Trade

TPP as inspiration for the 10th WTO Ministerial Conference in Nairobi?

TPP as inspiration for the 10th WTO Ministerial Conference in Nairobi?

At the beginning of October, 12 Pacific Rim countries agreed on the Trans-Pacific Partnership (TPP) agreement. The TPP agreement has been hailed as a landmark trade pact, as it includes many issues that have so far not found their way into the rule of law in the multilateral trading system. As a reaction to the successful deal, World Trade Organization (WTO) Director-General Roberto Azevêdo announced that the TPP “will serve as an inspiration for WTO members” for the forthcoming 10th Ministerial Conference in Nairobi, Kenya. In this article, I argue that neither the process of TPP talks nor the content of the TPP agreement can provide a positive stimulus for the Doha Development Agenda (DDA) negotiations.

At first sight, the negotiation agendas of the TPP and the DDA look alike. Both mandates cover a wide range of topics, including “old” topics, such as agriculture and non-agricultural market access (NAMA), as well as “new” topics, such as e-commerce and competition. However, whereas the WTO members have been unable to make significant progress on the DDA over the past 15 years, the TPP partners were able to seal a deal within 5 years. How was such an achievement possible and what do the compromises look like?

The full text of the TPP agreement was released at the beginning of November, but its implementation is still pending ratification by the member countries. A first preliminary assessment of the document yields interesting insights.

Gradual opening of agriculture and NAMA

First, among the “old” topics, namely agriculture and NAMA, the concessions are tangible, but probably not as ambitious as many would have expected. For the most sensitive agricultural products, such as sugar, rice, and dairy products, the parties did not agree to abolish the quotas, but rather to raise them slowly year by year. For example, Japan agreed to increase the quota for rice from Australia from 6,000 tons to 8,400 tons over a period of 13 years.

For NAMA, the levels of applied (most favored nation) MFN tariffs among TPP members were already low (4.0% simple and 2.7% weighted for the year 2014). Furthermore, more than half of the trade relations among TPP partners are covered by preferential trade arrangements, where the simple applied tariff is 1.7% and the applied tariff less than 1%. In the final agreement, the TPP partners agreed to further reduce or even eliminate their tariffs on industrial goods. Similar to agriculture, however, the TPP members were able to impose rather long periods for phasing in their tariffs. The most prominent example is the United States (US) tariff on small trucks (HS 870422) from Japan, which is currently at 25% and which will become duty free after 30 years. The biggest change for the bilateral trade of industrial goods will thus not be for trade between the developed TPP countries, but rather for trade between the developing and developed countries. Malaysia and Viet Nam are among the countries who stand to reap the greatest benefits through better market access to the US and Japanese markets.

How are the “new” topics dealt with in the TPP?

However, the developing countries were the ones who had to compromise most on the “new” topics. For the first time in a regional trade pact, the TPP introduces detailed provisions on e-commerce as well as labor standards. E-commerce among TPP members is thriving, at double-digit annual growth rates, and introducing rules on cross-border trade in the TPP agreement was therefore vital, especially for the developed country members. The final e-commerce chapter requires TPP members to maintain a certain level of consumer protection and to ensure cybersecurity. In addition, it stipulates that no TPP member can require companies to store their data locally when operating in that country. Finally, no TPP member is allowed to ask foreign companies to share their software code when entering their markets.

Another new topic is labor standards. The TPP agreement introduces for the first time in a regional trade agreement fully enforceable requirements to implement fundamental International Labour Organization (ILO) labor rights. Furthermore, the US has concluded several bilateral agreements with TPP members that define additional requirements. For example, in a bilateral deal, Viet Nam agreed to give workers the autonomy to form independent unions—currently, all unions in Viet Nam are government affiliated. Similarly, Malaysia has committed to removing restrictions on union formation and strikes.

Can this TPP package provide inspiration for the DDA?

The TPP showed once more that agriculture remains a highly sensitive topic. Even if like-minded countries come together to negotiate a trade deal, compromise is hard to achieve. For the TPP, the conflict was mainly among the developed countries with a strong interest to make the TPP happen despite diverging interests on agriculture. In Nairobi, 161 WTO members will sit at the table with very different views on agricultural market access and with varying degrees of willingness to compromise.

As for NAMA, the tariffs are already low, and for some specific products the opening will again be very gradual. NAMA would probably be the least controversial point on the negotiation agenda of the Doha Round. What about the new issues, some of which are also part of the DDA? The agreement achieved on these issues carries the strong signature of the US. In the WTO, the views on these topics are very much diverging. For example, the chapter on e-commerce would have never have been signed off by the European Union, or the People’s Republic of China.

What can we learn from the negotiation process of the TPP?

The contents of the TPP agreement thus provide only very limited guidance, but what can be learned from its negotiation process? A distinguishing feature of the TPP talks was the fact that they were not open to the public. Despite wide criticism of this, holding closed negotiations probably helped to advance the discussions more quickly. In contrast, multilateral trade negotiations take place in a more open and transparent fashion. The so-called “Green Room” meetings, where a small group of large WTO members meet together with the director general, have become fewer and the negotiations process has become more inclusive.

Another factor that probably facilitated the TPP talks was the US and Japan’s leadership. Both Prime Minister Abe and President Obama were committed to bringing the negotiations to a successful conclusion. For Prime Minister Abe, the TPP deal is an integral part of his reforms, often labelled as “Abenomics.” The TPP agreement will give him additional authority to push through difficult reforms. For President Obama, the TPP agreement is crucial for ensuring US interests in the Pacific. In addition, it will be an important part of his legacy in international affairs. Can we expect a similar leadership for the DDA? The answer is clearly no.

How can the TPP negotiations inspire the 10th WTO Ministerial Conference in Nairobi?

The TPP agreement shows that compromise in sensitive issues can be achieved and gives insight into how new issues can be tackled. However, neither the contents of the TPP agreement nor the process of the TPP negotiations can provide much guidance for the DDA’s multilateral trade talks. The TPP should therefore not be considered as inspiration for the DDA, but rather as a reminder of how much is missing for reaching agreement.

Photo: Kinori [Public domain], via Wikimedia Commons

Matthias Helble

About the Author

Matthias Helble is a senior economist and co-chair, Research, Asian Development Bank Institute.

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