January 11, 2016

The TPP as a Set of International Economic Rules

An agreement on the Trans-Pacific Partnership has finally been reached, but the full text of the agreement has not been released yet. This column looks at the new set of rules comprising the TPP and whether it deserves to be called a ‘21st century free trade agreement’. It argues that the success or failure of the 12-country pact rests ultimately on the dispute settlement procedures.

An agreement on the Trans-Pacific Partnership (TPP) has finally been reached. The TPP negotiations involved only 12 countries, but had to go through lots of twists and turns because of a criss-cross of confrontational relationships, i.e. large advanced economies versus emerging economies, exporters versus importers in agricultural trade, and market economy countries versus state capitalist countries. The successful conclusion of the TPP agreement, an ambitious trade liberalisation initiative, is surely an event worthy of celebration. It has been achieved despite various difficulties and came at a time with no evident signs of hope for the Doha Round of negotiations under the WTO. As the full text of the TPP agreement has not yet been released as of this writing, this is going to be guess work. But I would like to attempt to outline and share my ‘first impression’ of this new set of rules based on the summaries of the agreement and explanatory notes released by the governments of the TPP member countries and supplementary information from media reports.1

The TPP and Shortcomings of the WTO

At the conclusion of the TPP agreement, leading figures including Akira Amari, Japan’s state minister in charge of the TPP, repeatedly called it a “21st century agreement”. By this definition, the TPP is an agreement that facilitates trade in parts and intermediate goods as well as the accompanying international movement of services, data, people, and know-how. It goes beyond trade in finished products predicated on the division of labour and based on the theory of comparative advantage. Trade in parts and intermediate goods has been growing with the advancement of information and communications technologies (ICTs) prompting more companies to unbundle their production processes and leading to the development of international supply chains. Richard Baldwin calls this chain of factors the “trade-investment-services-intellectual property nexus” (Baldwin 2012) and an agreement designed to facilitate the formation of such nexuses is what is meant by a 21st century agreement.

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