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What Is the Trans-Pacific Partnership (TPP)?

This article was written by James McBride and Andrew Chatzky and originally appeared on Council on Foreign Relations on January 4, 2019. It is reproduced here under CC BY-NC 4.0.

Introduction

The Trans-Pacific Partnership (TPP) was the centerpiece of President Barack Obama’s strategic pivot to Asia. Before President Donald J. Trump withdrew the United States in 2017, the TPP was set to become the world’s largest free trade deal, covering 40 percent of the global economy.

For its supporters, such a deal would have expanded U.S. trade and investment abroad, spurred economic growth, lowered consumer prices, and created new jobs, while also advancing U.S. strategic interests in the Asia-Pacific region. But its detractors, including Trump, saw the deal as likely to accelerate U.S. decline in manufacturing, lower wages, and increase inequality.

With the United States on the sidelines, the remaining TPP countries have forged ahead with a new version of the pact, known as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), keeping most of the original intact. Trump signaled in early 2018 that he would be willing to reenter TPP discussions under certain conditions, but he quickly backtracked and observers see the possibility as unlikely.

What were the origins of the TPP?

The impetus for what became the TPP was a 2005 trade agreement between a small group of Pacific Rim countries comprising Brunei, Chile, New Zealand, and Singapore. In 2008, President George W. Bush announced that the United States would begin trade talks with this group, leading Australia, Vietnam, and Peru to join. As the talks proceeded, the group expanded to include Canada, Japan, Malaysia, and Mexico—twelve countries in all.

Upon taking office in 2009, Obama continued the talks. In 2011, Secretary of State Hillary Clinton framed the TPP as the centerpiece of the United States’ strategic pivot to the Asia-Pacific region. After nineteen official rounds of negotiations and many more separate meetings, the participating countries came to an agreement in October 2015 and signed the pact in early 2016.

The TPP member countries
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These negotiations overcame significant political hurdles, with countries agreeing to difficult reforms of their economies. For instance, Japan’s powerful farming lobby resisted the reduction of tariffs on agricultural goods, while the country agreed to reduce barriers to its auto market. Canada agreed to allow more foreign access to its heavily protected dairy market, while Brunei, Malaysia, and Vietnam promised to reform their labor laws, and U.S. negotiators compromised on some of their demands for stricter patent protections for pharmaceuticals.

However, the deal was never ratified by the U.S. Congress, as it became a target of both Republican and Democratic candidates during the 2016 presidential campaign. Trump formally withdrew from the TPP on his first full day in office, in January 2017.

What did the parties agree to?

The TPP text consisted of thirty chapters, covering tariffs on goods and services, intellectual property (IP) rights, e-commerce rules, labor and environmental standards, dispute resolution mechanisms, and many other aspects of global trade. The goal of this ambitious megaregional deal—one spanning several continents and covering some 40 percent of world trade—was to create a fully integrated economic area and establish consistent rules for global investment. For Obama, the pact was a means to ensure that “the United States—and not countries like China—is the one writing this century’s rules for the world’s economy.”

Some prominent provisions included:

Elimination or reduction of tariffs. The deal lowered tariffs and other trade barriers on a vast range of goods, including many automotive and other manufactured products, textiles and apparel, and agricultural commodities, such as meat, dairy, produce, and grains. Some estimates put the total tariff reduction among TPP members at 98 percent.

Liberalization of services trade. Restrictions on cross-border services were removed, and rules added to ensure that businesses offering services in areas including retail, communications, entertainment, and finance would be protected from discrimination.

Investment rules. Markets were opened to foreign investment among members, and rules added to protect investors from unfair treatment. The controversial investor-state dispute settlement (ISDS) provision, which allows investors to sue host governments using international arbitration panels, was included.

E-commerce guidelines. The TPP was the first regional deal to include comprehensive rules on digital commerce, which would have ensured the free flow of information across borders, mandated consumer privacy protections, and banned policies that force investors to move their servers and other related facilities to the host country.

Intellectual property protections. The deal contained extensive provisions on IP, including patent enforcement, lengthened copyright terms, and protections for technology and trade secrets. This included controversial new protections for prescription drugs, including for a new class of medications known as biologics, pushed by the United States.

Labor and environmental standards. The TPP went further than previous trade deals in committing members to allow workers to form unions, prohibit child and forced labor, improve workplace conditions, and strengthen environmental protections.

Other important provisions included rules on transparency, restrictions on monopolies and state-owned enterprises, and streamlined regulations meant to make it easier for smaller businesses to trade across borders.

How would the deal benefit the United States?

For the American architects of the TPP, the pact was to be the center of an Asia-focused strategy to pursue both economic and geopolitical interests.

On the economic side of the equation, the Obama administration and many trade economists argued that the deal’s lower tariffs and increased market access would have reduced prices for consumers, spurred cross-border investment, and boosted U.S. exports. More consistent rules and market-oriented reforms in developing countries such as Vietnam and Malaysia, they said, would make all the economies involved more efficient, increasing productivity and growth.

The TPP economies make up some 40 percent of global gross domestic product (GDP), and the agreement would have been the largest ever completed by the United States, both in terms of the number of countries and total trade flows. U.S. International Trade Commission data [PDF] shows that U.S. trade with TPP countries amounted to more than $1.5 trillion, or about 40 percent of all U.S. trade, in 2015. The United States has existing free trade deals with many TPP countries, including Australia, Canada, and Mexico, but not with Japan, the world’s third-largest economy.

Many economic studies, including those by U.S. government agencies and think tanks, have projected that the TPP would boost the U.S. economy, with one predicting an added $130 billion to U.S. GDP by 2030, or an increase of about 0.5 percent. However, some models showed a mixed impact on employment, with job losses in manufacturing offset by growth in the agriculture and service sectors.

As for the TPP’s geostrategic value, the Obama administration argued that it would bolster U.S. leadership in Asia and strengthen its alliances in the region. In 2011, Secretary Clinton pointed to how the deal would deepen Washington’s relationship with Tokyo, the “cornerstone of peace and stability in the region.” She also said it would advance broader Asian integration efforts, supporting regional institutions, such as the Asia-Pacific Economic Cooperation (APEC) forum.

The TPP would also have ensured that the United States led the way on global trade rules. Analysts say that U.S.-led deals generally provide for deeper economic reforms and higher labor, environmental, and health standards, which participant countries are incentivized to adopt in order to gain access to new markets, than China-led ones. While Trump has made confronting China’s trade-distorting policies a centerpiece of his agenda, experts including CFR’s Edward Alden say that withdrawing from the TPP reduced Washington’s leverage and made it harder to deal with Beijing’s abuses. The TPP would also have ensured that the United States led the way on global trade rules.

For its part, Beijing is pushing a separate trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which would include sixteen Asia-Pacific countries but exclude the United States. It has also launched its Belt and Road Initiative, which seeks to develop trade and energy infrastructure throughout South and Central Asia.

What drove opposition to the TPP?

The TPP was the target of attacks from across the U.S. political spectrum, especially during the 2016 presidential campaign, as well as from some groups in other participating countries. Trump long criticized the deal, claiming that it would push more manufacturing jobs overseas, increase the U.S. trade deficit, and fail to address currency manipulation by U.S. trade partners.

Some Democrats agreed at least partially with this prognosis, including presidential candidates Bernie Sanders and Hillary Clinton, although Clinton had championed the TPP as a vital component of Obama’s pivot to Asia during her tenure as secretary of state. Many in the U.S. labor movement also fought it, arguing that trade deals such as the TPP erode wages and lower environmental and labor standards. They say such a deal could repeat the experience of the 1994 North American Free Trade Agreement(NAFTA) between Canada, Mexico, and the United States, which they blame for job losses in manufacturing.   Trump long criticized the deal, claiming that it would push more manufacturing jobs overseas.

Trade unions in Australia, Canada, and elsewhere opposed the deal on the grounds that it gives global corporations too much power over domestic policymaking, undercuts wages, and increases the incentives to move manufacturing production to lower-cost countries. Critics also maintained that provisions on labor and environmental standards were vague and unlikely to be consistently enforced.

Many pro-TPP economists have acknowledged that expanded trade, while a net positive for growth, has downsides. Former Treasury Secretary Lawrence H. Summers points to evidence that it has increased inequality by “allowing more earning opportunities for those at the top and exposing ordinary workers to more competition.” However, they argue that the loss of manufacturing jobs has more to do with new technologies than with trade and that trade deals can help U.S. workers by opening foreign markets to the goods and services they produce.

What is the CPTPP, and how is it different?

After Trump withdrew from the TPP, the remaining eleven signatories, known as the TPP-11, continued talks with the aim of salvaging a pact without the United States. Their effort was successful, leading to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, which was signed in March 2018. It has already been ratified by a majority of members and entered into force for those countries on December 30, 2018.

While much of the CPTPP remains unchanged from the original TPP, trade experts say that there are important differences. These are largely changes to or the removal of measures pushed by Washington that were unpopular among the other participants.

The largest and most substantive change centers on intellectual property. In TPP negotiations, Washington pushed hard for longer copyright terms, automatic patent extensions, and separate protections for new technologies, including so-called biologics, a cutting-edge medical technology. Largely opposed by the other participants, these provisions were removed from the CPTPP. The investment chapter was also modified. Members kept the ISDS provision, but they limited its scope. Some timelines for implementation of certain measures were also altered, and some labor and environmental rules partially relaxed.

CPTPP members specify that the removed provisions have only been suspended, a distinction intended to signal that they could be easily reinstated if the United States decided to rejoin. Trump has floated the idea of returning to the deal, but trade analysts say that his preference for bilateral trade agreements and his willingness to impose tariffs on allies, including Japan, have forestalled that possibility for the immediate future.

What’s in store for the future?

Nevertheless, the TPP—and the CPTPP—was explicitly written with an eye toward future expansion. During the original negotiations, for instance, South Korea was seen as a likely future member. More recently, Thailand and Colombia have expressed interest in joining. Taiwan has as well, but its accession to an agreement that had been framed as a mechanism for confronting China could draw opposition from Beijing.The TPP was explicitly written with an eye toward future expansion.

In October 2018, Japanese Prime Minister Shinzo Abe said the United Kingdom, despite its geographical distance, would be welcomed into the CPTPP “with open arms,” indicating the potential for CPTPP member states to use the agreement as a global diplomatic framework in the coming years.  

This article was written by James McBride and Andrew Chatzky and originally appeared on Council on Foreign Relationson January 4, 2019. It is reproduced here under CC BY-NC 4.0.

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