This is the third post in a series of three that examines the Trans-Pacific Partnership and the Pacific Alliance, and what they mean for each other and the growing Pacific region economy.
As discussed in the last two articles, the Trans-Pacific Partnership (TPP) and the Pacific Alliance (PA) are two trade initiatives that herald the Pacific region’s growing economic strength. The 11 TPP members far outweigh the 4 PA countries in terms of economic size – the TPP would account for about US$27 trillion and the PA a respectable US$1.3 trillion. However, both are pioneering enterprises. The TPP is unique in its geographic reach and ambitious agenda. The PA is distinctive because of its potential to offer a new doorway to Latin America from Asia.
Both of these agreements are good news for Pacific commerce. Besides expanding market access for members, the TPP is important because, if successful, it will establish rules between members on the most complex and polemic issues in international trade; specifically: intellectual property rights, rules of origin, technical barriers to trade, environment, labor, pharmaceuticals, foreign investment, competition, state-owned enterprises, and government procurement.
The PA, on the other hand, has focused on a few specific areas rather than a large, comprehensive regimen. The PA has technical working groups that meet on a range of topics including rules of origin, tariff reduction, technical barriers, sanitary and phytosanitary measures, migration, services and investment, government procurement, regulatory improvement, and intellectual property rights. The most progress, however has been made in 3 areas: migratory, where visa requirements have been waved between the countries; services and investment, where an integrated stock market has made the flow of capital easier; and tariff reduction, with 90% of goods expected to be tariff free between the members by the middle of this year.
Differences also lie in the geographic and strategic roles of these two agreements. The TPP’s members come from North America, South America, Oceania, and East Asia. Its members label it a “21st Century Agreement” because of their goal to establish a model framework for other comprehensive trade agreements around the world. The PA, however doesn’t stretch as far out geographically. All of its members are in the Americas. It only has 3 observer countries from the other side of the Pacific – Australia, New Zealand, and Japan. These differences make it more sensible to view the TPP as a bridge that connects the Pacific, while the PA is a doorway for the Pacific into Latin America.
Because they aren’t necessarily aiming for the same objectives, the TPP and the PA are two compatible trade deals that together can help strengthen trade in the Pacific region. Because 3 (Peru, Chile, and Mexico) of the 4 PA countries are also members of the TPP, it’s likely that PA members will focus more of their scarce negotiating resources on achieving favorable results under the TPP as a bloc, where the rewards are greater. Colombia has not yet signed up for the TPP, but has expressed interest. Whatever the 3 PA countries cannot achieve under the TPP would ideally be left for further negotiation between themselves under a more comprehensive Alliance agreement.
One major question for the TPP is the accession of major Asian players like China, Korea, and Japan. Japan has already formally requested to join. Because of its large economy and sticky issues revolving around market access for agriculture and automobiles, its accession would likely mean putting off a deal until 2014 at the earliest. Korea holds or is currently negotiating FTAs with most of the TPP countries, so its accession wouldn’t be too disruptive. China, however, is a bigger question. Political considerations mean that it is likely to not join the TPP anytime soon, but because of its role as East Asia’s largest economy, its absence will hinder the success of the TPP in creating a true free-trade zone in the Pacific.
The Trans-Pacific Partnership and the Pacific Alliance are hopeful signs for a growing Pacific region. Their compatibility rests on their differing scopes and visions, but their success will rest on their mutual enthusiasm for greater commercial links across the Pacific. The true impact of these agreements will only be felt years down the road, but even the progress thus far is a good sign for the region.