WEB DESK: The sealing of the deal early on Monday, the 5th October, 2015 for creating the world’s largest free trade area is of course a major economic development on the global scene. Working around the clock for days past their deadline, trade ministers finally announced that they had reached an agreement on the ambitious Trans-Pacific Partnership (TPP) just before dawn, capping five years of difficult talks led by the United States.
The US Trade Representative, Michael Froman, said that “after five years of intensive negotiations, we have come to an agreement that will create jobs, drive sustainable growth, foster inclusive development and promote innovation across the Asia Pacific Region.” President Obama was so delighted that he remarked that the accord “reflects America’s values and gives our workers the fair shot at success they deserve.
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”. The accord involves significant market openings from Canada, the US and Japan for farm products. In particular, Japan has made major concessions to reduce tariffs and lower non-tariff barriers on food imports, which has long been a challenging domestic political issue and a chronic sore point with food exporters like Australia, New Zealand and the US.
The US agreed to reduce its tariffs on Japanese car parts from non-TTP locations. The agreement also establishes mechanisms to handle disputes between foreign investors and government; requires governments not to discriminate between foreign investors in major contracts; and demands countries like Vietnam and Mexico to improve their labour standards. Besides, the agreement addresses new issues like data trade and intellectual property that have not been covered in multilateral trade pacts in the past.
The latest agreement reached between the 12 Pacific Rim countries is important for a number of reasons. It is extraordinary because, unlike some other trade agreements, this hard-won deal would create the world’s largest free trade area as the countries involved encompass 40 percent of the global economy.
The Chinese factor seems to have played a big role in finalising the deal and this is obvious from the remarks of the US President who said that they would not allow China to set the rules of the world economy. The agreement, therefore, specially aims to set the rules for the present century on trade and investment and press China to shape its economic behaviour in commerce, investment and business regulations to the TPP standards.
It seems that all the countries reaching the deal have made major concessions and would also gain a lot in economic terms from the agreement. The most developed countries, in particular, in the region have agreed to open their markets and allow almost free flow of investment which would accelerate growth and improve trade prospects within the region. This would help optimise the allocation and utilisation of resources, including labour. On the other hand, countries China and India would have to rethink their strategies to keep pace with the new reality of the latest agreement and reformulate their policies.
It is quite possible that countries left out of the agreement would try to form their own blocs to counter the impact of the present deal. Countries like Pakistan have to monitor the situation very closely because the free trade deal could have both negative and positive consequences on their foreign trade and they have to devise policy responses properly and timely. In the backdrop of the present development, it appears that the progress on the Doha Agreement will be slowed down further which would be a setback to the joint efforts of promoting world trade.