Trans-Pacific Partnership (TPP) Objective, Functions, Features, Membership, Shareholding, Criticism

The Trans-Pacific Partnership (TPP), also called the Trans-Pacific Partnership Agreement, was a proposed trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States signed on 4 February 2016. After the newly elected US president Donald Trump withdrew the US signature from TPP in January 2017, the agreement could not be ratified as required and did not enter into force. The remaining countries negotiated a new trade agreement called Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which incorporates most of the provisions of the TPP and which entered into force on 30 December 2018.

The TPP began as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) signed by Brunei, Chile, New Zealand and Singapore in 2005. Beginning in 2008, additional countries joined the discussion for a broader agreement: Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam, bringing the negotiating countries to twelve. In January 2017, the United States withdrew from the agreement. The other 11 TPP countries agreed in May 2017 to revive it and reached agreement in January 2018. In March 2018, the 11 countries signed the revised version of the agreement, called Comprehensive and Progressive Agreement for Trans-Pacific Partnership. After ratification by six of them (Australia, Canada, Japan, Mexico, New Zealand and Singapore), the agreement came into force for those countries on 30 December 2018.

The original TPP contained measures to lower both non-tariff and tariff barriers to trade, and establish an investor-state dispute settlement (ISDS) mechanism. The U.S. International Trade Commission, the Peterson Institute for International Economics, the World Bank and the Office of the Chief Economist at Global Affairs Canada found the final agreement would, if ratified, lead to net positive economic outcomes for all signatories, while an analysis using an alternative methodology by two Tufts University economists found the agreement would adversely affect the signatories. Many observers have argued the trade deal would have served a geopolitical purpose, namely to reduce the signatories’ dependence on Chinese trade and bring the signatories closer to the United States.

TPP Pros

The original TPP would have boosted U.S. exports and economic growth. This would have created more jobs and prosperity for the 12 countries involved. It would have increased exports by $305 billion per year by 2025.13 U.S. exports would increase by $123.5 billion. It would benefit the machinery, auto, plastics, and agriculture industries.

It would have increased exports by removing 18,000 tariffs placed on U.S. exports to the other countries. The United States has already withdrawn 80% of these tariffs on imports.14 The TPP would have evened the playing field.

The agreement would have added $223 billion a year to incomes of workers in all the countries, with $77 billion going to U.S. workers.

In 2017, the estimated trade value among all countries was $1.1 trillion.16 It would have been smaller than the TTIP.17 That’s the other large regional trade agreement being negotiated. It’s between the United States and the European Union. Talks went into limbo when Trump took office.18

Notably, the TPP excluded China. That was deliberate. It was meant to balance the trade dominance of both China and India in East Asia. The TPP would have given the United States an excuse to intervene in trade disputes in the oil-rich South China Sea. China has been beefing up its military to back its incursions in that area.

TPP Cons

Most of the gains in income would have gone to workers making more than $87,000 a year.19 Free trade agreements contribute to income inequality in high-wage countries. They promote cheaper goods from low-wage countries.

This would have been particularly true for the TPP because it protected patents and copyrights. Higher-paid owners of intellectual property would have received more of the income gains.

The agreement regarding patents would have reduced the availability of cheap generics. That could have raised the cost of many drugs. Competitive business pressures would have reduced the incentives in Asia to protect the environment. Last but not least, the trade agreement could have superseded financial regulations.

Membership

Twelve countries participated in negotiations for the TPP: the four parties to the 2005 Trans-Pacific Strategic Economic Partnership Agreement and eight additional countries. All twelve signed the TPP on 4 February 2016. The agreement would have entered into force after ratification by all signatories, if this had occurred within two years.

If the agreement had not been ratified by all before 4 February 2018, it would have entered into force after ratification by at least 6 states which together have a GDP of more than 85% of the GDP of all signatories. The withdrawal of the United States from the agreement in January 2017 effectively ended any prospect of the agreement entering into force. In response the remaining parties successfully negotiated a new version of the agreement that lacked the 85% GDP threshold, the CPTPP, which entered into force in December 2018.