Economy

Controversial TPP is as Much About Trade as About Foreign Policy Goals

A container ship on the high seas

If the TPP is approved, it will signal the growth of a new type of mega-regional mercantilism in global trade politics – whose impact will be greater in the geopolitical arena rather than on actual trade.

The Trans-Pacific Partnership trade agreement, signed October 5 in Atlanta sets a new standard for trade agreements. The ‘mega-regional’ trade agreement is explicit in its foreign policy goals and employed ‘secretive’ negotiations that push the envelope on 21st century trade diplomacy. It attends to labor and environment standards, and addresses U.S. concerns about ‘currency manipulation,’ something its policymakers believe happens outside of their country’s borders.

The TPP encompasses 12 Asia-Pacific nations that account for 40 percent of world trade among 800 million people or 11 percent of the world’s population. The 12 members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The United States and Japan are two of the three largest trading nations in the world. The TPP explicitly excludes the third — China, which is also the biggest trading nation of the world in goods.

In the US the impetus for the TPP came from the lackadaisical support for multilateral trade agreements in general, and the concurrent rise of emerging powers such as Brazil, China, and India, which made it difficult for the US to win trade concessions in its favour at the World Trade Organisation. The failure of the July 2008 Geneva talks on the Doha Round seems to have been the tipping point to strike regional trade agreements outside the WTO. At that time, both India and the US blamed each other’s agricultural support policies for the failure in trade talks. As part of the G20 and later the G4, India had played a new and feisty role in trade negotiations. Meanwhile, China’s rise in world trade threatened both the existing advantages that the US, EU and Japan enjoyed in world trade negotiations where they could settle all trade deals among themselves and then ‘multi-lateralise’ them to others.

After 2008, the US and EU began to look elsewhere. The TPP resulted from five years of negotiations. Japan joined in 2013. It feared South Korea’s bilateral trade agreement with the US but shared America’s interest in excluding China.

Rocky path ahead

The path ahead for the TPP is rocky. It arrives with many controversies concerning the way it was negotiated, and it is unclear if it will be an exemplar for trade agreements to follow or represent the declining influence of US foreign policy and its previous support of multilateralism. Opposition leaders in Australia and Canada have sworn to disavow the agreement if they win in forthcoming elections. Democrat frontrunner Hilary Clinton lost no time in a populist turnaround to oppose the TPP – though she had called it the “gold standard” of trade agreements when she was Secretary of State.

Five features of the TPP are important for ascertaining its impact and future course:

  • The mega-regional ‘mercantilism’ of the TPP stands out. Mercantilism allows some nations to exploit trade in strategic ways while limiting the ability of other nations to do so. The TPP attempts this mercantilism through regional inclusion and exclusion of trade partners. China is excluded. So is South Korea. India does not figure anywhere. Trading nations to the East and North of Brazil – Chile, Colombia, Mexico, and Peru – are included, but Brazil is excluded. However, it is unclear how this type of mercantilism can help the bloc grow strategically. Thumbing one’s nose at emerging powers will not make their economic advantages go away. Putting up trade barriers is also not easy, especially as world trade moves toward being intra-firm rather than inter-national. Firms involved in the TPP nations also have global value chains in the nations that are excluded. Emerging markets have huge internal markets; TPP corporations cannot ignore them. Can 800 million consumers in TPP afford to exclude nearly the 3 billion in Brazil, China, and India?
  • The TPP is explicitly tied to foreign policy goals that follow from the mega-regional mercantilism. The deal seeks to counter-balance China. The fear of Beijing has broughttogether conservatives in Australia and progressives in the US. However, China has made noises about joining in the future. It is, therefore, unclear, how this deal will further US and other countries’ foreign policy aims.
  • The TPP features a new type of secretive diplomacy. Before the age of the Internet, most trade deals were de facto secret. They were struck among a cabal of great powers and news of the deals made the print and broadcast worlds slowly. Internet and social media made reaching trade deals difficult. The eminent scholar Hedley Bull had warned of the dangers of ‘loudspeaker diplomacy’ long before the age of the Internet. However, instead of involving civil society and citizens, the TPP excluded them and was negotiated behind closed doors – through which the largest corporations were of course admitted.

Secret negotiations revealed

Wikileaks and blogs have regularly reported on the secrecy of the negotiations, and released its texts, which may have undermined rather than boosted the cause of this trade deal. The grand announcement from the TPP on the Investor-State Dispute Settlement Mechanism has also stoked fears about the agreement being corporate-heavy and civil society-light. Trade is politics and must garner popular support. TPP’s secrecy did not allow for this legitimacy. Trade negotiators in the US, for example, found ways to inform their ‘domestic constituencies’ to keep them abreast of negotiation developments at the international level in the pre-Internet age. Secrecy and lack of communication with civil society sound counterintuitive to the participatory logic of the Internet era. But what we do know is the following:

  • The great powers gave a little and, as usual, received a lot in return in the TPP. The US-Australia trade negotiation concessions were widely reported. Australia opposed the US on the long time periods for patents on biologics (the new biologically produced pharmaceuticals), received further concessions in its sugar exports, and excluded its public-health oriented plain packaging requirements for cigarettes. Countries like India could use Australian diplomacy as a lesson to extract concessions from the US in the future. However, there may be something quite ‘Western’ about such trade deals. When Central and South American nations tried getting the types of concessions that Australia did in its bilateral with the US, they were not as successful. Meanwhile in return for concessions from other countries, Shinzo Abe’s Japan agreed to liberalise its rice and beef market, and the US agreed to reduce tariffs on cars but only over very long periods of time.
  • The TPP brings in new provisions on labor and environmental standards, and addresses currency manipulation. In the developing world, such provisions raise eyebrows as forms of protectionism to keep out its products in the name of protecting labor and the environment. Formal dispute settlement cases at the WTO and in other regional trade disputes have often weighed in favour of the developing world when these provisions were questioned. However, the TPP goes further in speaking to minimum wage requirements and issues such as human and labor trafficking. On currency manipulation, the US enjoyed the fallout from the privileged position of the dollar in the post-war world, but since then has thrown one hissy fit after another on first the yen and now the renminbi. The cognitive dissonance is as apparent to the world’s trade policy makers as their own sincerity is to US policy makers. Perhaps, a balanced and sincere approach to currency manipulation might be necessary.

The full details from the TPP are not yet known. The deal is not only the biggest deal since the Uruguay Round closed in 1994, but it is also the biggest of our Internet age. Its strategic, exclusionary, and corporate objectives make it controversial. Listen closely to the upcoming WTO ministerial in Nairobi to assess its first order impact on multilateral trade relations. The pace of the ongoing Transatlantic Trade and Investment Partnership (TTIP) agreement will be another indication.

If the TPP is approved, it will signal the growth of a new type of mega-regional mercantilism in global trade politics. If it dies, it will lie on the rubbish heap of other famous multilateral agreements such as the International Trade Organization that did not come into being after being signed in 1947 because popular politics stood in the way.

J.P. Singh is professor of global affairs at George Mason University. He is currently working on a book, Sweet Talk: Paternalism and Collective Action in North-South Trade Negotiations (Stanford University Press)

  • ashok759

    India should have strained every fibre of its diplomacy to be the lucky 13th member.