Trans-Pacific free Trade Deal Creates Partnership

It took over ten years to implement, but the biggest trade pact in two decades was finally signed, sealed and delivered Monday.

After five years of negotiations and talks, the Trans-Pacific Partnership (TPP), affecting a population of about 800 million and encompassing 40 percent of the world economy has been put into place and it is the largest trade deal the U.S. has negotiated since North American Free Trade Agreement (NAFTA) and the Uruguay Round were signed over twenty years ago.

It took over ten years to implement, but the biggest trade pact in two decades was finally signed, sealed and delivered Monday.

The dozen countries involved in the partnership across the Pacific Basin include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. China was not involved in the pact as it has not yet agreed to accept most of the standards laid down by TPP. Still Beijing looks forward to the potential growth it anticipates will be generated.

Atlanta Meeting

The Trans-Pacific Partnership Ministers met in Atlanta, Georgia October 1, 2015 and held extensive talks on the trade deal for several days till a final agreement was reached and signed on Saturday.

The TPP plan sets common standards of trade for the 12 Pacific Rim countries and includes the reduction or elimination of tariffs on almost 18,000 categories of goods, but these compensations will take years before they are felt and there are several hurdles to overcome before the plan can be implemented.

The agreement will have to be ratified by each of the individual member countries which may take several months to complete. In addition, tariffs will be lowered only progressively and market access increased gradually. Many analysts are seeing only the long term significance of the deal when and if it is passed by all the member countries’ governments.

The effect on most Pacific Rim nations will be increased GDP and this is expected to have a positive influence on all-around global growth and international currency markets. In addition, analysts see future effects on soft commodities, intellectual property and exportable services.

Another reason why this agreement is considered important is that it covers comprehensive trade areas not already dealt with by the World Trade Organization. The TPP in essence is seen as filling the gap between the WTO areas and other powerhouses such as Japan and an emerging Vietnam.

In fact, the main beneficiary of the TTP at the moment will be Japan, especially Japanese car and auto-parts makers as they will get cheaper access to the U.S., the industry’s biggest export market.

Vietnam will also be among the biggest winners with the agreement potentially boosting GDP by 11 percent by 2025, while exports grow 28 percent in the same period as companies move factories to the low-wage country.

In addition, the reduced import duties in the U.S. and Japan will benefit Vietnam’s apparel manufacturers and the elimination of import tax on shrimp, squid and tuna, now averaging 6.4%-7.2% will enhance the country’s fishing industry.

Pharmaceuticals

Reduced tariffs on everything from iron and steel products, to pharmaceuticals, machinery, paper and auto parts will help Australian manufacturers and New Zealand’s dairy industry, which accounts for about a quarter of the country’s exports, will see savings of about NZ$102 million a year.

The TTP deal will remove about A$9 billion of import taxes from Australian trade and the country will gain access to the U.S. sugar market while Japan will reduce levies on the product and the cut in the beef tariff will help Australian ranchers.

One of the reasons the implementation of TTP too so long to reach fruition was because of negotiations over how long pharmaceutical corporations should be allowed to keep a monopoly period on their drugs. In the end, Australia and New Zealand succeeded in putting pressure on the U.S. to compromise on the amount of time pharmaceutical companies would get protection for new biotech drugs, and companies now receive a minimum of five years rather than the 12 years of protection pushed by the U.S. The shortened time frame should result in cheaper drug prices and more competition.

U.S. Led Initiative

The TTP initiative was led by the U.S. and President Obama sees its enactment as a major victory. But not all members of the legislature are satisfied with the plan. Members of both houses of Congress see TTP as yet another move to strengthen Wall Street and major corporations and “will cost US jobs and hurt consumers.” Critics of the plan point to reduce environmental standards and increased drug prices.

According to on global economists, with many Democrats are opposed, as well as leading Republican presidential candidates, including Donald Trump and with presidential elections coming up next year, the TPP may well get blocked in Congress.

As with all things financial, only time will tell how things will work out.

Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.