After years of intense negotiations, the Trans-Pacific Partnership Agreement (TPP) talks finally concluded last October. Following a month of legal and language-related touch ups, the full and official text of the agreement was published in November of last year, marking the beginning of a difficult process of ratification in all member states and the debate that comes with it.
So, what does the agreement entail and how will it benefit Australia?
The ambitious free trade agreement features 12 Pacific Rim countries from Asia, Oceania and the Americas with varying levels of development and economic size, the largest being the United States and the smallest, Brunei. The agreement is designed to boost trade and investment between partners by focusing on reducing tariffs and non-tariff barriers. The trade pact also sets minimum labor and environmental standards and includes provisions to encourage and protect foreign investment.
Not unlike other free trade agreements, the TPP primarily seeks to reduce or eliminate tariffs, those usually ill-advised duties that countries impose on export goods to shelter their domestic industries. When tariffs are eliminated, economies can allocate resources more efficiently, encouraging export industries to develop to their full potential and allowing consumers to access a wider range of goods and services at lower prices. The Department of Foreign Affairs and Trade estimates that the TPP will eliminate 98 percent of tariffs in the region.  For Australia, this means a vital boost to Australian exports, job creation and national income.
A fitting example is the 38.5 percent duty that Japan imposes on beef imports, a tariff which has endured despite Japan’s rise to become the third largest beef importer due to growing affluence and shifting culinary preferences. This is good news for Australian beef producers who have long struggled to gain access to the growing Asian middle class. Along with beef producers, the trade pact has the power to boost exports for an extensive number of local producers in the agriculture, manufacturing and resources and energy sectors. What’s more, the total the worth of export products which will be affected is currently estimated at whopping US$9 billion per year, a number that will grow in the future.
The reduction of “technical barriers to trade” is also set to deliver a lift to the services sector, which currently employs 85 percent of the workforce. Service suppliers will be able to operate with ease throughout the TPP free trade area thanks to the standardization of rules, licensing and paper work that companies must carry out when setting up abroad. Other measures include the relaxing of regulations that restrict the temporary entry of business people and allowing Australian universities and education providers access to rapidly growing markets in TPP countries. The removal of excessive “red tape” will create a new horizon for service providers, logistics companies and government procurement sectors, benefiting Australia’s skilled and educated workforce.
The Trans-Pacific Partnership will also promote the growth of regional supply chains, which will allow several countries to participate in the production of goods using the human and physical resources available to them. For Australia, this means taking advantage of an abundance of human capital – the sector of workforce that is highly educated and skilled relative to the rest of the region. More efficient use of human capital will translate into higher wages, making university and other qualifications more attractive. Equally as important, supply chains are a way that developing economies can take full advantage of globalization. For the Asia Pacific region, supply chains will fuel future economic growth and improve the rate of development in countries that greatly need it, such as Vietnam.
Given that Australia is only now beginning to wake up to the inevitably of a slowing Chinese economy and weak Australian dollar, this is a godsend. After a slow 2015, the Reserve Bank was forced to cut the cash rate to an uncomfortably low 2 percent and a future raise isn’t yet on the horizon. Commodity prices have also plummeted, reducing Australia’s export income and slashing the share prices of Australia’s major resource companies. The effects of this downturn have made a federal government surplus in the near future a very distant possibility and put upwards pressure the national unemployment rate. Currently at a less-than-inspiring 6 percent, Prime Minister Turnbull recently tried to assure the public that a marginal fall is “something to be very pleased about.” If one thing is clear, it is that the economy desperately needs a shot in the arm.
With many emerging markets situated in the Asia Pacific region, it is obvious that regional integration will play a major role in securing a bright economic future for Australia. To underline this point, within ten years the TPP region will be responsible for half the world’s GDP and (according to the IMF’s Regional Economic Outlook) the Asia Pacific region will remain global growth leader and continue to outperform the rest of the world in 2016. The TPP undoubtedly has the qualities needed to foster future regional integration and economic development and should therefore be viewed as a crucial element of Australia’s economic and geopolitical strategy. This is why the Australian government has made it clear that it is also committed to an expanding TPP membership in the future. The future outlook for the pact is optimistic – membership is open to any Asia-Pacific country and six other parties have already expressed interest in joining – including Australia’s closest major economy, Indonesia.
To help the process of integration, ambitious provisions for setting minimum environmental and labor standards have also been woven into the agreement, forcing all member countries to “adopt and maintain” International Labor Organization endorsed labor rights, such as the right to collective bargaining (presently banned in Vietnam), and the elimination of forced labor, child labor and employment discrimination. These measures will help foster sustainable economic ties between partner countries by creating healthier competition, widening the responsibilities associated with investment and protecting the fundamental rights of workers in the developing countries. A regional agreement with a large number of parties is much more likely to succeed at enforcing rules and regulations, a common issue with flimsy bilateral treaties.
While Europe and Central Asia struggle, the Asia-Pacific region remains one of the star performers in a sluggish world economy. The Trans-Pacific Partnership therefore represents a window of opportunity for Australia. Furthermore, without continued pressure to liberalize, our regional partners, in time, might decide to fall back on protectionist policies, severing important economic and political bonds in the process. If all goes to plan, the Australian Parliament will acknowledge the merits of the TPP and take advantage of the window before the moment passes.