TRANSPACIFIC PARNERTSHIP AGREEMENT OF FREE TRADE. A NEW INITIATIVE WHICH IS THE BIGGER ECONOMIC AGREEMENT IN THE LAST 20 YEARS WORLD WIDE

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1 TRANSPACIFIC PARNERTSHIP AGREEMENT OF FREE TRADE. A NEW INITIATIVE WHICH IS THE BIGGER ECONOMIC AGREEMENT IN THE LAST 20 YEARS WORLD WIDE Dr. Lionel Gil Hormazabal MSc. Jose Pedro Diaz Garrote Asia-Pacific Economic Cooperation Virtual Centre Chile (APEC-VC Chile). Asia-Pacific Economic Cooperation Virtual Centre for Environmental Technology Exchange Dr. Marta Adonis Parraguez Workshop Seoul, Korea October The New Trans Pacific Partnership Agreement of Free Trade is an ambitious integration project in the Asia Pacific Region, which involve 12 countries, that was signed October 5th 2015 in Atlanta, USA. The negotiations of Economical Association started the year 2005, with the agreement known as P4 Strategic Transpacific Agreement. The agreement was signed initially in that time by Chile, Brunei; New Zeeland and Singapore. The reason for this new initiative it is that the commerce has not grown enough because the initiatives that have been negotiated in Doha in the last years are to slow, because is very difficult to get agreements with a big number of countries. On the other hand the P4 as grown very fast ant other countries have integrated later on the negotiations and by 2015 included 12 countries: Japan. Vietnam, Malaysia, Brunei, Singapore, Australia, New Zealand, Chile, Peru; Mexico, USA and Canada. (figure 1). Figure 1. Ministers of 12 countries who signed the TPP agreement in Atlanta USA October 5th Figure 1.Shows the Representatives of all countries that signed the TPP agreement which is the bigger Commercial Agreement signed in the world in the last twenty years. This treaty is considered the commercial frame for the XXI century worldwide. 1

2 Figure 2. Shows the 12 participants members of TPP, these together, have a GDP of 28 billion dollars, representing 40% of the GDP global economy. The same figure shows the amount of money as well as the percentage of each GDP contribution to the 40% GDP global economy. The three bigger economies participating are USA, Japan and Canada, representing 17.4 billion, 4.6 billion and 1.7 billion respectively. It is estimated that 792 millions of persons will receive the benefits of the agreement. TPP might promote a better access to markets and to more services promoters which will enhance productivity. Figure 3. Shows the percentage of commerce of each country with other countries participating in the TPP. 2

3 Areas in Negotiation. The most relevant areas in negotiations included: Access to Markets, Sanitary and Phytosanitary measures, Commercial Defense, Public Purchases, Services Investments, Electronic Commerce, Finance and Legal matters, Telecommunications, Intellectual Property, Development and Competitively of Small and Medium Enterprises, Environment and others. Steps in Negotiation. The negotiations have finished, in Atlanta, October 5 th, 2015 with the signature of the agreement by the government representatives. The next step is the legal review of the documents, which will be done in the next meeting in Japan at the end of October. The objective in this step is to finish quickly, in order to sign the agreement by the 12 presidents as soon as possible. The last step will be the ratification of the agreement by the respective congress. Criticism. The TPP is not except of criticism. In USA some senators consider that this agreement will affect the employment. Others claimed that the agreement will give too many concessions to the USA competitors. In Chile some critics are related to that the negotiations were done in secret with participation of negotiators only of the Chilean Minister of Foreign Affairs. There is also concern that TPP affect negatively some sensible sector of the economy as agriculture. In Australia there is some tremor about the data privacy. Environmental Standards, Labor and Intellectual Properties. USA required that the TPP countries have high requirements in these subjects. Some TPP countries will have to establish high standards in environment and in intellectual property which will obligate them to modify their laws in order to accomplish the TPP agreements and this might take some time. On the other hand due to the signature of TLC Chile-USA in 1994 most of this requirements are already implemented in Chile. Data Flux. The countries participating in the TPP have agreed do not block the data transfer of information by Internet, they also agree that is not necessary to have servitors in the same country where the business has been done. As an example In Australia might exist a conflict with some laws to protect privacy and regulations against the storage of data in foreign countries. Services. The TPP agreement pretends to improve the opportunities for industry services such as financing, engineering, software, education, legal affairs and information technologies. Although there is no tax for services, there is no nationality requirements, neither restrictions over investments, many of this tools are established in other countries in order to protect local business. Pacific Alliance prepared to face falling commodity. The economies of Chile, Mexico, Peru and Colombia are in the best position to meet the challenge of a global slowdown while working on further integration of its markets (Colombia has not signed yet). The four countries of the Pacific Alliance are in good shape to confront the current of sharp decline in prices of exported raw materials, which represents about 35% of GDP in Latin America, because they are countries that over the years have built solid foundations that allow face volatile times. 3

4 The Importance for Chile of TPP. Chile took the first formal step to seal the Trans-Pacific Partnership Agreement (TPP), a block that will lower the tariffs and encourage trade between 12 countries of the Pacific basin. The average customs tariffs for the entrance of imports to Chile is around 0.9% and imports from the TPP countries is close to 0%. Thus, Chile will have an economical advantage with a decline of imports tariffs compared with other countries with which Chile has signed TLCs. This means that differences which have not been resolved in other commerce agreements could be resolved in TPP meaning, that this treaty could be complementary to other agreements. This is an important economic, strategic and political step." With this signature we have achieved a balanced agreement, with significant benefits, and sensitive issues were properly addressed to our country. Chile is an open economy, so its participation in the creation of new international trade rules is essential," said Andres Rebolledo, director the Direcon. Hernan Felipe Errazuriz, chancellor between 1988 and 1990, argues that the merits of the TPP is not only economic. "Participation in the TPP has a significant strategic content: Allows Chile and the other signatory countries increasing interdependence, cooperation, mutual support, the peaceful settlement of disputes and its influence in global forums." Some key questions After handshakes in Atlanta emerged some critics in other countries participating in the TPP. Some questions and concerns about the agreement could complicate the ratification of this agreement by the Congress of the participant countries. In Chile, the main criticisms has been the "secrecy" - that prevailed in the negotiations, but as that the time that elapses between the closing of the agreement and the time they will be announced public and formally the final texts. Another side is the low profile that had the "side room", which is composed of representatives of the productive sectors that will be affected by the treaty and whose logic suggests that literally office is installed next to the negotiators to make suggestions and criticism. Several of its members recognize that this instance did not work as such in the TPP as an example in Atlanta show that there was no representative from this group. Although Chile has free trade agreements (FTAs) with all the member nations of the TPP, several issues were excluded or restricted in those agreements and that the TPP is seen as an opportunity for the country to revert some decisions that has not been resolved. Since Chile has agreements with twelve countries TPP What prevail? The golden rule is "better deal" says Rebolledo. This is clear in the tariff, where this concept is reflected in the lowest or the highest tariff quotas, but in areas where the "best deal" is not as clear as in the financial area, countries should combine positions while asking the vision of a panel. The Ministry of Agriculture has indicated that one of the most emblematic cases of interest in expanding what has been achieved in the NAFTA era. For example Japan, as the agreement with that country made it absolutely excluded as dairy products. This means that today Chile does not have any tariff preference to enter dairy products. The interest increasing the commerce with high incomes countries and that food prices are high, so it is very attractive for Chile to enter the Japan market. 4

5 Andrés Rebolledo holds that the TPP negotiations were a progress with respects to the TLC with Japan since in that agreement many products were with restrictions for Chile, this was the case with the dairy products. Now with the TPP advances were achieved not only with dairy products but also in livestock, forestry and agro-industrial sectors. However, he admits that not all products that Chile wanted to include for tariff preferences were incorporated. It says that in some cases would have liked higher quotas and recognizes that it is one of the points of negotiation that left him with a "bitter taste". The products included and excluded in the tariff negotiations are unknown yet, but will be released with the final text. USA Negotiators agree on an ambitious trade agreement, but the opposition to ratification is already strong The TTP will apply to 40% of the world economy. For US exporters only 18,000 individual tariffs will be reduced to zero. More or less the same applies to companies in the other 12 members. Even agricultural barriers, usually among the most heavily defended, begin to fall. Foreigners gain a foothold in the dairy in Canada and increased market share of meat in Japan. Some of these reductions will be introduced, unfortunately, slowly; However, US tariffs on Japanese trucks will remain another 30 years. Tariffs in the region were not high to begin with. More importantly, is the TTP effort to free trade in services. These are not usually subject to the same obstacles as, for example, agricultural or automotive imports; instead, it becomes entangled in the rules beyond the limits, such as customs, visas and permits. TTP promises greater market access to more service providers, which eventually boost productivity. Despite the alarmism on the left, the agreement obviously does not exalt the interests of big business over those of the poor consumers. For example, under pressure from Australia, Chile and Peru, the United States dropped its requirement that certain drugs should be protected from generic competition for at least 12 years, agreeing instead 5 years. To appease the unions and other potential opponents in the richer countries, many of the 30 chapters of the TPP are dedicated to the protection of workers and the environment. There are clauses that seek to curb deforestation and overfishing. All parties will also be required to follow the basic principles of the ILO on workers' rights. They will be required to establish a minimum wage, regular working hours. Vietnam will have to allow independent trade unions the Communist Party. Such commitments are enforceable under dispute resolution mechanisms of the treaty. The TTP also seeks to limit the extent to which governments may favor state enterprises. Although there are many exceptions, this is a concession to the likes of Malaysia and Vietnam. Economical Impacts of TPP Since the fine print of the agreement has not yet been published and since tariff reductions are a small part of its measures, it is very difficult to estimate how much the TPP could offer to their members. The Peterson Institute for International Economics, estimated that the economy would be boosted by US $ 223 billion by The biggest impact will not be felt in the United States, but in the less developed members. The study estimated that Vietnam's GDP could increase by up to 10% in the same period. 5

6 For Chile there are two different studies that suggest that the benefits for Chile's GDP and estimates speak of between 1% to 2.5% GDP growth only for Chile, that means a real opportunity for the TPP to show a real contribution to the economy. In the long run, the impact of TPP depend on whether or not expand membership, since in theory could happen once it's up and running. South Korea, which is not one of the 12, is pushing for a quick income. The crucial question is China. Many people think that the United States promoted the TPP in order to strengthen its influence in Asia and counter China. But the economic importance of the TPP will be severely restricted if the country is at the center of almost all retail chains in China is not included. China can now intensify its pressure for a bilateral free broader regional trade, built in part on the TPP. Controversies The biggest controversy will be in USA, where Congress has 90 days to review the agreement before voting yes or no, without modification as a "fast track". The slowdown in the Chinese economy and a tepid global recovery from the economic crisis have led to world trade to a long-term slowdown. The value of goods sent to everyone it has been declining since early In the first half of these year fell 13% in dollar terms compared with the same period of In volume terms, the trade continues growing, but at a fraction of the fees had before the financial crisis. The increasingly wide range of products manufactured in China, and other structural changes, seems to have slowed the growth of trade permanently. This is worrying, because trade remains the most reliable way for poor countries get richer way. The TPP undoubtedly will help to stimulate it. Geopolitical Implications "The geopolitical implications of the TPP are powerful and are part of the tactics of the White House administration to contain China. Jeffrey Kingston, an expert at Temple University of Japan, said that among other reasons, "the TPP was designed to exclude China and promote together a group of nations to counter growing economic influence and strengthen links between the participants. Some relevant questions Are their other countries in Latin America who are interested in participating in the TPP? Colombia is very interested to Joint TPP. Now that have concluded these negotiations and there is a need to get approval from Congress -at like other countries PPT- before it enters into force. After that happens it is possible to start thinking about accepting new members, but that will be decided by consensus of all members of the TPP. " Can the TPP agreements may lead to the establishment of rules for global trade in the XXI century, since the Doha Round of the World Trade Organization (WTO) - stagnant takes too long?. 6

7 Some opinions suggest that is possible that the trade liberalization is more feasible when you have a smaller group of likeminded countries. WTO has become a very large organization and you can prove with facts what can be done with these plurilateral regional trade agreements, and it can be taken some of the innovations of these agreements and perhaps take them to the WTO. Others might not been applicable. In order to appease the syndicates and others that are against TPP, in the wealthy countries many of the 30 articles of TPP are dedicated to the protections of the workers and to protect the environment. There are articles to brake sharply the deforestation and the over fishing. All the parties will be obligated to follow the basic principles of the WTO about the rights of the workers. It will be required to have a minimum salary, as well as to regulate the labor hours. Vietnam will have to allow to have syndicates independent of the communist country. Final comments The intention of the TPP has never been to isolate China. Catherine Novelli, Secretary of State for Economic Growth, Energy and the Environment US, in her recent visit to Chile declared "This is an agreement where everyone wins," says, and ensures that people will be convinced that when you see what it is the Trans-Pacific Partnership Agreement (TPP) approved in Atlanta."This is hugely beneficial to our companies, for our workers, for our small businesses and our economy in general. In addition, there are aspects pioneers in environmental protection and labor rights that make this unique agreement. "She added the intention was never TPP to isolate China. The intention of the TPP was that we, the United States, strength the commerce us with our allies in Asia who want to have an agreement with high standards... and we have said we are open to new partners as we go. So our intention was a positive relationship with countries of the Pacific ". Chile was one of the countries participating since the beginning. Chile is well known for his great experience in business negotiations since has signed agreements with more than 190 countries. It is also considered a relevant nation in terms of having a dynamic economy and for its high standard in commercial opening. The representative of Chile in Atlanta, Andrés Rebolledo Director of Direcon, declared: We were able to achieve a balanced agreement with important benefits. In addition, some controversial themes for Chile were solved. It is important to know that Chile has signed treaties of free Commerce (TLC) with the 12 countries of the TPP, however some themes were excluded or were with some restrictions in those agreements, for that reason it is estimated that the TPP is an opportunity for the countries to follow up this discussions under the rule of better treatment. An example of this is the TLC Chile- Japan. In this case are excluded the milk products. This means that Chile has not any custom tax preference to export this kind of products to Japan. For Chile to get some custom advantages it is very important since the prices of these products are very high and Japan is a very attractive country to exports to the Asian Region. In a recent meeting held in Santiago, Chilean and USA authorities analyzed the Chile- USA TLC which was signed 11 years ago, as well as the future impact of the TPP. The USA ambassador in Chile make clear, the importance of small companies in USA which have generated 60% of the new jobs in the last 15 years. He claimed that 1 over 100 small companies are in the international market. He declared that the TPP is trying to eliminate barriers to the commerce that affects small companies such as: complicated regulations, complex rules of origen and requirements that obligate the small companies to have offices in the exterior to make business, in circumstances that exchange can be done in the origen country with no problems. 7

8 Andres Rebolledo Director of DIRECON Chile referred to the Chile- USA TLC, he said that the Commerce between the two countries has grown at a rate of 12 % a year, with millions dollars accumulated at He claim that it is very important that the USA Congress approve the TPP to avoid double taxation a subject that has been in discussion for many years. He expected that the last week of October when the final text of the TPP agreement already signed, be liberated, it is going to be more information about TPP intellectual protection for new biological medicines for 5 years as well as for the internet normative. Chile maintain a clause valid for 10 years for intellectual properties. Others opinion indicated that TPP will be an historical milestone for the international commerce. On the other hand CEPAL (The Economical Commission for Latin America) in a meeting recently held in Mexico, has identified some risk for the application of TPP. A declaration of an authority of CEPAL said that the public opinion must know the chapters of the agreement that were negotiated and which will be the impact for Latin America which might go further than Chile ; Peru and Mexico, who signed the agreement. He said that the TPP will have an impact in the people in sectors related to medicine, innovation as well as in cultural aspects. Finally the purpose of this presentation was to inform APEC VC participants in the Seoul meeting about this new commercial agreement in the Pacific Region. This new initiative TTP might be very strong with only 12 economies representing 40 % of the world GDP. So, we might put efforts to follow up the development of this initiative, which has the potential to support some projects in some areas. This initiative will not compete with APEC, might be rather complementary in areas not yet developed. Thus, APEC-VC project supported presently by Korea and APEC, might also be supported by TPP for some of the economies participants in the APEC VC project such as Japan, Vietnam, Malaysia, Australia, New Zealand, Chile, Peru; and Mexico, when this initiative started. Areas such as environmental technologies, Development and Competitively of small and medium enterprises, environmental services. Environmental regulations perhaps could apply for complementary TPP-APEC projects. 8