So What's the Deal with the TPP Deal?

By Cynthia Murillo Picture1

The Trans-Pacific Partnership, or TPP, is a trade deal between the United States and 11 other countries. Negotiations began in 2013, led by New Zealand, but are now being led by the United States. The countries included in the deal are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. There exists a wide range of approval and concern about the deal. There are some, like Donald Trump, who argue against TPP without really knowing the facts behind the deal. So why should we care about TPP? What makes the deal significant?

What is the TPP?

After long negotiations, the countries included in the deal finally reached an agreement on Oct. 5, 2015. The partnership is comprised of approximately 40 percent of the total world population and approximately 50 percent of the total world GDP. The deal is intended to decrease and eventually remove all trade barriers among these countries, in an effort to increase economic growth for all of them. This agreement has been highly criticized since the full text had not been made public until Nov. 5, 2015. For this reason, many people fear the government is signing a deal that will hurt the American people more than it will benefit them.

Is TPP any different from NAFTA?

Another major criticism of the deal is that the North American Free Trade Agreement, a similar deal to TPP, failed, and that the losses are more than apparent. Based upon the results of NAFTA, critics in Congress and the community worry that the TPP will not be any different, that it would only make matters worse. In the critics’ eyes, the unfulfilled promises of increased employment and economic growth made by NAFTA are key reasons for their cautious and critical evaluation of the TPP. The fact that three major members of NAFTA (Canada, Mexico, and the United States) are also members of the TPP has caused some to question why another free trade agreement should be signed since NAFTA is considered by many to have resulted in failure. Then, why are these three countries embarking in such a similar deal with TPP?

Since its implementation in 1994, NAFTA has been an increasingly relevant topic in terms of economic research on international trade. Data analysis indicates that there have been welfare gains in Canada, Mexico, and the United States. The findings show that Mexico has gained the most, followed by the United States, and then Canada. These analyses are conducted via meticulous formulas that account for price indices, intermediate goods, sectoral linkages, and real wages. Economists have asserted that, while there have been both gains and losses, NAFTA as a whole has increased trade, welfare gains, and interdependence among its members. These conclusions are further reinforced by Canada and Mexico being the biggest trading partners of the United States. This is in great part due to the countries’ geographic proximity, but also attributable to NAFTA making it more efficient and profitable to trade between countries.

However, what differentiates the TPP from NAFTA is its higher standard for accountability. Trade under the TPP is expected to serve as legal binding between these countries, where labor rights and working conditions are respected, environmental laws are enforced, property and intellectual rights are protected, and small and medium businesses are promoted in the global market. By signing this agreement, countries are pegging themselves to good governance. The increased interdependence among them is expected to promote compliance. Economic and political motives go hand in hand: one of the main goals of being an economically self-sufficient country is ensuring national defense, which, in turn, gives the country power in the international arena. Since these countries are dependent upon each other’s economic success, the likelihood of military conflict among them is also decreased.

The economic and political interdependence brought on by this trade deal promises several benefits for all countries involved. Specifically, the deal opens up many opportunities for the United States. The participating Latin American and Asian countries offer a great opportunity for American  investment and a large market for American-made goods. Many argue that the cheaper labor in these countries would be a disadvantage for American businesses. However, better worker protection would ensure that unions and bargaining power are available to all workers in these countries. This, in turn, would create a level playing field for American workers, and a stronger middle class in the countries purchasing American products and services.

As mentioned before, this multi-member deal arouses a variety of concerns and challenges. Over the summer, Congress was concerned about Malaysia’s tier upgrade in the Human Rights Report, as well as Mexico and Vietnam’s “weak” legal systems. The Human Rights Report is released annually by the Department of State, and ranks countries by tier three, two, and one, in order of most to fewest human rights violations. In the 2015 Report, Malaysia was upgraded from tier three to tier two, and received widespread criticism as it was viewed as a political move to ensure the trade agenda would keep advancing. On the other hand, Mexico and Vietnam’s legal systems are not considered to be the most reliable or efficient, particularly in relation to workers’ labor rights. Issues such as the so-called “protection contracts” in Mexico, -- where a false union is set up to avoid worker strikes and unionization -- reflect negatively upon the components of the TPP. These challenges may seem inevitable, but they do provide evidence that a new trade deal could address such challenges via economic penalties for non-compliance.

Despite its shortcomings, the Trans-Pacific Partnership puts the United States in the position it needs to lead global trade and write the rules on political issues affecting the global economy. The TPP offers the United States a chance to engage in democratic commerce with some of the largest and fastest-growing regions of the world. Also since TPP does not include China in the agreement, the United States is in the position of posing great competition against China since the group of Asian countries included in the deal represent a significant and strategic group. The United States should capitalize on this opportunity; if it opts not to, it risks becoming a follower instead of a leader, a mindset that would inherently lead to disastrous economic and political setback in this ever-growing global economy.