Column: TPP lesson on political leadership

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Published: February 3, 2016 1:20:27 AM

The ability to carry along domestic constituencies is crucial for pulling off ambitious trade agreements.

The Trans-Pacific Partnership (TPP) will be signed in New Zealand on February 4, 2016. After all 12 members—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US—sign the agreement, it will be ratified by legislatures of each country. The members have decided to give themselves two years for ratification by their respective legislatures.

Ratifying the TPP is not going to be simple for all countries, most notably those where opposition to the controversial agreement remains vocal. US president Barack Obama has managed to obtain the fast-track TPA (Trade Promotion Authority) that empowers the US President to sign trade agreements after a ‘yes/no’ vote from the legislature. The political comfort of the TPA is in avoiding detailed and lengthy debates on the TPP. Most US lawmakers, despite their reservations on certain aspects of the TPP, might take stock of other benefits for the US from the agreement and eventually suggest ‘yes’. The Obama administration has not spared pains to highlight the geo-strategic implication of the TPP. It has been branded an effort to prevent China from writing trade rules in the Asia-Pacific. Apart from greater market access, domestic job creation and revival of ‘Made in USA’, the China factor should help the TPP to go through.

Some other TPP members might find the going tough at home. Australia is among these countries. There has been fierce resistance to the intellectual property provisions of the TPP in Australia. It was largely the resistance from Australia that made the data protection period for biologic drugs to be frozen at five years in the TPP, instead of the twelve years that was demanded by the pharma research and manufacturer lobbies in the US. Longer data protection period for biologics would delay the introduction of their generics having implications for drug prices for consumers. These implications are serious for Australia as it heavily subsidises drugs under the Pharmaceutical Benefit Scheme (PBS) for its citizens. Drug prices have also been riling Canadians, as have been the investor-state-dispute-settlement (ISDS) provisions, low domestic content requirement for automobiles and lowering tariffs on Canadian dairy imports. The going will not be entirely smooth in the Canadian Parliament as well.

Japan and Malaysia have witnessed large-scale protests on the TPP during its negotiations. Signing the TPP has been a calculated risk for Japanese prime minister Shinzo Abe and a symbol of his political capacities. The majority of the TPP’s later negotiations were bilateral issues thrashed out between the US and Japan. Japan’s biggest concern was over opening up its domestic farm sector to cheaper imports. Abe was able to ride over the objection of farmers by not eliminating tariffs but agreeing to phased-in reductions. He was also able to convince the political constituencies about the benefits of joining the TPP by securing concessions from the US and other TPP members on lowering tariffs on Japanese automobile exports. At the same time, domestic value added requirement content of 45% for automobiles in the TPP helped in convincing the automobile industry. The requirement implies auto assemblers from TPP countries need to add only 45% of the total value of their vehicles from material sourced from TPP members. The rest can be obtained from cheaper sources outside. While Japanese assemblers would benefit by sourcing from other Asian countries outside TPP (e.g. Thailand, China and Philippines), Canadian and Mexican auto part-makers might suffer. US auto assemblers now can source cheaper from non-TPP members by a greater extent as opposed to obtaining parts from Canada and Mexico.

Malaysia had witnessed large protests from the civil society on various issues of the TPP. The most serious of these were on the provisions for State-Owned Enterprises. The removal of preferences in government procurement and sales for these companies has implications for Malaysia’s large government-owned firms. There is also considerable discomfort on the implications of the TPP’s competition policy rules for discriminatory preferences maintained by Malaysia towards

bumiputras. While Malaysia does not need to get the TPP passed by its legislature, prime minister Najib Razak, sensing the political importance of ‘selling’ the TPP to all constituencies, has called for a special session of its Parliament for discussing the agreement.

Brunei, Chile, Peru, Singapore and New Zealand are not expected to face difficulties. These have been open and outward-oriented economies with extensive network of FTAs. They are also members (except Peru) of the original P4 group, which formed the Trans-Pacific Strategic Economic Partnership, and which subsequently expanded to become the TPP. Mexico, too, is unlikely to face much difficulty given that it had already adopted several TPP-like rules under the NAFTA and is part of the Pacific Alliance (Mexico, Chile, Peru, Columbia), another FTA aiming to liberalise deep and wide.

The TPP, while a done deal, is going to take time to become operational. Its experience shows the difficulty of achieving consensus across a broad set of issues among members and the challenge of convincing domestic constituencies about trade policy and trade agreements. Ultimately, political stewardship and ability to carry along domestic constituencies are probably the most important factors in pulling off ambitious trade agreements: a lesson important for India.

The author is senior research fellow and research lead (trade and economic policy) in the Institute of South Asian Studies in the National University of Singapore. E-mail: isasap@nus.edu.sg Views are personal

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