectual property issues in the pharmaceutical arena. According to the Peterson Institute in Washington, DC, by 2025 the TPP could result in annual benefits of $295 billion globally.
But the economic benefits are only one upside of the deal. While it is by no means assured, there could also be a significant geostrategic impact. The TPP was not the only Asian trade agreement of choice. China, for example, had been supporting an alternative Regional Comprehensive Economic Partnership. But the 12 TPP participants – the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – sent a clear message regarding the kind of standards and rules they believe are best placed to provide the greatest benefit to their populations – from greater transparency and anticorruption to more free and open markets.
The TPP now sets the bar. If successful, in time other states will hopefully join including, most significantly, India, China and South Korea. But this will take time and the TPP has to prove itself first. Prospective member states will have to make extremely tough political choices in order to join and they and their populations will need to see meaningful tangible benefits first. But the door has been left open and if the TPP turns out to realize some of its potential, others could come knocking on the door.
Despite the rhetoric from some, the deal is not about excluding China. There are some who hope, some day, to see it join. But, at the same time, it could facilitate a diversification by many Asian states away from their current China-dependence (excepting Brunei, China is the number one importer for all the Asian TPP states and in the top three for their exports).
The deal also helps some leaders, most notably Japanese Prime Minister Shinzo Abe, to take some necessary, but politically difficult, domestic steps. Abe’s ‘three arrows’ include much-needed economic structural reform – the TPP will assist with this, providing an external impetus and a spoonful of sugar to go along with the tough medicine.
Finally, the deal is a small sign that Western (broadly defined) economic leadership has not disappeared entirely. While it has been clear for some time that the Bretton Woods institutions set up following the Second World War are no longer fit for purpose, little has been done to update them. The G20, set up following the 2008 recession, served its purpose for a while. The ability of 12 nations to come together on TPP is perhaps a sign that new rules and agreements in support of long-standing norms are still possible.
This is not to say that all elements of the deal are positive. As always there are winners and losers. In the US, many interest groups from tobacco companies to pharmaceuticals to unions are already pushing back. The standards or protections are, for many, not sufficient. And while more jobs might be created through trade, some people will lose theirs.
It is these groups that will make the passing of this deal in the United States (and elsewhere) so tough. Many legislatures will need to vote on this, including in the US. Congress will have 90 days to consider it (including 60 in which the text is public). This is going to move the Congressional debate well into 2016, an election year.
And this is where President Obama has a major challenge on his hands. Typically, free trade is something that the Republican Party can get behind. But, this close to an election, it will be very tough for any Republican to give President Obama such a big win. One would hope that the Democrats would support their president on something so important. But this is very sensitive issue for Democrats, who tend to reject trade bills as not providing sufficient protection for American labour. And as Hillary Clinton and others go out to court the Democratic vote in Middle America, they are going to be watched very closely for how they respond to this agreement.
This is going to be a very close call. It would be controversial at any time, but right now the sensitivities are heightened. On the other hand, approving this deal is vital to ensure the longevity of the current rules and standards which favour the West. And it is necessary to show that the West can continue to be effective. It is paramount that the TPP pass.
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