Gold Standard or WTO-Lite?: Shaping the Trans-Pacific Partnership

ITIF makes the case for a landmark trade pact that raises the bar for global trade practices.

The United States is currently negotiating entrance into the Trans-Pacific Partnership (TPP) Agreement, an Asian-Pacific regional integration and free trade pact created in 2006 by Australia, Brunei, New Zealand, and Singapore. Chile, Malaysia, Peru, and Vietnam are also seeking to become members of this pact. Early signs indicate that negotiators intend to deliver at least the outline of an agreement by the time President Obama hosts the Asia Pacific Economic Cooperation (APEC) leaders’ meeting in Honolulu this coming November.

The TPP is important because it would help boost U.S. exports and strengthen U.S. commercial ties with this strategically and economically vital region. Yet the TPP is perhaps most important because it could be a model 21st century free trade agreement that fosters further global economic integration and raises the standard  by which countries can conduct true, market-based trade.

The TPP can be such an agreement but will only become so if it holds nations who sign it to the very highest standards, including those regarding intellectual property (IP) rights protection, transparency and openness in government procurement practices, restrictions on preferential treatment toward state-owned enterprises (SOEs), transparent standards setting processes, comprehensive tariff reductions, elimination of a host of non-tariff barriers (NTBs), and at least equal, if not greater, emphasis on enforcement as on market access.

Unfortunately, in an apparent rush to meet an artificial deadline and achieve a victory on trade, the Obama Administration is not currently insisting on a gold-standard agreement that comprehensively eliminates beggar-thy-neighbor mercantilist practices and that precludes countries employing such practices from joining. Indeed, as this report documents, a number of the United States’ would-be TPP partners continue to employ mercantilist practices and several have pushed to weaken the TPP’s standards, including those with regard to IP protection, elimination of NTBs, government procurement regulations, etc.

The risks of signing a water-down agreement are significant.  Whatever provisions s the United States agrees to with respect to IP, treatment of SOEs, removal of NTBs, and other items in the TPP will set a precedent establishing the baseline for future trade negotiations with nations like China.  If the United States does not negotiate a gold-standard TPP, it will compromise its future ability to take a hard line against mercantilism and to secure favorable trade terms with other nations. In other words, we’ve got to get this one right. The following are seven key issues negotiators must address.

  1. The TPP must include state-of-the-art intellectual property protection and enforcement provisions, and exclude countries failing to protect the rights of intellectual property holders. Unfortunately, most of the current and candidate TPP signatories have spotty records on IP protection, and in fact five of the eight potential TPP partners—Brunei, Chile, Malaysia, Peru, and Vietnam—were placed on the United States Trade Representative Office’s (USTR’s) 2011 Special 301 Report Watch List for failing to adequately protect U.S. intellectual property rights. If the TPP is to truly be a 21st century trade agreement, it can’t include countries, or at least can’t allow the practices of countries, with a history of failing to enforce IP rights.
  2. TPP members must commit to open and non-discriminatory government procurement practices. A core principal of market-based trade is that government purchases should be made on the basis of the best value for government, not on the basis of national preferences. It is therefore a concern that only one of the eight other TPP countries, Singapore, is a signatory to the World Trade Organization’s (WTO’s) Government Procurement Agreement. Some TPP countries have even used government procurement to support blatantly mercantilist policy objectives such as forcing the transfer of foreign technology to domestic industries, while others have simply denied or obfuscated foreign firms’ ability to compete for government procurement contracts.
  3. The TPP must ensure non-preferential treatment for state-owned enterprises. State-owned enterprises represent a major challenge to U.S. international competitiveness, not because they are paragons of efficiency or innovation, but because they are all too often recipients of unfair subsidies and protections by their governments.The TPP affords an important opportunity to develop more adequate and effective rules governing the operation of SOEs so that companies from all countries can compete on an equal footing under terms of “competitive neutrality,” meaning that government-supported business activities do not enjoy net competitive advantage over their private sector competitors.
  4. The TPP needs to further liberalize trade in services. While still much smaller in overall volume, global services trade is growing faster than goods trade and as such is a key area to get right in trade agreements. Unfortunately, the USTR’s 2011 National Trade Estimate Report on Foreign Trade Barriers notes that almost every would-be TPP partner places significant barriers on trade in services, from Chile’s restrictions on U.S. asset fund management services to Singapore’s restrictions on foreign banks.
  5. The TPP must guarantee true open market access. Market access is at the heart of free trade. But many TPP nations restrict market access, from limits on the ability of U.S. pharmaceutical manufacturers to market and distribute innovative biopharmaceutical products to restrictions on the cross-border flow of data, information, and digital goods and services and trade in information and communications technology (ICT) equipment and services.
  6. The TPP must comprehensively eliminate non-tariff barriers. Unfortunately, as successive rounds of GATT and WTO trade agreements have generally succeeded in lowering tariffs on global trade, many nations have responded by raising non-tariff based trade barriers. These include discriminatory standards, discriminatory industry-specific market distorting subsidies, regulatory distortions, foreign equity (investment) limits, and other non-tariff barriers that prevent effective access for U.S. goods and services in foreign markets.
  7. TPP countries should complete the process of conventional tariff reduction. While global tariff rates have come down, several would-be TPP partners continue to impose high tariff barriers, particularly in high-technology industries such as ICT or renewable energy. For example, Vietnam places 26 percent tariffs on lithium-ion cells and batteries while Malaysia places 25 percent tariffs on computer monitors.

The TPP holds great potential to represent a gold-standard 21st century trade agreement, but the United States should decline to join anything less.