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Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.
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The Trans-Pacific Partnership (TPP) was a free trade agreement among the United States and 11 other countries that border the Pacific Ocean: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The countries involved produced 40% of the world's total gross domestic product of $107.5 trillion. They supplied 26% of global trade to 793 million of the world’s consumers.
The negotiations were successfully concluded on October 4, 2015. Officials from each country signed the agreement on February 4, 2016. However, each nation's legislature had to approve the agreement before it went into effect. Before that could happen, on January 23, 2017, President Donald Trump signed an executive order to withdraw the United States from the agreement.
On March 8, 2018, after Trump withdrew the U.S. from the deal, the other 11 TPP countries signed a modified agreement. On December 30, 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force. The trading bloc represents 500 million consumers and 13.5% of global GDP.
Seven of the countries have ratified the agreement so far. The remaining countries (Brunei, Chile, Malaysia, and Peru) have yet to ratify.
The CPTPP removes 99% of tariffs on goods and services, just like the original TPP did. It also sets reciprocal trade quotas. These measures make it more difficult for U.S. businesses, especially farmers, to export to CPTPP members. U.S. exports will be more expensive, thanks to tariffs, than those of signatories like Canada.
Unlike most agreements, the CPTPP removes non-tariff blocks to trade. It also harmonizes regulations and statutes. It shares those features with the Transatlantic Trade and Investment Partnership.
The CPTPP covers a broad range of goods and services. These include financial services, telecommunications, and food safety standards. In this way, it affects foreign policy and even laws within countries. For example, it suggests that countries set up an agency like the U.S. Office of Information and Regulatory Affairs that can analyze the costs and benefits of new regulations.
All countries agreed to cut down on wildlife trafficking. That helps elephants, rhinoceroses, and marine species the most. It prevents environmental abuses, such as unsustainable logging and fishing. Countries that don't comply will face trade penalties.
All parties have signaled that other members can join in the future. So far, Taiwan, Thailand, and Indonesia have indicated an interest.
China expressed a willingness to join the CPTPP. As one of the world's largest economies, analysts estimated that China's membership would quadruple the economic gains of the agreement. It would also significantly alter the balance of power in international commerce.
A big concern is whether China would use the CPTPP to avoid the tariffs imposed by Trump's trade war. China could send raw materials to CPTPP members, such as Vietnam. Factories there would send finished products to America, avoiding the tariff.
The following five sticking points stood in the way of the deal:
The United States agreed to shorter patents, especially for biological drugs. Pharmaceutical companies could have kept their formulas secret for five to eight years. This is less than the standard 12-year period of exclusivity.
All state-owned enterprises agreed to comply with global trade standards that protect their workers and the environment. The United States had to overcome objections from countries that didn't want to allow labor unions.
The United States, Japan, and Canada agreed to lose some tariff protection for dairy, beef, and poultry producers. This was the biggest sticking point, and the fact that farmers were willing to lose tariff protection was a big win for negotiators.
These countries also agreed to open up their automotive industries. That could cost local jobs while lowering the price of cars and trucks.
The United States won the battle over the Investor-State Dispute Settlement Mechanism. That gives foreign companies more rights to sue host governments.
In return, the United States agreed to restrictions on the trade of tobacco. In the past, U.S. cigarette companies have used arbitration panels to sue countries that tax or otherwise restrict cigarette advertising.
The Trans-Pacific Partnership deal negotiated by the Obama administration did not receive a vote. Senate Majority Leader Mitch McConnell blocked the deal from reaching the Senate floor while Obama was president. Later, the Trump administration officially withdrew the U.S. from the TPP.
The Office of the U.S. Trade Representative (USTR) negotiates all international trade deals. It also monitors the implementation of trade deals and enforces them. This office is a part of the executive branch, so the authority to negotiate trade deals ultimately rests with the president.
