Is there still hope for TPP? By Stephen Jacobi NBR – January 2015

Stephen Jacobi assesses prospects for TPP in 2015.

The big question for trade policy watchers as we start a new year is whether the Trans Pacific Partnership (TPP) negotiations might be concluded.  Last year I thought negotiations could be concluded by April.  I was wrong.  This year I can make no such prediction, save one – if TPP is not finished soon, we may need to move on to something else.

TPP has always been seen as a means to increase trade and investment and create the conditions for sustained economic growth.  Before the economic crisis, this need seemed a little less acute, but the crisis focused the mind of governments and interest in TPP has continued to build along with the number of negotiating partners, now standing at 12.  TPP negotiations have now lasted at least five years (depending on when you turn on the stopwatch).  While TPP has lumbered on, some things have changed.  The global economy has fluctuated. Business models have evolved.   Economies have continued to negotiate bilateral agreements.  From a New Zealand perspective more of our economic and commercial interests have become focused on China.

Yet TPP remains fundamentally a very good idea.  The global economy still needs growth and people still need jobs.  Governments have only limited means at their disposal to create both.  Trade rules need to be updated to reflect business realities and the complexity of over-lapping trade agreements needs to be rationalised.  New Zealand has the benefit of a rules-bound framework with Australia, China, ASEAN and now Korea but it lacks this with the United States and Japan (and with others including India and the European Union).  New Zealand’s sovereignty is enhanced when we have trade rules in place in which we have had a hand in making.   The absence of rules leaves us vulnerable and at a disadvantage compared to others who have this sort of framework.

There remain at least three remaining stumbling blocks.

First, the US President and Congress have yet to agree on the overriding objectives of US trade policy.  The Congressional election and the new US Congress, which has now taken office, may assist the passage of Trade Promotion Authority (TPA) clarifying a way forward, provided President Obama and the majority Republicans can overcome differences on other issues.  Second, the Japanese Government wishes to continue to protect so-called “sensitive” agricultural products.  The Diet election may have strengthened the hand of Prime Minister Abe, but he still faces opposition from within his own party – in that respect both Abe and Obama are in the same position.  Third, there are substantive issues which negotiators have not been able to resolve.  Much has been agreed but this does not apply to market access, largely because of the stand-off between the US and Japan, and to other issues – intellectual property, investment, state owned enterprises and environment – on which other participants including New Zealand are unlikely to want to conclude until the market access issue is settled.

The conventional thinking is that if TPA can be secured, this will strengthen the hand of the US in seeking a conclusion to TPP.  Japan could then be convinced to show greater flexibility in agriculture in anticipation of an agreement, which would boost its productivity in other areas.  Other participants would then be able to be drawn in, knowing that the US and Japan are prepared to deal on market access.  That leaves finishing (but important) touches to other controversial areas.

This scenario is not impossible, but political will especially in the US Congress is hard to predict.   TPP has a growing number of detractors and business is becoming weary of the time that has been taken.  Towards the middle of 2015 the early jockeying for the 2016 US Presidential election will get underway. The political environment could well change once again for TPP and negotiators may need to look to other avenues to achieve its much-needed objectives.  Needless to say I hope my prediction this year proves as accurate as last year’s!