How might it affect our economy & Pacific Rim trade?
Twelve nations have negotiated a major Asia-Pacific trade agreement…
The U.S., Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam are now allied in the Trans-Pacific Partnership, which must be approved by Congress and the legislatures of the other 11 countries. 1
Together, these 12 nations account for about 40% of the world’s economy.
The TPP establishes common trade standards and trade tariffs for all of these countries, and it has many critics as well as advocates. 1
If ratified by the 12 nations, the deal would reduce or remove 18,000 tariffs. It could also notably strengthen the trade relationships between America and Japan, Canada, Mexico, and Vietnam. 2
Some industries could really benefit from ratification of the TPP.
American automakers would no longer have to contend with tariffs as high as 70% in emerging market nations such as Vietnam, and car manufacturers based in Japan could more inexpensively access the U.S., their largest market. The TPP could be a boon for agribusiness as well – it would cut or eliminate as much as 98% of the taxes on U.S. crop and food exports (which run as high as 40% per crop in some of these nations). 3
The TPP’s advocates characterize it as the first truly 21st-century trade pact, as it also sets free-market rules for digital trade and Internet information flows among the involved nations, which could set a precedent for other economies to follow. Under the TPP, the major U.S. tech firms will no longer have overseas sales restricted by foreign laws, and they will not have to establish any local infrastructure. 3,4
Other industries could also benefit, but with “side effects” felt worldwide.
Generic drugs may become costlier around the world as a result of the TPP. The TPP could delay the introduction of new generics because it affords pharmaceutical firms within the member nations 5-8 years of “data exclusivity” (i.e., patent protection) for new biotech drugs. (The U.S. wanted to extend the length of that protection to 12 years.) This makes it harder for generic drug makers to enter the market. If makers of biologic drugs faced less competition from generics, they could charge higher prices for their drugs. 5
As nations like Peru, Vietnam, Malaysia, and Mexico never gave any kind of data exclusivity to pharmaceutical firms, the most expensive drugs could get even costlier, especially in poorer nations. Doctors Without Borders has stated that the TPP will “go down in history as the worst trade agreement for access to medicines in developing countries.” 6
Is the TPP a sellout to corporations?
The detractors who make that charge point not only to the data exclusivity requirements for drug makers, but also to the free-trade agreement’s inclusion of an Investor-State Dispute Settlement.
This would let foreign investors from TPP member states take their claims against local government to arbitration instead of the courts, the thinking being that arbitration proceedings might be less politically charged or corrupt than some emerging-market nation justice systems. Those who decry the TPP see this as a new tactic for companies to whittle away at health and safety regulations. Admittedly, there are already more than 3,000 such agreements worldwide. 2
The TPP does not address a major currency issue.
It prohibits no currency manipulation (which Japan has practiced in years past). If it did, however, it might not have been accepted at all – member nations may have taken such a prohibition as an intrusion on central bank policy. 2
Will it hurt the American worker?
The TPP may result in thousands of jobs leaving America… or not. Corporations might be compelled to ship jobs overseas, attracted by looser labor regulations and lower wages in other TPP nations. On the other hand, the TPP demands that its member nations respect and follow international labor laws, and one fundamental aspect of those laws is a minimum wage, which some of these nations do not currently enforce. A minimum wage might discourage certain U.S. firms from offshoring jobs. 3
Could the TPP raise U.S. incomes by $77 billion in the next 10 years?
The non-partisan Peterson Institute for International Economics thinks the deal could do just that. That is less than a 1% increase, but still significant. The greater economic payoff may happen if the TPP inspires other nations to create similar trade pacts, or attracts more countries to its ranks. In fact, Indonesia, the Philippines, Thailand, South Korea, and Colombia have all shown interest in joining the TPP. One thing is certain: ratification of the agreement would alter the playing field of Pacific Rim trade for some major industries. 4,7
1 – bbc.com/news/business-34742074 [11/5/15]
3 – bbc.com/news/business-34451423 [10/6/15]
6 – vox.com/2015/10/5/9454511/tpp-cost-medicine [10/5/15]
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