Comparison between TPP and TAFTAs Commonalities - Assignment Example

A. The Trans Pacific Partnership Agreement (TPP) is a multilateral trade accord that is presently being negotiated among 12 countries, ly Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. TPP is poised to become a trade and investment agreement when ratified, with the objective of realizing a truly increased trade cooperation and integration in the Asia Pacific region. It is almost similar to the Transatlantic Free Trade Trade (TAFTA), particularly in its economic outlines. The following table comparing the proposed trading agreements summarizes the implications of TPP for its prospective members: Table 1: Comparison between TPP and TAFTA’s Commonalities TPP TAFTA Elimination common tarriffs yes yes Reduction of non-tarriff barriers yes yes The adoption of universal standards, procedures, guidelines and regulations, covering several industries yes yes In 2011, a joint statement was released wherein it was declared that TPP seeks to "establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges" (USTR 2011). The statement also cited that the agreement could become a model for other regional free trade accords particularly those oriented towards free trade, close linkages among economies, enhancement of competitiveness, job creation, consumer protection, improvement of living standards and poverty reduction (USTR). Several rounds of negotiations have already transpired. Aside from the traditional issues such as the economic integration elimination of trade restrictions, market access for goods and services, TPP covers a wide range of trade issues subject to the series of negotiations from among participating countries. Foremost of these are agricultural trade, investment, balance of trade as well as conflicts that arise out of TPP and other agreements that participating countries are committed to, among other issues. Agricultural issues could be country specific. For example, the United States and New Zealand hold a series of negotiations within TPP involving dairy products. The United States, particularly its National Milk Producers’ Federation (NMPF) wants to negotiate with New Zealand’s whose dairy cooperative Fonterra holds the monopoly for dairy product and the country. The issue, said Fergusson (2010, p. 10), is that by acting as a monopoly, Fonterra could exert pricing influence through cross-subsidization and other subsidized services resulting to an unfair advantage. The case is also true with respect to beef trade. The negotiations are exclusively between the US and New Zealand. There are also issues and topics that may involve several countries. For example, New Zealand, Brunei and Vietnam have to negotiate with the United States and the parties to its existing free trade agreements such as Chile, Singapore, Australia and Peru (Fergusson, p. 10). It is imperative for the agreement that political, regulatory and legal topics must be addressed. Take the case of Vietnam. All of the negotiating members have comparatively open trade policies but Vietnam remains a mixed economy wherein much of the economy is subject to governmental control (Martin 2010, p. 4). The issue is whether Vietnam’s membership is going to set the free trade objectives and economic integration back significantly over an extraordinarily high government intervention. The subject of negotiation in this area, wrote Martin, is that the country must open a sizable market to the integrated market in terms of exports and investments in addition to the institution of economic reforms (p. 4). In regulatory and legal areas, one must remember that the TPA agreement will not be enforced without the approval of national policy networks. It is still subject to the approval of political bodies in respective member countries. For example, in the US, the TPP must be approved by both Houses in the American Congress. This is issue is further complicated by existing legislations in member countries. There will be instances wherein TPP provisions could be incompatible with certain national laws. Once the TPP is signed, for example, the US need to amend several laws that would require the approval of both Houses of the US Congress, a far more complicated process that merely signing an international treaty. Addressing this dilemma would involve more negotiations, including the laborious process of amending statutes. There is another dimension to this area. TPP necessitates the introduction of trade and economic policies that are not present in member countries. This requirement might be a sore point for some members. For example, several negotiating members are part of the multilateral WTO Government Procurement Agreement. The United States is lobbying for the maintenance of a more liberalized procurement regime within this framework (Fergusson, p. 12). But there are countries such as New Zealand that are not party to the WTO accord and do not have the ideal procurement regime in place. The United States is negotiating with these participating countries, seeking compliance and achieving consensus in the issue. There are many other specific and equally important topics. There is the case of intellectual property rights. The United States is quite keen in making this issue a precondition for membership. It has focused, for example, on having participating members become signatories to the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty (Fergusson, p. 11). Other critical issues include the creation of institutions to make the system successful, environmental concerns, labor issues and other social and cultural topics that naturally emerge in the globalization phenomenon (Aggarwal and Govella, 2012, p. 198). B. If one turns to the academic literature, the consensus is that globalization is essentially all about the integration of economies, which could entail a process of transformation from among participating countries because of the radical increase not just in trade and investment but also of the mobility of people as well as rapid improvements in technology and decrease in the political, legal and social barriers (Harrison 2007, p. 35). This is the main thrust of the TPP. The current twelve members to the accord are involved in the series of negotiations leading to a framework and a model that would have each participating country liberalize domestic trade policies to accommodate the creation of a common market, the establishment of policies and global institutions. Members stand to benefit from the agreement on account of the fact that it could very well be the cornerstone of an Asia Pacific free trade zone. The reason for this is quite important. Consider: The TPP is - in most respects – aligned with other free trade models such as the ASEAN, APEC and the WTO. There is the objective of economic integration. The impact of TPP and its early iterations could be viewed as negligible while participating countries would do just fine without it. The United States, for example, could do away with the regional block because the integrated economy represents a very small percentage of the American trade with the entire Asia Pacific region (7%) and the world (2%) (Fergusson, p. 9). For a detailed breakdown see Table 2, which outlines an aspect of current American trade with potential TPP Partners. There is also the fact that most members already have very open trade flows. But the difference is this: there is a critical objective of establishing a model that is stricter and is designed to achieve a high quality and far more ambitious trading system. Dent and Dosch (2012) explained that it is set apart from among regional blocs and integrated markets because there is very little room for preferential arrangements that typify most trade accords. Take the case of the current tariffs imposed by TPP negotiating countries within the WTO framework (Table 3). The strong precondition of lowering or adopting common tariff could address the disparity depicted, paving the way for a freer and fairer agricultural trade. Table 2: The United States Merchandise Trade with TPP Negotiating Members (source: US International Trade Commission 2010) Trade with TPP Partners 2000 2008 2009 % change 2008-2009 Millions of Dollars US Exports 57,511 68,980 56,329 -18.2 US Imports 55,866 56,159 48,812 -13.1 Trade Balance 1,645 12,721 7,517 -40.9 Table 3: Agricultural Tarriff Lines in Potential TPP Negotiating partners Under the WTO Regime (source: Voon 2013, p. 109) Global Supply Chain Opportunities Now, with respect to the claim that globalization ushers in opportunities created by a new model of global supply chain, it is certainly valid and legitimate. According to Gardner (2004, p. 53), “globalization has forced countries and companies to become more efficient, creating the infrastructure and competitive advantage necessary to survive the early rounds of a brawl that will undoubtedly go beyond the last bell.” It is supposedly the best thing to happen to supply chain management in the past three decades or so. The globalized landscape transitioned business operations in such a way that they are no longer about suppliers anymore. They are about suppliers and customers that is why numerous opportunities emerge. Taking from Gardner’s book, one could see how globalization has increasingly pushed technology to its limits to serve its purposes. Organization in mad scramble for advantage in an opportunity-laden but highly competitive environment has developed sophisticated systems and models such as the computerization of production. This allowed the monitor, tracking, troubleshooting and documentation of each stage of the production process so that an organization is better able to operate demand-driven global operations. Through technology and the highly integrated global economy a company could source materials from India, assemble them in China, distribute goods through an American logistics service. Without tariffs and trade barriers, the cost of production is radically lessened. An excellent example is demand-driven supply networks (DDSNs). Here, IT is used to intensively to allow materials to be tracked throughout the production process. The data collected are then used by policymakers to develop new products or improve on existing ones. DDSNs are dramatically superior in terms of flexibility in the areas of manufacturing and distribution (AMR Research 2006, p.36). What is more important is that it allows organizations to effectively operate on a truly global scale, allowing for the achievement of streamlined processes and cost efficiency. Market Access Once some semblance of market integration is achieved, a free trade zone is set in place. Here, duty is eliminated, lowering the cost of goods, including its production. Bozyk (2012, p. 136) pointed out the process ultimately leads to a transformed structure of production in member countries due to the impact of the trade created and the trade diversion. He explained that the development effectively expands the export market for member countries, specifically contributing to an increased scope of production, reduced costs by unit and full benefits obtained from trade (p. 136). An excellent way to demonstrate the benefit of TPP in terms of market access for member economies involve a comparison between goods produced and sold in the free trade zone by member countries and non-member countries. For the former, goods are produced cheaper because of the elimination of taxes and other costs of production. For example, a multinational company producing an LED TV, could establish an assembly facility in Vietnam because of cheap labor and source raw materials and electrical components from as far as Mexico and the United States without worrying for cost because of tariffs are eliminated. The finished product could further be offered in lower price within the zone because its export in member countries would not incur further duties and taxes. As a result, the LED TV would be significantly cheaper than any product coming from, say, Germany. This provides competitive advantage for products produced by member countries and effectively marginalizes competing products from non-member countries because these will incur cost from import duty and other barriers to entry. This development could be analogous to increasing the cost of exclusion. Pizzuti and Franzini (2001, p. 252) explained that this is important because, globalization does not entail a uniform market. Countries have to navigate disadvantages to the uneven trading relationships brought about by a host of bilateral and multilateral trade agreements by forming trading blocs that guarantee selective market access for members. This is supposedly how countries navigate the extreme impact of trade liberalism. Expensive entry costs prevent the influx of just about any product within a trading zone such as those to be covered by the TPP agreement. An important dimension to this issue is how countries could trade with those countries that do not have existing bilateral agreements. Australia identified this as one of TPP’s main benefits (Australia DFAT 2014). Currently, it does not have any trade agreements with some of TPP’s negotiating members. Participation in the accord means immediate market entry and the enjoyment of the benefits from the rules of origin, which establishes the preferential treatment given as a trading partner. C. One of the controversial issues that are widely reported to paralyze ongoing TPP negotiations involves the extraordinary push for the agenda benefitting multinational companies. One of the proposals, for instance, is for these entities to have the power to challenge country laws in privately run international courts (RT 2013). This is reportedly being aggressively sponsored by the United States but being resented by many negotiating members. The primary reason for the reservations is the high degree of encroachment on national sovereignty, significantly undermining national interest in the process. The ability to challenge and, therefore, nullify national laws would, in effect, incapacitate countries over its domain. In the most extreme, it could hold all governments at the mercy of international juridical bodies and render the whole of its legal system useless. This is quite important because it could affect policies that concern public good. For example, MNCs could force countries to lower labor cost or abolish laws that protect their welfare if they are able to prove that it is inimical to their rights granted in the trade accord. These could lead to plummeting living standards for workers and the neglect for workers welfare such as in the area of safety and health. The same could be said with respect to the impact on the environment. Institutionalizing the status of MNCs according to the proposals being negotiated in the TPP agreement could put these entities in a better position to avoid following national environmental standards or to enforce environmental safeguards in their operations. There is also the case of intellectual property rights proposal, which is created to further reinforce the interest of MNCs, adversely affecting the interest of the consumers. A case in point is the initiative to grant pharmaceutical companies new intellectual property rights. Rossini and Kilic (2013) reported that the proposed provision being put forward violates international consensus on intellectual property and public health. This position is supported by a case analysis done by Correa (2004) who identified the US strategy to undermine several trade policies within the World Trade Organization that it does not agree to. The WTO has adopted the Trade Related Aspects of Intellectual Property Rights agreement, which establishes intellectual property rights standards that also protect the poor and developing countries from unilateral and adverse demands of rich countries and MNCs (Correa, 2004, p. 79). With TPP’s proposed IP regime, the US is proposing a higher level of IP protection. The new standards would grant pharmaceutical companies with monopoly over new drugs. Criticism is strong in this area because it would inevitably lead to higher prices of medicines, adversely affecting the capability of poorer countries to procure them for their people. The intellectual property rights proposal also involves stringent conventions that could trample individual rights - all to protect the profitability of multinational industries. Being party to TPP means that member countries must enact or nullify existing copyright laws. If approved, the provision entails the adoption of US DMCA Internet intermediaries copyright safe harbor regime, which could affect, for example, good legislations such Chile 2010 Copyright law (EFF). Online publisher, The Verge reported that the proposal is a stronger version of the much maligned Stop Online Piracy Act in the US. The report pointed out that it “would extend copyright to temporary copies of media, and others that place the burden of enforcement specifically on local ISPs, which critics say would further establish ISPs as a de facto copyright police. Other provisions would increase the software controls on consumer hardware” (Brandom 2013). What this means is that the Internet would be placed within a strict regulatory regime, abolishing internet freedom and compromising other rights such as user privacy in the process. Concerns about the increasing power granted to MNCs within the ongoing TPP negotiations are legitimate. There are strong evidences that demonstrate its adverse impact on national interest as well as consumer and human rights. Unfortunately, recent negotiations reveal many TPP provisions are favorable to these entities. This should not be the case if proponents want an agreement that is valid and acceptable. What is particularly aggravating is that the negotiations are undertaken under the veil of secrecy. It is quite dangerous because the accord promises to be a far more effective trading model that could swiftly achieve economic integration and convergence of policy. There is a great likelihood that MNCs could take the reins from national governments, which is not a good thing because the ultimate motivations for these entities are profit without regard for public good. There are so many ways to protect the interest of MNCs in global trade without granting them the power to challenge the very validity of national laws before international bodies. One could cite arbitration as an example. It is very important to address this issue so that the existence of the agreement would be valid and would be beneficial to all stakeholders involved. A school of thought that could address this dilemma on the part of negotiating countries concerns policy change. Would it be possible – once the accord is ratified and membership is ensured – for a country to revert back to old policies or institute new protectionist legislations particularly to counter the power of the MNCs. It is safe to say that this is being included in the current series of negotiations. But I believe that this must constitute an insignificant amount of attention because compliance is a given. Without it, the accord would be useless. Consider if a member renege on its tariff obligations. It would serve as a precedent or could trigger similar actions from other members, triggering endless tit for tat responses that would eventually undermine the accord. In addition, it has been established that TPP is a stronger accord than most trade frameworks such as the WTO with countries such as the US lobbying for far stricter guidelines and more ambitious trading framework. It is expected that a similar degree of discipline would be adopted in the development of mechanisms and systems that would ensure compliance. References Aggarwal, V and Govella, K 2012, Linking Trade and Security: Evolving Institutions and Strategies in Asia, Europe, and the United States. Berlin: Springer. AMR Research 2006, Supply Chain Saves the World. AMR Research. Australia Department of Foreign Affairs and Trade (DFAT). (2014). Agreement negotiations. DFAT. Available from: . [Accessed 15 March 2014]. Bozyk, P 2012, Globalization and the Transformation of Foreign Economic Policy. Burlington, VT: Ashgate Publishing. Brandom, R 2013, US patent moves are profoundly bad in leaked TPP treaty. The Verge. Available from: . [14 March 2014]. Correa, C 2004, Bilateralism in Intellectual Property: Defeating the WTO System for Access to Medicines. Journal of International Law, vol. 36, no. 1, 29. RT 2013, Deep divisions over TPP as US pressures to close controversial deal – WikiLeaks. RT. Available from: . [16 March 2014]. Dent, C and Dosch, J 2012, The Asia-Pacific, Regionalism and the Global System. Cheltenham: Edward Elgar Publishing. Electronic Frontier Foundation (EFF) n.d., Trans-Pacific Partnership Agreement. EFF. Available from: .[16 March 2014]. Fergusson, I 2010, Trans-Pacific Partnership Agreement. Wasington, D.C.: DIANE Publishing. Gardner, , D 2004, Supply Chain Vector: Methods for Linking the Execution of Global Business Models with Financial Performance. Boca Raton, FLA: J. Ross Publishing. Harrison, A 2007, Globalization and Poverty. Chicago: University of Chicago Press. Martin, M 2010, U.S.Vietnam Economic and Trade Relations: Issues for the 112th Congress. Washington, D.C.: DIANE Publishing. Office of the United States Trade Representative (USTR). (2011). Trans-Pacific Partnership Leaders Statement. USTR. Available from: . [15 March 2014]. Pizzuti, F and Franzini, M 2001, Globalization, Institutions and Social Cohesion. Berlin: Springer. Rossini, C and Kilic, B 2013, US push on intellectual property conflicts with international norms. Al Jazeera. Available from: . TPP Negotiations, R18/IP Group 2013, Secret TPP Treaty: Advanced Intellectual Property chapter for all 12 nations with negotiating positions. Wikileaks. Available from: . [14 March 2014]. US International Trade Commission 2010, The Year in Trade 2009, Operation of the Trade Agreements Program, 61st Report. Washington, D.C.: DIANE Publishing. Voon, T 2013, Trade Liberalisation and International Co-operation: A Legal Analysis of the Trans-Pacific Partnership Agreement. London: Edward Elgar Publishing. Read More