What the TPP trade deal will mean for the global economy

The biggest international trade pact in a generation has been agreed by world leaders. What will it mean for the global economy? Simon Wilson reports.


President Obama has fulfilled his ambition of pivoting to Asia

The biggest international trade pact in a generation has been agreed by world leaders.What will it mean for the global economy? Simon Wilson reports.

What's happened?

America, Japan, Australia, Canada, Mexico and seven other Pacific Rim nations though, crucially, not at this stage China have agreed the biggest international trade pact in a generation following years of talks that culminated this week in Atlanta, Georgia. The deal was immediately hailed as a triumph for President Barack Obama the economic underpinning of his much-vaunted strategic "pivot" to Asia and for Shinzo Abe, Japan's prime minister.

If the deal is now ratified by each nation's legislature (and it has plenty of opponents in the US Congress who might yet derail it), the so-called Trans-Pacific Partnership (TPP) has the potential to lower trade barriers to goods and services and set the rules of commerce in a group of countries that account for 40% of the global economy. The other seven countries involved are Chile, Peru, New Zealand, Singapore, Brunei, Malaysia and Vietnam.

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Why is the deal important?

In part, because of the nations involved. These, of course, include the world's biggest economy, America, and its third biggest, Japan two countries that, despite their close political and strategic alliance, have never before signed a bilateral free-trade agreement. As such, the TPP, though unlikely to provide a massive boost to growth (estimates put the likely uplift at about 0.66% over ten years), does have the potential to reshape whole industries and influence everything from the price of cheese to the cost of life-saving cancer drugs.

America's lead negotiator on the pact, Michael Froman, estimates that TPP will see more than 18,000 tariffs on American products reduced to zero. But many commentators are arguing that its far greater importance lies in the pact's scope to (as Froman puts it) "define the rules of the road" for trade in Asia.

How will it do that?

Through a wealth of provisions that don't relate to free trade, but are about minimum standards for the protection of workers, the environment and intellectual property. For example, all signatories will be compelled to adhere to the International Labour Organisation's basic principles on workers' rights (which include a legally mandated minimum wage). The deal also includes rules barring governments from favouring state-owned enterprises (a big change for Malaysia and Vietnam, for example).

And countries who flout the deal's environmental rules can be punished using the same dispute-settlement mechanism that will be used to judge commercial grievances. What all this means, says Martin Sandbu in the FT, is that we should think of TPP not as a "free trade" deal, but a "managed trade" deal. That's "not necessarily a bad thing", but it means that "traditional economic benefits from lower barriers to trade are less important than the extent to which TPP stimulates new or more activity through the rules it sets".

So what exactly is in the agreement?

Here's where it gets tricky: the full text will not be released for several more weeks. Obama insists that TPP is not a "secret" deal, since the full detail of the agreement will be published online for at least 60 days before he signs it (always subject to ratification by Congress). But at the very least, the lack of transparency under which the TPP talks were conducted has proved self-defeating and fed public fears over the nature of the pact and is one reason why Obama and some other national leaders (notably in Canada, where there's an election next weekend) could face a battle to get the deal through their legislatures.

Why are some people fearful?

Because they believe TPP will hand too much power to big multinationals at the expense of local businesses and politicians. In America, Canada, and Australia much public opposition to TPP has seized on a provision that would allow foreign corporations to challenge government decisions using international arbitration panels. This system, known as "investor-state dispute settlements", has been a feature of international public law for decades; for example, it is part of the Nafta trade pact signed in 1994.

But in recent years it has become the focus for campaigners against TPP (and TTIP, the EU/US equivalent, where negotiations are likely to last several more years), who believe that such pacts are anti-democratic and privilege business interests over those of the wider public. There's opposition in Congress too. Republicans might oppose the deal on business grounds; Democrats on protectionist or environmental ones. The deal will probably pass Obama won "fast track" status for it, meaning a straight "yes/no" vote without amendments. But it will be tight.

The China paradox

"When more than 95% of our potential customers live outsideour borders, we can't let countries like China write the rulesof the global economy," said President Obama, hailing the TPP accord. "We should write those rules, opening new markets toAmerican products while setting high standards for protectingworkers and preserving our environment."

This argument, thatthe Pacific pact will be a bulwark against China's power and astandard-setting for global commerce, will be the coreplank of Obama's campaign to sell TPP to Congress, saysJackie Calmes in The New York Times. Many in America'sbusiness community, however, think the real promise of theTPP lies in gradually opening it up to other countries to join including, one day, China itself.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.