The TPP deal could be Obama's greatest legacy

In a dramatic, last minute-breakthrough, trade ministers from a dozen countries in the Americas and Asia-Pacific reached a deal on Monday to secure a Trans-Pacific Partnership (TPP) agreement.  Should it be ratified by domestic legislatures, the landmark deal will represent the biggest regional free trade agreement in history, and is the largest trade deal struck since the 1994 completion of the Uruguay Round which created the World Trade Organisation.

The deal is important not just because the 12 countries—the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam—encompass around 40 per cent of world GDP.  In addition, TPP has an important rules-setting component and President Barack Obama has asserted that the treaty will enable Washington, rather than Beijing, to create the foundation stone for “21st century trade rules,” including standards on trade, investment, data flows and intellectual property.

As Obama noted Monday, “when more than 95 per cent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Following the TPP breakthrough, the stakes have been raised for Europe to agree a Transatlantic Trade and Investment Partnership (TTIP) deal with the United States.  Longstanding negotiations have yet to reached a breakthrough for what would be a free trade deal potentially accounting for some 50 per cent of the global economy.

The TPP talks in Atlanta were scheduled to finish last Thursday and negotiating partners pushed hard for a deal at the weekend recognising that the "window of opportunity" for agreement may be fast-closing because of domestic politics.  Elections in Canada are held on 19th October which may see the pro-free trade Conservative Party lose power; while ballots are also scheduled in the United States, Japan and Peru next year where incumbent politicians are under pressures to protect key market sectors from overseas competition.

The development that enabled the breakthrough, after some 5 years of negotiations, was passage in late June in the US Congress of so-called Trade Promotion Authority (TPA).  TPA is potentially so important to the success of TPP because it enables the White House to negotiate deals without significant congressional interference after negotiations are complete.  To be sure, the US House of Representatives and Senate must still approve or reject final agreements in straight "up or down" votes, but it cannot amend them.

Although some US free trade agreements have been passed without TPA, these included relatively small deals, such as a free trade agreement with Jordan.  Given the complexity of TPP, renewal of TPA is widely seen as essential for a final agreement amongst the 12 countries as Washington’s partners in the venture do not want to see hard fought items potentially unravelled by the US federal legislature.

Even with TPA, however, the nascent TPP deal is by no means certain to pass Congress which will not hold formal votes on the deal for several months.  This means consideration of the agreement will take place in 2016 when US presidential and congressional election-year pressures potentially will make it much harder to secure final passage in Washington.

Congressional lawmakers, and various presidential candidates, on both the right and left, have already expressed concerns about the nature of TPP deal, which would phase out a vast swathe of import tariffs and nontariff barriers to trade.  This includes the Republican Chairman of the Senate Finance Committee, Orrin Hatch, insurgent Democratic presidential candidate, Senator Bernie Saunders, and Republican presidential frontrunner Donald Trump.

The United States is not the only country where parliamentary passage of the deal is far from sure.  In Canada, for instance, the New Democratic Party Leader Tom Mulcair has already indicated his potential opposition to the treaty.

The TPP negotiations breakthrough came after several remaining obstacles nearly derailed a deal, including a dispute between Sydney and Washington over the length of patent protection for new generation biologic drugs; long-standing disputes between Tokyo and Washington over automotive parts and rice imports; and Ottawa’s and Auckland’s desire to secure significant protections for their country’s dairy farmers and wider agricultural products.  This underlines that TPP is a very controversial agreement with many domestic constituencies, including labour organisations in the United States itself, who are concerned about the impact upon wages and jobs for "blue-collar" workers in the country of the free trade deal.

While the precise overall economic impact of the proposed deal is hard to forecast with precision, the Petersen Institute for International Economics has indicated that it will provide an approximately $300bn boost to the dozen TPP countries (which might expand over time to include other countries, including China) by 2025.

However, far from being just a potential source of economic growth, TPP also is being promoted by the Obama administration to embed US influence in the strategically important Asia-Pacific region.  For instance, the treaty will have a significant rule-setting component, perhaps more so than any other previous trade deal, in multiple areas including limiting subsidies to state-owned companies which could become very important were China eventually to join TPP.

More broadly, there is also a significant geopolitical component to TPP inasmuch as it will help reorient and lock-in US international policy toward the Asia-Pacific region and other strategic high-growth markets.  In this sense, the treaty is a multiple major win for Obama, who lobbied various heads of state such as Australian Prime Minister Malcolm Turnbull in recent days to get a deal.

The White House recognises that passage of TPP will serve the goal of re-assuring Asia-Pacific allies about enduring US security and political, not just economic, commitments to them.  And, in turn, the new free trade agreement will send a clear message to others, especially China, about US intent to continue to place greater strategic emphasis on the region, despite deep continued involvement in other regions of the world, including the Middle East.

Taken overall, the TPP breakthrough represents a potentially signature victory for Obama that will help define his White House legacy and also shape the contours of the twenty first century global economy.  However, despite the Atlanta success, the deal could yet be derailed, including in the United States, as election year pressures in several TPP countries intensify in coming months.