October 12, 2015    5 minute read

The Biggest Free Trade Deal of the Decade

   October 12, 2015    5 minute read

The Biggest Free Trade Deal of the Decade

More than five years of negotiations for one of the biggest and historic trade deals. Even if these countries represent a bit more than 10% of the global population, the deal encompasses countries that account for 40% of the global economy. Twelve countries are participating in the agreement: Japan, Canada, Vietnam, Singapore, Brunei, New Zealand, Chile, United States, Australia, Peru, Malaysia, and Mexico. For the first time in history, the United States and Japan, which are respectively the 1st and the 3rd largest global powers are sealing a bilateral trade agreement. This trade deal aims to liberalise commerce across countries around the Pacific. More than 18,000 taxes on American products will be reduced to zero. Many industries are involved ranging from farmers to drugmakers. Moreover, it will set minimum standards, such as introducing a minimum wage. Before the agreement takes effect, it must be signed and ratified by lawmakers in each country. The United States seems to be a winner in this trade. Yet, it is in this country where there are the most criticisms.

Obama still needs to convince

It is currently impossible to criticise this agreement because the full implications are not yet known. This agreement has been negotiated in total secrecy. Indeed, it is easier for negotiators for each country to make concessions without being pilloried at home. One of argument used by opponents is precisely about this lack of transparency. One of the most sensitive issue concerns years of data exclusivity for drug-maker. Currently, US drugmakers have twelve years before a competitor can copy a drug. Opponents argue it should be the shortest possible period in order to lower prices for people in poorer countries whereas the pharmaceutical industry explains they need this long period to see return on investments. A compromise seems to have been found between five and eight years.

Even if the Republican Party generally supports free trade, it is divided on benefits of this agreement. Obviously, Donald Trump attacked it and describing as “an attack on America’s business”. But surprisingly, criticisms are also coming from the Democrat’s camp, estimating this deal will cut manufacturing jobs. After having taken several days of reflection, even Hillary Clinton said she was not in favour of this trade agreement. Fortunately for Barack Obama, Congress agreed to “fast track” the agreement. It means having only one final vote (yes or no) and avoids to constantly re-negotiating. Thus, the Congress will be able to ratify or reject but not amend it.

US vs China, power and influence

Economically speaking, the biggest winner is Japan and notably its automotive sector with firms such as Toyota. In fact, they would benefit from getting cheaper access to the US, which is its biggest export market. However, tariffs are not the most important. The interest for United States in this agreement is more about geopolitics than economics. Indeed, China is not present in this agreement. The goal of United States is to pursue its commitment to this region in order to get ahead of China. Obama clearly said in a statement,

“we can’t let countries like China write the rules of the global economy”

Furthermore, the timing is perfect as the world learnsof  China’s economic woes. But does China really care about TPP? In fact, maybe not. The Chinese state-run Global Times said, “we have nothing to be insecure about”. The response is pretty clear too. Beijing has already free trade agreements with more than half of the TPP countries and worked for a long time about promoting regional economic integration. Not being a member of TPP will not change so easily its already sizeable influence in this region.

Another trade is being negotiated: TTIP

The United States is looking towards liberalising trade all over the world. After the Pacific zone, Barack Obama can now focus on another important trade deal: the Transatlantic Trade and Investment Partnership (TTIP). Negotiations have started between United States and the Europe Union since July 2013. Once again, the goal is to reduce tariffs but also to align regulations between countries concerned. But this time, secret negotiations around this agreement could be much more problematic in Europe than in Asia. Unlike TTP, there is a huge opposition to avoid this free trade deal. There are also fears about lower standards concerning employment, environmental or privacy. One of the best-known protest concerns chlorine-washed chickens and hormone-treated meat would be brought from United Stated into the European Union if the agreement is ratified. A petition demanding the end of TTIP has already reached three million signatures whereas Wikileaks has raised more than $100,000 in order to reward to anyone that can give information on this deal! Lastly, between 100,000 and 250,000 people marched in Berlin on Saturday to protest again this agreement. The eleventh round of negotiations will take place in Miami from October 19th to October 23rd. We shall have to wait and see as to the directions such negotiations take.

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