World Economy

Negotiators strike Pacific trade deal

Shawn Donnan in Atlanta
Agreement reached in TPP deal

The US, Japan and 10 other Pacific Rim economies have reached agreement to strike the largest trade pact seen anywhere in two decades, in what is a huge strategic and political win for US President Barack Obama and Japan's Shinzo Abe.

The Trans-Pacific Partnership covers some 40 per cent of the global economy and will create a new Pacific economic bloc with reduced trade barriers relating to the flow of everything from beef and dairy products to textiles and data as well as new standards and rules for investment, the environment and labor.

Beyond that, however, it represents the economic backbone of the Obama administration's strategic "pivot" to Asia and a response to the rise of the US's chief rival, China, and its growing regional and global influence. It is also a key component of the "third arrow" of economic reforms that Mr Abe has been pursuing in Japan since taking office in 2012.

After five years of negotiations and a final round of marathon talks that went around the clock in Atlanta over the past six days negotiators had been inching towards deals on the final sticking points. These include how long pharmaceutical companies should enjoy monopoly periods for next-generation "biologics" drugs and what access to their markets for dairy products countries like Canada, Japan and the US should provide to exporters like New Zealand.

A planned announcement of the deal was delayed repeatedly on Sunday night as negotiations dragged on. But officials continued to exude confidence that they could reach a consensus.

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The deal announced on Monday by trade ministers from the 12 countries still must be signed formally by the countries' leaders and ratified by their parliaments. In the US Mr Obama is likely to face a tough fight to get the deal through Congress next year, especially as presidential candidates like Republican frontrunner Donald Trump have argued against the TPP.

Critics around the world have also lambasted the deal for being negotiated in secret and being biased towards corporations, criticisms that are likely to be amplified when the national legislatures seek to ratify the TPP in the months to come.

But if and when it comes into force the TPP will be the biggest trade agreement struck since the 1994 completion of the Uruguay Round, which created the World Trade Organisation.

While many of the negotiations, particularly in the final stage, have been focused on traditional trade issues and the flows of products like butter and car parts much of the TPP is intended to break new ground and establish rules for 21st century commerce.

The agreement includes enforceable labour standards that will, for example, mean a TPP member like Vietnam will have to allow the creation of independent unions for the first time in its history. It includes similar provisions on the environment that mean countries not doing enough to combat trafficking in endangered animal species could face trade penalties.

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The TPP also includes rules of conduct for state-owned enterprises and a ban on hindering the free flow of data across borders. However, in a blow to the financial services industry it does not end rules requiring banks to keep their client records in their relevant countries.

Among its most controversial elements is an Investor-State Dispute Settlement mechanism that will allow investors to bring TPP governments to arbitration. Critics fear that will allow multinational corporations to undermine governments' ability to regulate them.

But, significantly, in response to pressure from Australia, the US agreed in Atlanta to exclude the tobacco industry from that mechanism, meaning cases like a current one brought by tobacco giant Philip Morris against Australia over its plain packaging laws would not be possible within the TPP.

On a global level the conclusion of the TPP puts new pressure on the EU to conclude its own negotiations for a Transatlantic Trade and Investment Partnership with the US before Mr Obama leaves office in 15 months' time. It will also put pressure on countries like China and India to finish their own regional deals.

The TPP could additionally herald the beginning of a new era of trade liberalisation globally. With the now 14-year-old Doha Round of global trade talks long stalled economies like the US and EU have been turning their focus to "megaregional" agreements like the TPP and TTIP as alternatives that might one day be stitched together into a global agreement.

New Zealand trade minister Tim Groser, one of the architects of the TPP, said that its "strategic" implications of the TPP for global trade were enormous.

"All of this is being lost in these arcane battles over grams of butter and cheese," he said.

"While people will no doubt laugh at the conservatism of some of the time tables of liberalisation of the most politically sensitive [products in the TPP]. That will probably prove to be the wrong take," he said. "Because the issue is to get the direction of travel right."

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