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Trade agreements between nations have become the signature of globalization as countries come together to negotiate deals. Countries as business entities have spiced the diplomatic world to engage more as friendly nations work to boost their trade balance. The free-market philosophy has forced the corporate society to come up with ways that can allow local enterprises to thrive as they jostle for the global cake.
Whereas the free market means open access to markets, it is yet to be achieved as envisaged because individual states work to protect their industries against aggressive multinationals that have strong capital strength. Nations have resorted to trading agreements that are negotiated to secure trade interest. Diplomacy in the present world is used as a tool for securing business deals rather than for achieving peace. Nations that have business interests in one another tend to keep the peace as they strive not to upset their markets. The Trans-Pacific Partnership (TPP) is one such trade agreement between a block of nations. The United States was responsible for the establishment of the deal.
The U.S. reached an agreement with twelve countries that make up the Pacific ring. The agreement affects countries like the United States, Australia, Singapore, Japan, Canada, Malaysia, Brunei, New Zealand, Vietnam, Chile, Mexico, and Peru. The agreement was signed in October 2015 and was a culmination of seven years of negotiation. This paper analyzes the components of the treaty about benefits in trade and economic growth that the member states can accrue.
Aims of the Agreement
The Trans-Pacific Partnership as a deal was negotiated between nations on the premise of three primary objectives that the United States proposed. According to Faunce and Townsend (2011), the three objectives were, “to realize regulatory coherence and transparency, to benefit multinationals and small/medium enterprise and to improve multilateral investor-state disputes” (p. 83). The agreement has been described as the biggest deal since the inception of the World Trade Organization.
The United States comes out as the biggest beneficiary of the trade because it intended to negotiate an agreement that would encapsulate all the other bilateral and multilateral agreements that it had realized such as the North America Free Trade Agreement (NAFTA). Trans-Pacific Partnership was designed to reduce trade barriers that previously existed and afford member states better terms for business.
The agreement was a huge success because it eliminated more than 18,000 restrictions that existed. Naoi and Urata (2013) posit that the treaty provided multinationals and small enterprises the opportunity to access foreign markets. Trans-Pacific Partnership is expected to yield more benefits than the ones achieved by the World Trade Organization and those sought via the Doha meetings.
Advantages of the New Partnership
Since the inception of the World Trade Organization, countries have delved into developing bilateral and multilateral trade agreements. The agreements have been found to contain loopholes that member countries exploit to their advantage at the expense of their business partners. The new agreement is meant to seal the loopholes of previous agreements and to develop a framework that will set precedence for future trade agreements.
Trans-Pacific Partnership will enable member countries to have balanced economic growth that can help them to benefit from one another. The treaty which involves the United States and Japan as the strongest members means that many outstanding business issues can easily be ironed out. Japan is notorious for using unfair tactics to lock out its rivals. It manipulates the local currency to make its products affordable. As a result, it can easily compete in the global market. The Trans-Pacific Partnership has banned this practice. Japan can no longer use such practices to increase its sales volume. The backbone of the Trans-Pacific Trade Agreement is the elimination of all tariffs (Naoi & Urata, 2013).
The removal of tariffs will encourage countries to export goods and services to other states at reasonable prices. Countries use tariffs as protection tools to limit the importation of foreign goods that might have detrimental effects on the local producers. The United States is expected to open its market to agricultural products from other countries like New Zealand. Besides opening up the markets, the treaty has a clause that facilitates dispute resolution amid nations (Faunce & Townsend, 2011). The clause will allow harmonization of conflict resolution across the board.
The Trans-Pacific Partnership spans three continents. Thus, it is an avenue for entering markets in different continents. Although China is not part of the treaty, the United States made sure that the agreement was formulated in a way that it can accommodate China in the future. China is an Asian giant that has a lot of influence on the global market. Therefore, it is prudent that such a significant partnership is formulated by considering China as a future member that can exploit the loopholes in the agreement (Capling & Ravanhill, 2011).
A recent incident that resulted in the United States suffering was the rise of the Asian giants and their involvement in the global trade. Countries like Japan, China, Korea, and Malaysia have for some time tilted the balance of trade in their favor by implementing specific conditions that favor their industries (Naoi & Urata, 2013). Japanese industries have thrived through reverse engineering. On the other hand, China has forced foreign investors who come to the country to share their technology.
Projected Economic Outlook
The Trans-Pacific Partnership is expected to benefit the member countries and their regions in different ways. The smaller members in the partnership are bound to realize immediate gains to their economies while the bigger members will achieve significant benefits with time. Schott, Kotschwar, and Muir (2013) allege that the deal will bring about an annual global benefit of at least $295 billion.
Besides, the Asian countries are expected to reap about $500 billion in benefits annually. Smaller member states like Vietnam, Brunei, and Malaysia are projected to take advantage of the deal and secure markets for their goods. The nations serve as the primary production sites for the United States multinational corporations. It has become a norm for companies from the United States to outsource manufacturing processes to these countries due to their cheap production costs.
On the other hand, the bigger nations like the United States, Canada, and Japan are bound to benefit from service investment, intellectual property, and agriculture (Solis, 2012). The deal is meant to increase investor confidence for foreign direct investment which will be good for macroeconomics at the international level. The Trans-Pacific Partnership will increase cooperation among nations as an opportunity to foster productivity. One of the most critical outlooks projected by this association is that the small and medium-sized enterprises will be able to export to other partner states. Indeed, the agreement is a remarkable paradigm shift to businesses that were previously unable to reach the global market.
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Investors will have a chance to export their products regardless of the production scale because access to the market has been freed and tariffs eliminated (Lewis, 2011). The primary disadvantage of the agreement is that some member states will lose a share of the revenues that they have been collecting from trade partners. A country like New Zealand is projected to lose up to $320,000 of the revenue that it charges Chile on the export of coal (Solis, 2012). A majority of these deals were made during the P4 negotiations which were the ideas that led to the establishment of the Trans-Pacific Partnership. While the P4 agreements provided limited benefits to nations, the Trans-Pacific Partnership has amplified benefits to a large extent.
Restrictions on foreign goods and services are imposed through all kinds of measures that do not qualify as tariffs. The measures are meant to limit the number of goods that come into a country. The Trans-Pacific Partnership provides a broad framework that will eliminate any or most non-tariff barriers imposed on businesses. Non-tariff measures include a requirement for import licenses for certain goods and services that are exempted from tariffs (Solis, 2012).
The bottom line about non-tariff measures is that they force importers to go through certain processes that are long and complicated before they can bring the goods into a country. Some of the barriers include pre-shipment inspection, local sourcing for government supplies in procurement, adherence to the rules of origin, and various customs evaluation among others (Schott et al., 2013). Non-tariff measures can be frustrating because they vary based on individual goods and services that can be imported or exported. The elimination of these conditions will provide member partners with a level playing field that they can fit with ease.
The rules of business will be the same everywhere, thus making it easy for states to trade. Additionally, the elimination of non-tariff barriers will benefit small and medium-sized enterprises regarding operations costs. The enterprises will not require incurring extra costs as they seek to adhere to the rules (Schott et al., 2013). It will encourage many businesses to venture into the global market regardless of their scale of production.
Intellectual Property Rights
The Trans-Pacific Partnership is bound to benefit manufacturers and content producers who depend on intellectual property. The pharmaceutical industry in the United States is going to profit from this agreement because it secures patents on drugs. The exploitation of intellectual property for commercial purposes hurts many manufacturers because different countries have diverse enforcement policies (Lewis, 2011).
Most intellectual property regulations are weak or allow some degree of exploitation of copyrighted work (Flyn, Baker, Kaminski, & Koo, 2013). Part of the agreement is designed to protect innovation in areas like medicine so that patent owners gain from their intellectual discoveries. The treaty allows pharmaceutical manufacturers to have a monopoly on selling their product for five years before generic goods can be allowed to come into the market (Dhar, 2015). The harmonization of intellectual property rights has forced member states to swing into action and enact national laws to protect the same.
Supply Chain Integration
The Trans-Pacific Partnership is aimed at developing an integrated supply chain system that will manage the production and supply of goods between member states. Production of goods will be coordinated to eliminate too much duplication of products in the market. Infrastructural developments will be initiated as part of this initiative so that goods and services can be delivered within the required time. The move is meant to standardize operations, production, and services so that all members operate from the same platform.
The Trans-Pacific Partnership is a broad framework that is designed to bring benefits to all member countries. The agreement was reached through compromises that would yield market value for states that had previously restricted their international trade engagements. The failure to realize remarkable benefits from the Doha round table talks necessitated this arrangement. An evaluation of the advantages sought from the Doha talks and the Trans-Pacific Partnership shows that the later is beneficial.
Although it started as a treaty between four nations that constituted the P4, the TPP was expanded to comprise twelve countries after other players showed an interest. The United States and Japan are the major economies in this group and are expected to reap long-term benefits. Smaller nations like Brunei and New Zealand are expected to receive immediate benefits by accessing direct markets for their goods and services.
Besides creating free markets, the partnership has secured intellectual property rights for major manufacturers of drugs. It will allow the producers of drugs and other biological products to reap from their inventions before they are subjected to a free for all competition. The partnership will harmonize supply chain management between nations as a way to realize efficiency and value addition to products. It will boost trade between players and make them competitive on the global stage.
Capling, A., & Ravenhill, J. (2011). Multilateralising regionalism: What role for the Trans-Pacific Partnership Agreement? The Pacific Review, 24(5), 553-575.
Dhar, B. (2015). Trans-Pacific Partnership Agreement. Economic & Political Weekly, 50(24), 12-14.
Faunce, T., & Townsend, R. (2011). The Trans-Pacific Partnership Agreement: Challenges for Australian health and medicine policies. Medical Journal, 194(2), 83-86.
Flynn, S., Baker, B., Kaminski, M., & Koo, J. (2013). The US proposal for an intellectual property chapter in the Trans-Pacific Partnership Agreement. American University International Law Review, 28(1), 105-202.
Lewis, M. (2011). The Trans-Pacific Partnership: New paradigm or wolf in sheep’s clothing? Boston College International & Comparative Law Review, 34(27), 27-52.
Naoi, M., & Urata, S. (2013). Free trade agreements and domestic politics: The case of the Trans-Pacific Partnership Agreement. Asian Economic Policy Review, 8(2), 326-349.
Schott, J., Kotschwar, B., & Muir, J. (2013). Understanding the Trans-Pacific Partnership. New York: Routledge.
Solis, M. (2012). The Trans-Pacific Partnership: Can the United States lead the way in Asia-Pacific integration? Pacific Focus: Inha Journal of International Studies, 27(3), 319-341.