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The Trans Pacific Partnership and Its Effects On US Businesses In SE Asia

September 19, 2016
The Trans-Pacific Partnership has received a lot of attention and criticism from presidential candidate front-runners. This 12-country trade deal with countries stretching across the Pacific Rim has invoked strong feelings from government officials and voters alike. From Trump who calls the deal “a bad, bad deal for American businesses, for workers, for taxpayers,” to Sanders who recommends “[killing] this unfettered free-trade agreement which would cost us nearly half a million jobs,” all of the democratic nominees and the presumptive Republican nominees have had a critical view of this trade agreement.[1] [2]

By Jeffery Gao, C’19

Hillary Clinton, one of the TPP’s biggest supporters while she was secretary of state, has now opposed the agreement because it doesn’t do enough to raise the wages of middle-class Americans. However, the administration that she previously served under, as well as multiple government agencies, think tanks, and corporations have all promoted the TPP as an agreement which would improve the livelihood of Americans. Despite fears of lax environmental and human rights regulations, a number of large corporations from Boeing, Coca-Cola, eBay, and FedEx to Google, Gap, HP, Levi Strauss, Toyota, Walmart, and Visa have all vocally supported the Trans-Pacific Partnership.[3] For companies invested in Southeast Asia, the TPP will have an immense impact on the way they do business as the ratification of this agreement would mean access to new, expanding markets, a cheaper source of labor overseas, and decreased tariffs on services. Though some sectors of business would benefit from these measures, notably companies requiring unskilled manufacturing or in the sectors of services and wholesale, other industries have mixed or negative responses to the TPP.

In May, the International Trade Commission released an 812-page document detailing the likely outcomes of the ratification of TPP for the United States. The document, broken up by sectors, estimates the economic consequences through a static approach where analysts compared the projected economic growth with and without the ratification of the TPP. Overall, the study concluded that on a large scale, real GDP would increase by 0.15 percent, real income would increase by 0.23 percent, and employment would increase by 0.07 percent.[4]

However, though these are overall numbers, some sectors benefit far more than others. For example, although the TPP makes efforts to raise labor standards of TPP countries to have workers on a level playing field, the ITC estimates that employment in the manufacturing sector in the United States would decrease by 0.2 percent by 2032.[4] Unskilled workers are more likely to be hired in Vietnam as analysts predict that companies requiring unskilled labor would likely move their factories, a trend that companies like Intel, Apple, and Ford have already started.[5] With the TPP cutting over 18,000 taxes and trade barriers, it would make sense to seek cheaper labor overseas.

Similarly, companies specializing in services, especially business services, are likely to get a boost from the TPP’s liberalization of cross border trade in services. Because U.S. firms maintain a significant comparative advantage in the tradable business services market, the liberalization of services trade with a negative list establishes that all service sectors, despite a few on the list, are open to free trade.[6] With companies like Deloitte, Hewlett Packard Enterprise and more entering the Southeast Asian market, the elimination of tariffs on most services is likely to see the export of U.S. services surge.

However, pharmaceuticals and tobacco have objections to the TPP. For pharmaceuticals, the TPP promises eight years of intellectual property protection for biologics compared to the twelve years that the United States was pushing for.[7] However, many activists argue that even eight years is too many as drug companies can create monopolies, barring developing nations from competing. The tobacco industry is also fighting against the TPP because the agreement prevents tobacco companies from invoking the investor-state dispute settlement process. The process is meant for investors and states to go to an international body to arbitrate unfair legislation, regulation, or processes that hinder the investor. With smoking rates rising in an abundance of Southeast Asian countries, governments may take measures to limit tobacco consumption. If tobacco companies lack a mechanism to deal with legislation that infringes on a investor’s right to fair and equitable treatment, then they are facing a dangerous issue that will hinder their attempts to expand market share in TPP countries.[9]

The TPP covers a variety of different industries and has far-reaching consequences that are unlikely to be predicted. Sound economic models are unequivalent to a crystal ball and the world in 2032 is inevitably going to be different than the one predicted by the ITC. However, the TPP is no doubt a step forward in trade liberalization and if ratified, will have global political and economic significance that will be hard to dispute.

 References

  [1] M. Hensch, “Trump to slam Obama trade agenda,” Capitol Hill Publishing Corp., Washington, 2015.

  [2] A. Phillip, “In Ohio, Hillary Clinton strengthens opposition to Trans-Pacific Partnership,” The Washington Post Company Llc., Washington, 2016.

  [3] U.S. Coalition for TPP, “About,” [Online]. Available: https://web.archive.org/web/20160405072410/http://tppcoalition.org/about/.

  [4] International Trade Commission, “Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors,” May 2016. [Online]. Available: https://www.usitc.gov/publications/332/pub4607.pdf.

  [5] R. Jennings, “Vietnam Is Becoming the ‘New China’ With Foreign Manufacturers,” The Street, 31 January 2015. [Online]. Available: https://www.thestreet.com/story/13025186/2/vietnam-is-becoming-the-new-china-with-foreign-manufacturers.html.

  [6] Cato Institute, “Should Free Traders Support the Trans-Pacific Partnership?,” [Online]. Available: https://www.thestreet.com/story/13025186/2/vietnam-is-becoming-the-new-china-with-foreign-manufacturers.html.

  [7] R. Naidu-Ghelani, “TPP trade deal: Who are the winners and losers?,” BBC, [Online]. Available: http://www.bbc.com/news/business-34451423.

  [8] T. J. Bollyky, “TPP Tobacco Exception Proves the New Rule in Trade,” Council on Foreign Relations, [Online]. Available: http://www.cfr.org/trade/tpp-tobacco-exception-proves-new-rule-trade/p37509.   [9] S. Crisostomo, “’10% of world’s smokers from Southeast Asia’,” Philstar Global, [Online]. Available: http://www.philstar.com/headlines/2013/09/15/1212251/10-worlds-smokers-southeast-asia.

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