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Why the TPP is floundering ?

Feb 26 , 2013
  • Wu Zhenglong

    Senior Research Fellow, China Foundation for Int'l Studies

The Trans-Pacific Partnership (TPP) negotiations, launched in early 2010, have missed two deadlines for its conclusion. Last November President Obama announced to finish the negotiations by October this year. As the negotiations drag on into the fourth year, there is hardly any signs of the conclusion. The following factors have contributed to a floundering TPP.

First, the hybrid of bilateral and plurilateral negotiations on market access, tabled by the United States, complicates the negotiating process. According to the hybrid principle, the existing bilateral free trade agreements between the US and other TPP member countries will remain valid and the US will only open up negotiations with those members who do not have FTAs with US. However, most members prefer a uniform tariff reduction among all the members so that the TPP will replace all the existing bilateral FTAs as a “comprehensive high-quality” FTA. The US hybrid approach makes market access negotiations more complex and lengthy. The U.S purpose is to maintain the vested interests in sensitive products and protect its domestic market. Take Australia as an example, it cannot expect to get U.S market access for its sugar through the TPP negotiations as it was carved out of the Australia-United States FTA. Similarly, it is not economically feasible for Vietnam to make garments with the US yarn or cloth and then export to the latter, as the US insists on the yarn-forward rules of origin. Vietnam will not be able to get U.S preferential tariffs and quota for its textile through Vietnam-US market access negotiations.

Second, the seemingly “high standards” are actually favor the U.S. interests. Touting the high standards, the U.S. aims to maximize its interests through its advanced high technology and market advantages. A case in point is the intellectual property rights (IPR) protection. The U.S. demands far exceed the TRIPS of the WTO. The pharmaceutical patent protection package proposed by the U.S. will raise the prices of generic medicines by a big margin, thus jeopardizing the normal operation of the health systems of such countries as Australia and New Zealand. Other TPP members also disagree with the U.S patent protection packages, maintaining that the excessive IPR protection will constitute an obstacle to scientific and technological innovation and the economic growth of the developing countries. As the biggest patent exporter in the world, the U.S. will acquire more wealth through enhanced IPR protection. Another example in this aspect is the mechanism for investment dispute settlement. The U.S. insists on the “Investor-to-State Dispute Settlement” (ISDS) mechanism instead of the WTO arbitration system, when a foreign investor finds itself in dispute with the host state. As the ISDS empowers enterprises to sue a state, it remains highly controversial. Australia explicitly indicates that it will deny any foreign investors the right to bring legal action against Australia. Apparently, the ISDS favors the U.S., the biggest capital exporter in the world.  

Third, the one-size-fitting-all approach is applied to differentiated concerns of the various countries. The current eleven TPP members are composed of developed and developing countries. They take different positions more often than not on an identical issue. When it comes to competition policy, for instance, the U.S. has set out a lot of new requirements for the state-owned enterprises(SOEs) to eliminate such preferential arrangements as subsidies, special funding for the SOEs overseas investment, and tilted government procurement, etc. For most developing countries, these requirements go far beyond their capacity. E-commerce presents another example. The U.S. has put forth a list of free e-commerce measures, including no tariffs or levies on digital products, non-discriminative treatment to digital products and their authors, developers, producers and performers, freedom of commercial cheating for consumers to participate in e-commerce, and free flow of trans-border digital information. These potential clauses of the TPP will pose severe challenges to the developing members. Furthermore, in the area of financial investment liberalization, the U.S. proposal to lift the ban on capital flow can hardly be accepted by some developing members who once suffered from the Asia Financial Crisis.  

Fourth, the TPP negotiations are subject to the U.S. internal politics. At the very inception of the negotiations, the U.S. drove home that it would not accept a TPP without strong provisions on labor and environment requirements. Obviously, the U.S. proposals on labor and environment will reduce the comparative advantage of developing countries and they will likely create more job opportunities for the U.S.

Finally, the TPP is being negotiated as a single undertaking. The single-undertaking principle makes the negotiations harder.  It dictates that the whole negotiations will be taken “hostage”, if a single issue is yet to be settled. Moreover, with more countries to join the TPP, the difficulty in consensus-building will be amplified accordingly.

TPP is supposed to be a “21st Century, high-standard, comprehensive FTA”. But with so many “exclusions” and “carve-outs” on the traditional 20th Century trade issues, it appears neither comprehensive nor high standard, at most a limited liberalization. On the 21st Century behind-the-border issues, nevertheless, the U.S. is very radical. In fact, the high-standards turn out to be the American standards, which are out of touch with the realities in most of the developing members. The cause for this dual-structure is that the U.S. pursues maximization of it own interest at the expense of others. This zero-sum gaming policy has led TPP negotiations to flounder.

The coming nine months are critical for the TPP negotiations. If the U.S. fails to show flexibility to craft  compromises and conclude the negotiations by October this year, the TPP negotiations will risk a prolonged stalemate.

Wu Zhenglong is a research fellow at the China Foundation for International Studies.


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