Study Finds Many “Innovations” in the TPP

By Amrietha Nellan                    

This week, the Peterson Institute for International Economics followed-up their earlier report with the complete version of their analysis on the Trans-Pacific Partnership (TPP). The Peterson study, “Volume 2: Innovations in Trading Rules”, systematically evaluates the deal on key issues like the environment, labor, and dispute settlement concluding the TPP broadly improves the rules of trade leading to fairer more inclusive economic growth. Here are the major takeaways:  

Environment:

“The coverage of the environment chapter of the TPP is extensive; it is a substantial improvement over both the NAFTA and the KORUS FTA in terms of the breadth and depth of obligations and enforcement provisions.”

“Compared with the status quo, and the grudgingly slow progress on global initiatives to reduce air pollution and protect land and marine resources, the TPP agreement provides innovative and concrete results that should help constrain and mitigate key environmental problems.”

Access to Medicines:

“The impact of the TPP on drug prices and availability will be far more modest than the sweeping denunciations of its critics suggest, because it retains important safeguards to ensure access to lifesaving medicines, especially in poor countries.”

“For drugs that are still protected by patents, member states will retain a far-reaching ability to influence the prices at which these drugs are sold within their jurisdictions.”

“Given the differences in interests of the negotiating parties, this agreement represents a useful compromise.”

Labor:                        

“The bilateral plans negotiated alongside the TPP are a major innovative component, targeted to address the substandard labor conditions of most concern. Implementation of the mandated reforms would deliver significant improvements in Brunei, Malaysia, and Vietnam. The monitoring mechanisms attached to Vietnam’s plan in particular seem more proactive than past US efforts.”

“By nature, EPZs are strongly identified with trade and investment promotion and have long been scrutinized for working conditions and labor compliance issues… This TPP innovation refocuses attention on EPZ (economic processing zone) practices and, with an eye to the future, would apply to new TPP members with EPZs as the deal expands, e.g., Indonesia, the Philippines, and China.”        

“Although the TPP does not address all the concerns of labor rights advocates, it represents an important step forward… Overall, the labor provisions of US trade agreements have improved incrementally over time. Future agreements can be expected to build on the new TPP benchmark.”

Customs Rules:

“The Customs Administration and Trade Facilitation chapter is an important part of the TPP. It will reduce the time goods spend in transit and limit incentives for customs officials to use delays and paperwork to elicit bribes.”

“Removing or easing border procedures is especially important for developing countries, because border delays in these countries tend to limit trade more than tariffs.”

“Overall, the chapter is an important addition to the TPP agreement. If well implemented, it is very likely to do more to stimulate trade and strengthen supply chains than tariff reduction. It will also complement other aspects of the TPP, helping promote trade by SMEs, reduce corruption, and enhance development.     

Transparency and Anti-Corruption Rules:                

“The advantage of putting anticorruption in a trade agreement is that stronger penalties could apply for failure to adhere.”

“The North American Free Trade Agreement (NAFTA) has no such chapter, and the Korea-US free trade agreement included a related chapter entitled only “Transparency.” The TPP chapter thus represents a step forward. To make it more meaningful, future agreements will need to use the dispute settlement process embedded in the trade agreement to implement the rules.”

Small and Medium-Sized Enterprises:

“The costs of accessing a new market are so large that many small businesses never attempt to do so.”

“The transparency and cooperation proposed in the chapter are beneficial for all exporters and will address an important difficulty faced by SMEs.”

“In sum, the TPP provides many benefits to SMEs, but they come largely from chapters other than the chapter on SMEs. These firms will gain from the broader TPP agreement, which lowers tariffs, opens markets to service providers, and improves trade facilitation.”

Development, Cooperation, and Capacity Building:            

“The main feature of the two chapters is the creation of committees to promote cooperation and development and provide a framework for technical assistance. It is useful to have groups focused on maintaining cooperation and enhancing development, but the agreement provides no clear budgets or mandates for the committees, leaving capacity building “subject to the availability of resources”

Competitiveness, Business Facilitation, and Regulatory Coherence: 

“Regulatory coherence is an important issue in trade, because different regulations mean that producers may have to duplicate production because of specific requirements that cannot be met simultaneously… Encouraging countries to clearly state regulations and changes in the system is helpful for exporters that must meet those restrictions. The chapter in the TPP, however, is limited and not subject to dispute settlement.”

Digital Trade:            

“The digital revolution is creating international commercial opportunities in ways that conventional trade statistics fail to capture.”

“The TPP’s digital trade provisions seek to limit the ability of member states to restrict information and digital service flows across national borders.”

“A regime that maximizes the possibilities for commercial experimentation, competition, and new product development is likely to serve consumer interests in the long run. The TPP certainly pushes digital trade rules in that direction.”                                

“There is a potential conflict between the TPP’s strong stance against limitations on international data flows and the very different levels of consumer data privacy protection across countries in the Asia-Pacific region… In the long run, there may be ongoing pressure to harmonize consumer data privacy provisions across countries.”

Trade and Competition:                    

“Antitrust activities and collusive relationships between businesses in trading countries have effectively shut out access to markets by foreign competitors, frustrating the intent of trade negotiators.”

“Building on the provisions of existing free trade agreements, the most important contributions of the TPP, particularly from a stakeholder perspective, are the protections of procedural fairness in competition law enforcement in Article 16.2 and the new hard-law rules applicable to the behavior of SOEs.”                  

“The real story behind the TPP—and what makes it a true 21st century agreement—is the combination of hard- law and soft-law mechanisms to promote coherence and convergence around principles, rules, and procedures in critical regulatory areas, like competition. The model is pragmatic, flexible, and dynamic.”  

State-Owned Enterprises:

“The TPP commitments on SOEs aim to dramatically reduce the unfair advantages SOEs enjoy.”

“The groundbreaking commitments on transparency sets a new standard for agreements in the future.”

“These obligations should help level the playing field for firms competing with SOEs from TPP countries in, and outside, the TPP market, as subsidies to SOEs for goods that adversely affect firms from a TPP party, anywhere in the world, are also forbidden.”

“The clause limiting SOEs to commercial considerations is stronger than in previous agreements and will make violations easier to prosecute.”

Dispute Settlement:

“The TPP’s dispute settlement system is designed to be broader, deeper, faster, and more transparent than either the WTO’s Dispute Settlement Understanding or any prior bilateral or regional free trade agreement.”

“The biggest hurdle will be convincing the TPP parties to use the system rather than simply turning, perhaps out of habit, to the WTO.”                    

Exchange Rates:        

“The Joint Declaration of the Macroeconomic Policy Authorities of Trans-Pacific Partnership Countries, while not part of the TPP agreement itself or covered by its dispute settlement procedures, is an important step toward discouraging or even preventing countries participating in the pact from intervening in exchange markets to gain trade advantages through the manipulation of their currency values.”                         

“The commitments in the declaration, for example, are far-reaching in rejecting competitive devaluations and persistent exchange rate misalignments. In addition, the requirements for more transparency and public disclosure of data on exchange rate policies, including currency intervention, should make the “naming and shaming” of manipulators more effective.”