TPP – The pros and cons of a treaty - October 25, 2015

TPP – The pros and cons of a treaty

After 5 years of negations, Japan, the United States of America and 10 other countries signed the treaty of Trans-Pacific Partnership (TPP). This is the largest economic (trade and investment) agreement of human history: the TPP – if local legislations ratify it– can affect 40 percent of the global GDP.

Among other things, the TPP involves the elimination of most trade barriers, the creation of common standards in several industries, and it will affect the labour and environmental protection laws.

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The TPP already has a great number of members, but neither China, nor South-Korea signed the pact. China probably decided against the treaty because of the strict labour and environmental rulings of the partnership that all the members have to accept perfectly.

Winners of the pact

Now it seems that all the member states will profit from the partnership. According to the analysis of Credit Suisse, Vietnam’s GDP for example can achieve a 10% growth because of the pact. The main reason for this is that there was a 17% customs duty on Vietnam’s giant footwear and apparel export in the US. If the Partnership puts an end to these tariffs, billions of dollars can stay in Vietnam. What’s more, the treaty can bring investments to Vietnam, which can help local banks, producers of consumer goods and the construction industry as well.

Malaysia can profit too since the country has no trade agreement with the US, Canada, Mexico or Peru. Thanks to the TPP, the already blooming industry of Malaysia can access the biggest economies of the world.

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Source: FT.com
The biggest winner however might be the US, which has a leading rule in creating and forming the trade regulations.

It’s also important to mention that members will have to wait a long time for some rulings to come into effect,. For example, US gave itself 30 years to change the import and related tariffs’ rules for cars from other countries.

Not that free-trade?

Before we analyse the treaty more in details, we must know that the partnership must be ratified by the partner states. This might not only be a long procedure, but also a complicated one, since several countries are against the TPP.

There are some reasons for protesting. The partnership might be one of the most important treaty of history, but it will not bring perfect free-trade for the members. The treaty is mostly about the handling of trading and investing relations of the members, and it is not doing it independently. It is obvious from the negotiations that the world’s biggest corporations were lobbying, and they were consulted with the details of the agreement.

As Josep Stiglitz and Adam Hersh put it, the TPP would restrain open competition in several industries, and would also raise prices in the US and worldwide as well. This would be the absolute disregard of free-trade – they believe.

Due to the TPP, pharmaceuticals would expand their monopolies for patented drugs, which would basically ban cheaper generics in member states. This would also stop the competition to create biosimilar medication.

In addition, the negotiations weren’t public, and there are still several details of the TPP that we don’t know of, like the regulations for the tobacco industry.

Partnerships are the future?

Even though there are some cons in this case, Credit Suisse Research Institute concluded that similar agreements and pacts might mean the future. As researchers believe, instead of deglobalization or total globalization, the world will probably be “built” around several poles and regional centres. China’s Asian Infrastructure Investment Bank (AIIB) might be a sign of the rightness of this theory.

What’s more, according to several analyses, the TPP already put some pressure on the European Union to continue negotiations with the US about Transatlantic Trade and Investment Partnership (TTIP). Still, according to an independent study, the automotive regulations, for example, might lead to problems. In the EU, the safety regulations are a lot stricter, and European cars tend to be safer when crashing from the side or from the front. This is important, since from the US’s point of view, one of the main reasons of TTIP is to make exporting cars to the EU easier, but with weaker safety regulations, they might face serious protests. (To be fair, the EU wants to make the exporting to the US easier as well.)

There are more and more signs of a forming European-Chinese partnership too. In the meantime, the EU probably doesn’t want to join the TPP, since there are already negotiations about the TTIP, plus there are several details of that treaty from the US side but are unacceptable for the European leaders.