The big trade game across the pacific

The 12 countries involved in the Trans-Pacific Partnership are united in a desire to open global markets.

 

The world economy sure has felt wobbly since its initial rebound from the 2008 financial crisis. But it would have felt much worse if the major economies had not together agreed to resist trade protectionism.

Protectionism says that a country should put up barriers against imports to shelter domestic employment from competition. But in real life, if one government starts down that road tit-for-tat actions by others are sure to follow. In an integrated economic world such a chain reaction would have devastating economic consequences.

So governments should be credited for not succumbing to the worst protectionist instincts. But few have taken the logical next step of embracing a truly open international trading system.

The World Trade Organization, comprised of some 160 members responsible for the vast majority of the world economy, has been floundering. For more than 12 years now, it has been trying to update global trade rules dating from 1995. These rules left many barriers in place in traditional sectors such as agriculture, while not opening the doors sufficiently to emerging ones, such as services.

A key reason for the impasse is the inability to bridge strong disagreements between developing and developed countries regarding these sectors and on issues such as protection for investors and for intellectual property.

This is why a more recent set of negotiations involving 12 countries around the Pacific — the Trans-Pacific Partnership (TPP) — has become the most exciting trade game in town. These countries account for almost 40% of the world’s economy. They are very different in size, institutions and level of development but united in a common desire to pry open markets.

The TPP is expected, among other things, to result in more access to government procurement contracts and less regulatory incoherence across borders, and to set rules of fair competition for state-owned enterprises. It focuses particularly on removing obstacles for small and medium-sized firms.

It faces major obstacles itself — sharp disagreements over how much protection intellectual property and investments deserve, for example. Countries participating in the TPP also have to integrate existing agreements they have with some other TPP players into the new overall agreement, without creating a jumble of rules difficult for exporters to navigate.

The pivotal game within the negotiations is being played between Vietnam and the US, each having offensive and defensive interests that diverge on these issues, but both of which have an eye on the bigger issue of competing with China, which in these talks is the proverbial elephant in the room.

The US badly needs to restore growth in its economy to help address its mounting government and external liabilities, and sees trade competitiveness as a key to that objective. Vietnam hopes that more competition in its economy will help it become more efficient, allowing a switch away from a growth model based on low labour costs.

Japan also hopes the TPP will help it reform its economy and escape the economic doldrums in which it has been stuck for too long. Mexico sees in the TPP a chance to regain some of the competitive luster it has lost since NAFTA came into being 20 years ago.

Meanwhile, countries with strong agricultural economies such as Australia and New Zealand looked with dismay as others with well-entrenched protectionism in key farm sectors, such as Canada and Japan, joined the talks. This may mean that the TPP enters into a far less ambitious market-opening agreement than it was hoping for, but it remains a strong proponent.

These countries — and TPP partners Brunei, Chile, Malaysia, Peru and Singapore — believe the agreement will give their economies a boost. I think they are right. An agreement would lift business spirits still reeling from the recent global recession, and may be the game changer the global economy needs to help it make a full recovery.


About the Author

Daniel Schwanen


Daniel Schwanen is assistant vice-president, research, at the C.D. Howe Institute in Toronto.

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