Rough and smooth waters facing Trans-Pacific Partnership

The 12-nation Trans-Pacific Partnership is a prized legacy for US President Barack Obama that delivers tangible benefits for Australia, guarantees domestic battles over ratification and will be judged ultimately by whether it advances or retards Asia-Pacific-wide free trade and investment.

While the benefits are being oversold and final judgments must await the release of the text, every sign points to the need for this deal to be ratified by the Australian parliament. It would be a mistake for the Labor Party to throw up more obstacles the way it has attacked the Australia-China free-trade agreement and the omens are that Labor knows this.

The decisive role played by Trade and Investment Minister Andrew Robb at the recent meetings culminating in Atlanta when he stared down the demands made by the US pharmaceutical companies testifies again to an Australian skill on trade negotiations and Robb’s impressive record over a short period.

The split between Obama, who has pushed hard for this result, and likely US Democratic candidate Hillary Clinton, who has declared “as of today, I am not in favour”, points to a bitter US contest over congressional ratification that will be mired in presidential politics.

The progressive political base in both the US and Britain is sucking politicians into a vortex of reactionary and self-defeating anti-market policy — witness the elevation of Jeremy Corbyn as leader of British Labour, the threat to Clinton from socialist senator Bernie Sanders, who says that with the support “of virtually every union in the country” the TPP can be sunk, and now Clinton’s calculated (but probably temporary) retreat from a deal she once called a “gold standard”.

The irony is compounded because one of Bill Clinton’s great achievements as president was finalisation of NAFTA (the US-Canada-Mexico free-trade deal), with Paul Keating during one memorable phone call tutoring Clinton on how to sell the package.

The TPP has a different meaning for different countries. The politicians play it down but the US and Australia have different visions for the TPP. For the US, the deal is a regional economic policy and a strategy policy: it constitutes the commercial grunt to buttress the so-called military “pivot” to Asia that Obama unveiled in Australia.

Andrew Robb tells Inquirer: “The Americans were desperate to get this up. There are legacy issues here for President Obama. A lot of Americans wanted to establish a US commercial commitment to the region, aware that the strategic commitment is undermined without such a trade and commercial agreement.”

Note that China, India and Indonesia are not involved in the TPP deal. The 12 countries are Australia, Brunei, Canada, Chile, Japan, Mexico, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam.

In unusually revealing remarks, Obama once said: “If we don’t write the rules, China will write the rules out in that region.” In short, US rivalry with China is pivotal to US thinking.

What is Australia’s long-run vision? Robb says: “Our view is that we want the architecture to encompass as many countries as possible. We want to see an Asia-Pacific free-trade zone. We want this established as soon as possible and we want China involved. I think in Australia we are probably more forthright in saying we want China and India restored to their place in the centre of the political and economic gravity they previously occupied for 18 out of the past 20 centuries.”

The stakes are high. The ultimate test of the TPP is whether it divides the Asia Pacific by entrenching trade distortion or becomes, in the end, a facilitating instrument for regional integration among nations now operating under different rules and at varying stages of development. In short, it is the next stage that becomes the defining event.

For Australia, the potential gains from the TPP are significant. They are greater agriculture ­access beyond the recent bilateral FTA deals; our participation in a new 12-nation trade and economic market that constitutes 36 per cent of global GDP; and ­opportunities for Australian business and corporates in services, investment and offshore expansion.

Robb says: “For me, the free-trade deals with China, Japan and Korea are transformative, setting Australia up as our economy ­diversifies and services become more important. The TPP is looking to the future. We are getting into some new emerging markets. We are establishing important partnerships with countries such as Vietnam, Chile and Mexico in a way that we couldn’t have done otherwise. The TPP will complement the free trade deals.”

In Australia, there are likely to be two groups of critics on opposing sides. On the Left, the unions and greenies will damn the TPP as a corporate conspiracy in an anti-free-trade reflex while the economic rationalists will argue this is not free trade, it is preferential trade with the potential to cut across globalisation of component, production and supply chains.

The test for Australian politics in assessing the TPP is to remain anchored in centre ground pragmatism, not succumb to the wild fantasies of the Left and Right now gaining sway in the US and Britain.

Leading Republican contender Donald Trump has called TPP a “terrible” deal, saying the “incompetence” of the Obama administration was “beyond compre­hension”. In short, the main contenders on both the Democratic and Republican side are lining up against the package. From this point, anything can happen. Obama must face immense obstacles carrying supporters on his own side.

Robb is philosophical, saying of Hillary Clinton: “I think she is under significant political pressure and is looking for ways to differentiate herself when her candidacy is by no means assured. I still believe there is ample room to move in terms of what she said.”

In Australia, the mood is not so feral. Indeed, on the trade issue that has recently dominated — the Coalition-Labor split over the Australia-China FTA — there is growing confidence it will be sorted. Negotiations are being held in private. As is well known, Labor will not touch the text of the FTA. Its concerns relate to migration policy and law provisions.

In the end, the Turnbull government will probably give Labor a fig leaf on labour-market testing far short of any substantial concessions on the Migration Act. Bill Shorten and Penny Wong have an exceptionally weak negotiating position. They will probably seize any face-saving device they can get. The fun will be watching them persuade much of a gullible media that Labor has really been adroit throughout this farce.

The backdrop to the TPP is the failure of global trade rounds and the rise in its wake of bilateral and regional trade deals. In response to the TPP negotiation, China has promoted the proposed Regional Comprehensive Economic Partnership, a negotiation that involves most regional countries including Australia.

Assuming this deal is also finalised, Robb says: “The ultimate aim will be to bring these two regional blocs together.” In short, the long-run Australian aim is to secure a comprehensive Asia-Pacific free-trade zone.

For Australia, this is essential. It cannot tolerate any US trade policy that seeks a regional architecture based on excluding China.

For Robb, the key to the TPP was the elimination of negatives that would have killed the package in Australian domestic politics. Robb knew neither the Turnbull cabinet, nor the Labor Party, nor the Senate would ratify a deal that saw the cost the medicines increase in Australia.

This was the kiss of death and a deal-breaker.

His priority was to halt the US drive to secure long-term patent protection for its pharmaceutical companies for innovative and expensive drugs, the effect being to delay the entry into the market of cheaper generic medicines.

It is a tricky balancing act. Robb stood by Australia’s five-year protection for medicines while the US drug companies pushed for a 12-year provision and the administration wanted eight years.

For the big pharmaceutical players, patent protection is the pathway to profits, given the huge costs involved in “creating” life-changing drugs.

Robb, in effect, became the negotiating leader for other ­nations on this issue. The upshot was a two-day delay and a compromise of sorts that kept the five-year provision in place. Malcolm Turnbull, when selling the TPP, was able to declare: “This deal has no impact on the Pharmaceutical Benefits Scheme; it’s not going to make drugs more expensive in Australia.”

Labor opposes in principle the dispute-settling mechanism of the TPP that allows corporations to litigate against governments. History suggests these mechanisms are not the threat they appear on paper. It would be folly for Labor to hang opposition to the TPP on this hook.

Ultimately, this deal is under the supervision of the Obama Democratic administration. It will contain concessions for its own constituents and, by implication, Labor’s constituents. And because China is not involved, there will be no “threat” to this country from an increase in short-term Chinese workers that the Left of our politics can exaggerate and depict as a danger to our labour standards.