Trans—Pacific Partnership deal will be a game changer

Deal will be a game changer

Andrew Robb is surely the most unlikely sex symbol any federal government has had. If he has not quite reached the stage of nude centrefolds in The Australian’s Wish magazine, he is still the senior minister with the most obvious, tangible achievements, namely the free trade agreements with China, Japan and South Korea.

The negotiations with India are proving bureaucratically challenging, but there is still a good chance of a deal being done with New Delhi by the end of this year. But next week the pace could pick up dramatically in the biggest free trade deal in the world, the Trans-Pacific Partnership.

Apart from the demonisation by the usual suspects, the TPP has flown substantially under the radar in Australia. But it is a massive deal and offers enormous benefits. If it is concluded successfully, it will become the biggest free trade deal since the formation of the World Trade Organisation.

It will be by far the biggest free trade area in the world. It will encompass 12 nations, which represent 40 per cent of the global economy. This compares with the 27 per cent of the global economy represented in the North American Free Trade Agreement.

The 12 countries involved are Australia, the US, Japan, Canada, Singapore, Malaysia, Vietnam, Brunei, New Zealand, Chile, Mexico and Peru. There are accession protocols and a hope that other nations will join in due course.

What makes action likely in the next week is the prospect that at any tick of the clock, the US House of Representatives could grant President Barack Obama trade promotion authority.

TPA provides that when the president brings a completed deal to congress for ratification, the congress can only vote yes or no. It cannot amend the agreement. Other nations, notably Japan, will not complete final negotiations on the TPP until the Obama administration gets TPA.

This is by no means assured, but recently the US Senate voted in favour of TPA by 62 to 37. That actually makes it a lineball vote, because in the weird US system nothing can really pass the Senate without at least 60 votes. In the House of Reps, the administration will need 217 votes to get TPA. The calculations are there might be 200 Republicans and 17 Democrats who will vote for it.

If Obama gets TPA and concludes the TPP, it will be the most positive thing he has done in Asia. At last, belatedly, almost criminally belatedly, he is campaigning for the vote. But it is not clear that his campaigning is doing any good.

No Republican benefits from a benediction from Obama and if his credit with his fellow Democrats is so low he can barely get 17 of them to support him on his most important economic and strategic initiative in Asia, that is a woeful state of affairs. This is evident in polls this week, which show ­George W. Bush now enjoys a higher approval rating than Obama does.

The internal arguments within the Republican Party are exquisite. Republicans are still much more pro-free trade than Democrats and should have no trouble supporting the TPP in principle. But, like opposition groups everywhere in the West now, they are sorely tempted by the idea that they just don’t want to give anything, any achievement at all, to their political opponent, in this case the White House. On the other hand, some Republicans believe passing this deal will show them as the responsible party of government that gets things done, that Obama can do nothing useful without them.

But the deal is in danger of getting mashed up by presidential politics. The American union movement, almost as obtuse in economic policy as its Australian analogue, is campaigning furiously against TPP. The symbol of enlightened liberal internationalism, Hillary Clinton, whose husband Bill produced NAFTA, previously the biggest free trade agreement, is hedging disgracefully on the TPP, while her Democratic presidential opponents and critics are loudly against it.

Nonetheless, on the balance of probabilities, TPA will pass and the TPP will soon be finalised. The process of the 12 member nations then individually ratifying it and bringing it into force could take another 12 months. It is likely that Obama would try to get congress to ratify it before he leaves the White House. This too could get mauled in presidential politics, as ratification will certainly need some Democrat votes.

What does the deal actually offer Australia and what are its limitations?

Its biggest limitation is that our biggest trade partner, China, is outside the deal, as is India. But Obama has said this week, and US officials have always proposed, that China would be welcome to join if it can meet the free trade commitments the deal embodies.

Of course there is a geo-strategic element to the TPP, in that it cements US regional leadership. But the Americans, and the Australians, believe the TPP can be a template, provide something like the rules of the road for future trade deals.

The TPP’s specific benefits for Australia are substantial but not revolutionary. Economic modelling undertaken by the US Department of Agriculture shows Australian agriculture would be the biggest beneficiary of any of the 12 nations involved. I take all this sort of modelling with a pinch of salt, but there is substantial new market access for Australia in the TPP.

However, it offers some of the best opportunities to Australia in the way it opens up trade in services and potential investment opportunities, as well as addressing “behind the border” barriers to trade.

The Australia-US FTA has delivered gains in trade, but in some areas Australia was unable to fulfil all the opportunities offered by new market access in the US because we had even better markets in Asia. But the FTA with the US revolutionised two-way investment between the two economies, which is now way over $1 trillion. Australians are materially better off because of this investment, which flowed from the FTA.

Two particular scare campaigns have been waged against the TPP. One is that in offering enhanced protection for intellectual property it will see the price of medicines in Australia rise. You hear ABC commentators echoing this nonsense constantly. Robb has been absolutely explicit that he will not sign anything that has this effect.

At the moment, medical patents in many types of drugs generally run for five years, after which the IP is available for anyone to use to manufacture generic medicines. The US would like the five years extended to 12. Robb has said he won’t compromise on that and won’t allow an increase in the five-year period. As soon as the deal is finalised the text will be published. Robb’s word will then be vindicated.

The other biggest source of hysterical scare campaigns is the provision for investor-state dispute settlement procedures. ISDS protects investors against uncompensated expropriation of property and discriminatory state sanction. They are of use mainly in countries which do not have reliable legal systems and they will offer some protection to Australian investors. Australia already has ISDS arrangements with 29 countries. The only time a problem has arisen is with tobacco companies using an extremely old and separate investors’ agreement with Hong Kong to challenge plain packaging laws.

Modern ISDS provisions are entirely different from these old agreements and contain health and environmental safeguards which mean a repeat of this experience under the TPP is impossible.

Most of this scaremongering comes from a reflexive Left view of the global economy, but it also has older antecedents, in an almost medieval distrust of trade and cosmopolitanism. It is entirely disreputable.

The momentum of trade liberalisation has flagged in recent years. Over the past four years international trade has increased more slowly than the global economy, an almost unique outcome since World War II.

The TPP offers a great deal to Australia, but it also offers something to the global economy at a difficult time. The most important player right now is the US House of Representatives, but if Robb brings this home for Australia, you may want to watch out for those centrefolds, metaphorically speaking.