6 things to know about Trans-Pacific Partnership (TPP)

Asia-Pacific leaders meeting in Beijing this week are unlikely to reach an agreement on the Trans-Pacific Partnership (TPP) free trade deal, says Washington. This is largely because of a deadlock between the pact’s two biggest economies - the United States and Japan - over how widely Japan will open its doors to farm exports. Here are six things you should know about the TPP:

1. WHAT IS IT?

Trade ministers and representatives attend a press conference at the Trans-Pacific Partnership (TPP) ministerial meeting in Singapore on February 25, 2014. -- PHOTO: AFP

The TPP, described as one of the most ambitious free trade agreements ever attempted, is a proposed deal currently being negotiated among 12 countries - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, United States, Singapore and Vietnam.

The pact is aimed at deepening economic ties among these nations and is expected to substantially reduce tariffs, and even eliminate them in some cases, and help open up trade in goods and services. It is also expected to boost investment flows between the countries and further boost their economic growth.

The member countries are also hoping to foster a closer relationship on economic policies and regulatory issues.

2. WHY DOES IT MATTER? 

An employee guides as a crane unloads shipping containers from a cargo ship at a port in Lianyungang. -- PHOTO: REUTERS

The countries that are part of the negotiations are all members of the Asia-Pacific Economic Cooperation (Apec).

They have a combined population of more than 650 million people. A free trade agreement, if successful, will account for two-fifths of world trade. It could turn this into a potential single market for many businesses.

Significantly, the initiative is being led by the US, the world’s biggest economy and biggest trading nation, and one that sees Asia-Pacific as key to its future growth.

3. WHAT DO CRITICS SAY?

A demonstrator displays a placard to protest against the Trans Pacific Partnership (TPP) trade deal at a sit-in demonstration in front of the parliament building in Tokyo on April 23, 2014. -- PHOTO: AFP

Criticism of the TPP has been on various fronts. Like many other free trade agreements (FTA), there are fears over the impact TPP may have on certain products and services in member countries.

Some campaign groups have raised concerns about the impact such a wide-ranging agreement may have on intellectual property laws and patent enforcement. They fear the deal may extend the scope of patents in sectors such as medicine and prevent the distribution of generic drugs.

In Japan, there are concerns about the impact the deal may have on the agriculture sector.

But the biggest criticism has been of what the campaigners allege to be secretive negotiations. They say the delegates have not been forthcoming about details of the issues that they have been discussing, and what the scope of agreement in those areas is likely to be, and how it will impact trade.

4. WHAT IS THE MAIN OBSTACLE? 

A shopper browses packs of meat products at a supermarket in Chiba, east of Tokyo February 26, 2014. -- PHOTO: REUTERS

The US and Japan are the two largest economies in the group and Japan is the only one that doesn’t already have a FTA with the US. So the two nations - in addition to being the main players — are the key and also the main obstacles.

The reason there hasn’t been an FTA between the world’s biggest and third largest economies is because of protectionism of key sectors. The US has been seeking greater access to Japan’s automotive and agricultural markets, although Tokyo has vowed to do what it can to protect politically sensitive products such as beef, pork and rice. In exchange, Japan wants the US to remove its existing tariffs on imported cars and light trucks.

5. WHAT’S AT STAKE? 

US President Barack Obama shakes hands with Japanese Prime Minister Shinzo Abe following a bilateral press conference at the Akasaka Palace in Tokyo on April 24, 2014. -- PHOTO: AFP

For the US: The TPP is the most significant trade agreement the US is negotiating, representing 40 per cent of world trade and a destination for over 60 per cent of US exports.

The US estimates that the TPP would add US$305 billion (S$393 billion) in exports per year globally, with nearly half accounted for by an increase in US exports by an additional US$123.5 billion.

As importantly, the TPP is strategically significant as it is the economic dimension of a broader US rebalancing towards Asia.

As China is not among the participants, the TPP provides an economic counterweight to China in the region by securing preferential access to Asia’s markets for US companies over Chinese firms.

For Japan: Japan has already secured its tariff on three of its so-called "sacred" agricultural products - rice, wheat, sugar - in exchange for taking non-tariff measures to increase the imported quantities.

On beef, Japan has agreed to lower tariffs by 9 per cent in the distant future. Negotiations are still ongoing about the tax restrictions on pork.

For Prime Minister Shinzo Abe, the TPP can help put some substance to the structural reforms within his ambitious plan dubbed “Abenomics”.

Mr Abe has said that the TPP is a growth centre which “will continue to propel Japan’s economy for the foreseeable future”.

The TPP is estimated to raise Japanese per capita GDP by about 1.5 per cent, which would nearly double the slow pace of expansion the country has experienced in the past two decades.

It would also raise per capita growth to over 2 per cent, essentially lifting the country out of its long stagnation.

6. WHAT DOES CHINA SAY?

China's President Xi Jinping speaks at the Apec CEO Summit at the China National Convention Centre in Beijing on Nov 9, 2014. -- PHOTO: AFP

Some of China's official media and Chinese analysts have described the TPP as a US attempt to counter Beijing's growing influence in the Pacific Rim - concerns that Washington has dismissed.

Some of China's official media and Chinese analysts have described the TPP as a US attempt to counter Beijing's growing influence in the Pacific Rim - concerns that Washington has dismissed.

In response, Beijing is pushing for a separate trade liberalisation framework called the Free Trade Area of the Asia-Pacific (FTAAP) which some say is a bid to divert attention from the TPP, which excludes China. In the run-up to the Apec gathering in Beijing, Chinese media had aggressively pushed for the FTAAP to be accelerated as a solution to the current "spaghetti bowl" of competing regional free-trade proposals, an apparent swipe at the TPP. The South China Morning Post quoted an unnamed Chinese official as saying: "The US wants to impede FTAAP, and they want to promote TPP during Apec. This is really annoying for us."

In a statement issued on Nov 8, 2014, Apec ministers cautiously endorsed the FTAAP, calling for steps to be taken to “translate the FTAAP from a vision to reality”. They agreed to launch a “strategic study” on the FTAAP, avoiding China’s calls for a “feasibility study” on the concept.

SOURCES: BBC, WASHINGTON POST, FINANCIAL TIMES, AFP

* This article was first published on Apr 25, 2014, and updated on Nov 10, 2014.