Trans-Pacific Partnership – has its momentum come?

The fifth round of negotiations on the Trans-Pacific Partnership (TPP) will be held in Santiago de Chile next week. This is the first, out of the five rounds scheduled for 2011, which are expected to produce a draft free trade agreement (FTA) among 9 out of 21 APEC countries (2006 original P4 countries - Singapore, New Zealand, Chile, and Brunei, plus the five newcomers - the United States, Australia, Peru, Vietnam, and  Malaysia). While the prospective TPP members are all in the APEC, it is not officially this grouping’s initiative. Even though since its inception in 1993 APEC has been more of a policy coordination forum than a free-trade aspiring grouping, TPP negotiators have been widely using this organizations experience for advancing the goal of regional economic integration.

The potential importance of such an agreement, which is seen as a stepping stone toward a Free Trade Agreement in Asia-Pacific (FTAAP), is obvious - the region already accounts for nearly 60% of global GDP and approximately half of international trade. Moreover, since 1990, Asia-Pacific has experienced a 300% increase in trade and 400% in global investment. Consequently, in a time of global economic volatility and widespread uncertainty, this region is a driving force of global economic growth.

Such a shift of global economic gravity towards the East has provoked a tension between two concepts of regional integration – on the one hand, the exclusive Asian one, embodied primarily in the ASEAN+ mechanisms, and, on the other hand, the Asia-Pacific one, associated with the APEC, but ever-increasingly identified with the TPP. The first concept of the “East Asian architecture” looks more attractive to those countries that, due to impressive economic performance, have gained increased self-confidence, while the proponents of the second approach are motivated by the fear of the rise of China and its potential hegemony, thus looking for an increased U.S. “counterbalancing” involvement in the region. The latter position has a strong ally in the Obama Administration, which views a solid TPP as a buffer to the rise of China as the dominant regional trade partner and the increasing prevalence of the intertwined intra-Asia trade arrangements (known as the "spaghetti bowl" or "noodle bowl") that exclude the United States.

Putting aside the geopolitical considerations, TPP, as the first multi-party FTA connecting Asia, the Pacific and the Americas, has three main economic goals: to expand trade across the region, negotiate the so-called “21^st century trade agreement”, and construct a track that would lead toward FTAAP. What is specific about this FTA is that it’s more ambitious - using the words of Mark Moore, the New Zealand’s ambassador to U.S., it is looking for the highest common denominator rather than the lowest. In the wake of the global economic crisis, such an approach, that would expand opportunities and support economic recovery, can only gain in importance, particularly having in mind its aim to entangle the aforementioned “spaghetti bowl” of the myriad of overlapping FTAs in the region, primarily by developing regulatory coherence that would eliminate unnecessary trade barriers. At the same time, the TPP has included the “21^st century issues” of transparency, environmental protection and conservation, labor standards, modern technologies, which adds to its specificity. Last but not least, since TPP’s core objective is to expand to all APEC countries, it should ensure to be strong to force any new member to be prepared to meet high standards, but at the same time to be a flexible, “living agreement”, that would be able to evolve and include new issues that would emerge in the future.

In order to successfully realize the abovementioned goals and address numerous challenges originating in great regional divergence, as well as to address the opposition challenge in some countries, which sees the agreement as a threat to their sovereignty (turning them into “pawns in a globalist corporate agenda”, particularly referring to the investor-state dispute clause allowing multinational companies to sue governments if they lose profits as a result of new regulations), the negotiating partners should fulfill a few requirements. First, transparency must be secured – it should be clear what the rules are, what standards are expected to be met, as well as how the negotiations should proceed. Second, openness and accessibility should be guaranteed – preconditions should be avoided, and when faced with the dilemma ‘purity of agreement vs. broader membership’ than it should be opted for the latter, given there are not significant deviations from broad consensus (the WTO Doha Round stalemate, caused to a great extent by a lack of a genuine interest should be instructive here). Such an agreement should be perceived as a part of solution to the current ailments that would bring the region closer together, and not as potentially divisive force. Finally, the link between the TPP and ultimate FTAAP should be maintained and regularly emphasized. In doing so, a constant incentive for countries that remain outside the core group to join would be given.

The TPP is a free trade agreement with at least two rare features: it is sophisticated, and it explicitly welcomes new members. At the first glance, till now, it represented a very modest advance in global trade liberalization. However, TPPs importance lies in its potential to trigger a seismic reconfiguration of Asian commercial alliances that could bring a variety of benefits from increased market size and access to easier FDI, further specialization, and technology transfer. It could also pose a barrier to rising protectionist sentiments that could endanger Asia’s trade and economic recovery. Having all this in mind, the question is not whether this agreement will be reached, but when it will take place. There is no official, credible deadline set, but is not difficult to guess that the most important negotiation partner, the United States, would strongly prefer to announce deal in November, when the U.S. is hosting the APEC summit in Hawai. Without a doubt, President Obama has a vested interest in making such an important announcement in his home state. By presenting the initial trade agreement of such vast potential to the rest of the APEC members he will clearly make a lasting legacy in the seminal area of international trade.

(Jovan Jovanovic/From the Epicenter)