Trans-Pacific Partnership February 18, 2016 IR 213 Lecture 8: A Little Trade History Benjamin Graham Guest Lecture: TPPCyrus Mohammadian

Some housekeeping first… Homework 2 will be returned Tuesday next week The midterm will be returned in 2 weeks No office hours today Guest Lecture: TPPCyrus Mohammadian

What is the TPP? Giant free trade agreement Shift away from the complexity of many bilateral FTAs with different terms into a single trade zone with more consistent rules 30 chapters long and covers many topics including: – Financial services – Telecommunications – Intellectual property – Investor-state dispute settlement mechanism Guest Lecture: TPPCyrus Mohammadian

Aims to… Update existing FTAs in force b/w participating states Increase trade by reducing tariffs and other trade barriers (phases out 18,000 tariffs) Establish new trade rules on – labor – environment – competition policy – investment – state-owned enterprises – regulatory coherence Guest Lecture: TPPCyrus Mohammadian

History of the TPP Began w/ P4 trade agreement b/w Chile, Singapore, New Zealand, and Brunei 11 years ago (TPSEP) – Removed tariffs on most goods and encouraged, cooperation on wider issues such as common employment practices, intellectual property rights, and competition policies US took lead on it in 2008 Guest Lecture: TPPCyrus Mohammadian

Geographic Scope

Economic Scale 800 million people will be covered! 40% of world GDP (US $28.5 trillion) 28% of world trade Structured with future signatories in mind More countries expected to join down the line if current countries ratify Colombia, Philippines, Thailand, Taiwan, South Korea, Indonesia China? Guest Lecture: TPPCyrus Mohammadian

US Trade with current TPP members In 2014, the US exported $726 billion in goods and $178 billion in services to the current TPP countries 45% percent of U.S. goods exports went to TPP countries in 2014 In 2014, trade – exports and imports of goods and services – with TPP countries supported an estimated 15.6 million American jobs The TPP will open new markets for the United States with five countries that are not current FTA partners – Brunei, Japan ($216 billion), Malaysia, New Zealand and Vietnam Companies headquartered in TPP countries have invested more than $720 billion in the United States and employ nearly 1.6 million Americans Guest Lecture: TPPCyrus Mohammadian

US Trade with current TPP members Guest Lecture: TPPCyrus Mohammadian

Political Dividends for US TPP has strategic value TPP helps reinforce US economic and political relationships among the Asia-Pacific countries China – Counter China? – Expand to China? – Guest Lecture: TPPCyrus Mohammadian

Benefits -Trade Gains from trade – Comparative advantage –all economies involved can better allocate resources toward their specialties Increases world exports by $305 billion per year by 2025 US exports would increase by $123.5 billion – More efficient production of goods and services – Greater choice and lower prices for consumers Increases disposal income of workers in US for example Guest Lecture: TPPCyrus Mohammadian

Benefits -Jobs New opportunities – New jobs created by broader access to international markets – More lower skilled jobs in developing states (textile, manufacturing) – More high skilled jobs in developed states (tech, pharma, entertainment, etc.) – 650,000 new jobs in US projected Better opportunities – Adds $223 billion a year to incomes of workers in all the countries – $77 billion of that going to U.S. workers Guest Lecture: TPPCyrus Mohammadian

Benefits –Labor Standards Strongest labor standards of any trade agreement in history – Freedom to form unions and bargain collectively – Prohibitions against child labor and forced labor – Requirements for acceptable conditions of work such as minimum wage, hours of work, and safe workplace conditions – Protections against employment discrimination Guest Lecture: TPPCyrus Mohammadian

Benefits –Environmental Standards All countries agreed to cut down on – Wildlife trafficking (especially elephants, rhinoceroses, and marine species) – And unsustainable practices such as illegal logging and over fishing – Countries will face penalties for lack of compliance Guest Lecture: TPPCyrus Mohammadian

Concerns -Jobs Undercutting lower income manufacturing jobs in developed economies due to increased competition from developing countries with lower labor costs

Concerns –ISDS Provides MNC’s with sweeping litigation powers – Chapter 9, Section B: “Investor-state dispute settlement” (ISDS) – Grants right to initiate dispute settlement proceedings against a foreign government – Third party panels – Compensation for “expected losses” – Infringement of sovereignty? Domestic laws… Global warming Tobacco industry (removed from ISDS) Financial regulation Guest Lecture: TPPCyrus Mohammadian

Concerns –Copyright/Intellectual Property Intellectual property rights – Big pharma patents extended Competition from generics ↓ Cost of medicine ↑ Extension of copyright – Hollywood Copyright = length of author ‘s life plus 70 years Willful and unintentional circumvention illegal Guest Lecture: TPPCyrus Mohammadian

Concerns –Not about free trade Not really about free trade – 90% of member’s GDP already covered under existing FTAs (TPSEP, NAFTA, ASEAN, ) – More chapters devoted to investor rights and regulations than trade

Concerns -Secrecy Negotiated in secret – Congressional offices, state legislators & Governors, press and public are locked out. No access to draft TPP texts or to U.S. positions during negotiations – Negotiating texts won’t be released until 4 years after TPP takes effect or talks collapse – Guest Lecture: TPPCyrus Mohammadian

Benefit the Most? A country with a more protected economy will benefit more from liberalization in general Relative to their size, Vietnam and Japan will benefit the most – Vietnam will benefit in almost every sector thanks to external competition – Japan will benefit in agricultural and service sectors Guest Lecture: TPPCyrus Mohammadian

Benefit the Least? Already liberalized economies are likely to have smallest gains relative to size of economy – Australia, New Zealand, and Singapore – Nonetheless, the most competitive firms in these domestic markets will gain from greater access to export markets Guest Lecture: TPPCyrus Mohammadian

Future of the TPP For TPP to take effect, 6 of the 12 signatories (representing at least 85% of combined GDP) must ratify it i.e. US must ratify it to take effect! – The 11 other countries don’t add up to 85% Guest Lecture: TPPCyrus Mohammadian

Obstacles–US Politics Fast-Track – Congressional up or down vote (fast-track narrowly passed) – Congress has never voted down a deal struck under fast-track parameters – BUT Mitch McConnell does not want to bring it up until after elections – i.e. next president, next Congress decide US Presidential Elections – Next president might not submit the deal to Congress… – Top 4 candidates in race are against TPP, why? They were for it before they were against it: Cruz & Clinton Trump and Sanders… – Guest Lecture: TPPCyrus Mohammadian

Summary TPP is a large step towards economic integration across Asia-Pacific states and if ratified will represent a milestone in growth of international trade Not without its controversies Ratification now may close the door on the future reforms of controversial aspects But failure to ratify will result in tens of billions $ in lost productivity (opportunity costs) and it’s unclear if a future “better” deal will emerge in its absence Guest Lecture: TPPCyrus Mohammadian