The TPP and Chile

Years ago, late Chilean president, Salvador Allende, tried to warn his country about the negative a effects of “neoliberalism.”  According to article (http://www.thenation.com/article/the-tpp-will-finish-what-chiles-dictatorship-started/) from the political journal website, “The Nation,” signing the TPP can be detrimental to Chile’s economic stability.  To those who don’t know, neoliberalism essentially means economic factors are controlled by the private sector (corporations) as opposed to the traditional public sector (government).  This is a gold mine for major corporations as they would have insurmountable control of markets, especially with the TPP being an international agreement.  For Chile, there is too much too lose; the Investor-State-Dispute Settlement (ISDS) provision can easily place a negative impact on it society.  The ISDS gives corporations the right to “sue government directly before tribunals of three private sector lawyers operating under World Bank and UN rules to demand taxpayer compensation for any domestic law that investor believe will diminish their expected future profits.”  They can literally sue “just because,” and Chilean wages are already fairly low.  If the agreement is signed this year, hopefully it won’t place this negative impact on Chile’s economy.

Chile and the TPP : Economic costs and benefits

The case of Chile is very special because it is the only TPP negotiating country that already has trade agreements in force with each of the other trade partners. Chile can only profit marginally from the TPP because of its openness and it does not or should not have incentives to make concessions in sensitive areas like Intellectual Property, Digital Rights and Financial Transactions while other countries have strong incentives to make such concessions.

The context described above puts Chile in a particularly difficult position in the negotiating process, the result to which some of the countries aspire, ends up pushing the negotiation far beyond what Chile are willing to accept, because of its own negotiating limits established in other agreements and introduces limitations to policies like health, innovation, culture, or capital movements.

On the other hand, at least until now, the attempts to recognize the diversity of interests among TPP partners in a way that considers the creation of flexibilities that address the diversity of situations, as historically recognized in the multilateral negotiations conducted by the WTO, are unknown. In the case of Chile, the best possible bargain is the assurance that there will be no regression from what was granted in past negotiations, otherwise, it would mean paying twice for the same benefit. The lack of clarity over the costs and benefits of the TPP negotiation is one of the weakest points of this process.

Full report: https://www.derechosdigitales.org/wp-content/uploads/TPP-furche-EN.pdf

Opportunities for Chile in the TPP

As every country has its own benefits and opportunities from the TPP, we will look into how the deal will impact Chile.

  • Trade exchanges and access markets

In regards to access to markets, the TPP does not provide benefits since those are already obtained in the bilateral negotiations between Chile and all other TPP countries. Important partners of Chile are the U.S., Mexico, Peru, Canada and Australia which have already reached full trade liberalization, but Japan allows for a bilateral negotiation which will deepen the agreements between them. Regarding Peru and Mexico, the active trade agreements will provide wide market liberalization, and current parallel negotiations taking place should lead to improvement in much less time than TPP.

  • Relation to main Asian economies

One issue to be incorporated into the analysis is Chile’s relationship with the large Asian economies that are not part of TPP. It is known that the Asian region has become the main market for Chilean exports, as just over 40 % of Chilean exports are directed to that region, especially China, Japan and Korea. It should be highlighted that in recent years China has displaced the U.S. as the main destination for Chilean exports and is its largest trading partner. There is considerable scope for improving the access of Chilean products in the negotiations with Japan and Korea given the high level of protection of those countries on agricultural production, and therefore it should be a priority. In the case of China, Chile has already negotiated a FTA including a much broader tariff reduction program. Therefore, the Chilean efforts should be directed to the removal of non-tariff barriers, in particular, to the signing of the sanitary protocols that allow greater access to agricultural exports.

  • Behavior of direct foreign investment

Several evaluation studies of FTAs conducted by Direcon show that FDI received in Chile has not suffered significant changes in their amounts and sources after signing the FTAs. The flows as well as the stocks have not been altered in their dynamics, origin and priority production. This is consistent with the fact that the bulk of foreign investment that receives Chile is concentrated in mining, by virtue of its competitive advantages, and to the recognition of favorable macroeconomic and regulatory conditions that go beyond the FTAs.

  • Convergence of trade disciplines

Another point to analyze regarding the benefits of Chile’s incorporation to TPP, is the possible negotiation of commitments allowing simplification and convergence of trade disciplines. This is an issue on which APEC has been working and seeks essentially to reduce transaction costs and facilitate trade. In the case of Chile, this may be interesting precisely because it has negotiated FTAs with all other TPP members and, therefore, a simplification and harmonization of disciplines and standards might benefit its exporters and ease the work of public agencies responsible for monitoring of compliance with rules and procedures, such as customs and agricultural services.

Full report https://www.derechosdigitales.org/wp-content/uploads/TPP-furche-EN.pdf (Page 9-17)

Importance of TPP to Latin America

The TPP is discussed in terms of ‘pivot to Asia,’ but it is also very important to the three Latin American countries of Peru, Chile and Mexico. The TPP will not transform their economies but will allow them to enter the world stage with similar rules to the United States and other wealthy countries. CFR’s Shannon K O’Neil says that these countries will produce more value added goods in  a competitive way.

http://www.cfr.org/latin-america-and-the-caribbean/does-tpp-mean-latin-america/p36556

However, these countries already have free trade agreements and in the case of Chile and Peru, their commodities are not too high to begin with. TPP won’t be as transformative for others, but it will help them to enter the world stage and give access to more markets. So TPP is like joining  a club of wealthy and well performing countries, and if you are a part of it then you need to perform. This is the case of Vietnam who has already tried to upgrade their exports. Even though this won’t boost the trade between U.S. and these countries, it could deepen existing regional supply products like autos, electronics, and aerospace and also open up new markets, and reduce tariffs.

There are also some concerns in the Latin American countries like the IP rights and the challenge of whether prices of particular drugs will go up or make it affordable to segments of the population. In Mexico, major concerns revolve around auto parts. If they open up North American industry to heavy Japanese competition, then the domestic auto industry may suffer.

How important will the TPP be in the short term? Mexico can take the advantage quickest because of diversity in their manufacturing industry. Also, Mexico complements rather than competes with what Chile, Colombia and Peru produce. It can strengthen Mexico’s integration with the U.S. and protect the linked sectors from losing ground. If they were left out of TPP then it could have broken current U.S.-Mexico supply chains.

TPP and the Environment

TPP for the sea:

https://ustr.gov/Fact-Sheet/TPP-and-the-Environment

Illegal, unreported and unregulated(IUU) fishing is a growing threat to all the oceans and the approx. 2.5 billion people who depend on fish and seafood. It is estimated to drive global economic losses in billions each year which is not a very good sign and the subsidies to international fishing fleet exacerbate this problem, encouraging overfishing and depleting fishery resources and endangering treasured marine species.

TPP for the trees:

Forests are essential for protecting us from impact of pollution and also for climate stabalization. But, illegal logging is a significant environmental challenge in many parts of the world. According to Interpol, approximately illegal timber trade accounts for 10-30% of all the wood traded. The TPP can help protect significant regions of the world around 25% of world’s timber and accounts for 71% of global trade. TPP partners Peru , Malaysia and Brunei have significant forested areas.

TPP in the Wild:

A rapidly expanding wealthy class with a taste for wildlife products has led to steep rise in poaching. Some experts are reporting that we may be “on the brink of one of the greatest extinctions in the history”. Javan rhinos, wild tiger and Asian elephants are some of the threatened species which are very low in number.

TPP can help to stem the tragic extinction of endangered species in the Asia-Pacific region and across the globe through enhanced conservation measures and protections, as well as requirements to effectively enforce environmental protections and engage in enhanced regional cooperation.

The TPP agreement includes measures for all the problems discussed above and can be a very effective agreement which will help the future of our environment.

Chile Minister Wants U.S. Concessions in TPP

An article in Bloomberg (August 19, 2015) titled “Chile Minister Wants U.S. Concessions in TPP” (http://www.bna.com/chile-minister-wants-n17179934929/) describes some of the main controversial points for Chile of the Trans Pacific agreement. The principle debated topic has been the length of patents on biological pharmaceuticals. While Chile currently enforces 5 years of patents, the U.S through the TPP agreement is pushing for 12 years protection now reduced to 8 years after the most recent rounds of negotiations. Chile’s legislation requires that the state covers the extremely expensive medical expenses of patients from catastrophic diseases. Therefore a longer period of protection for patents represents higher risks and costs for the South American country. With regards to this discussion, U.S has offered the inclusion of the 3 years of required testing within the 8 years demanded but TPP. Will Chile accept the U.S proposal? Will extending the length of patents incentive innovation and balance the trade-off of the implied costs for the countries with their subsidized health programs?

TPP and the history

http://www.globalresearch.ca/the-origins-and-evolution-of-the-trans-pacific-partnership-tpp/5357495” , in this article by T Rajamoorthy, we understand the brief history of TPP and its emergence.

The original members included New Zealand, Chile and Singapore, and the FTA was called the Pacific Three. Later Brunei joined the cause.USA joined in 2008, realizing the potency of the agreement in making them more strategically positioned in the Asia Pacific region and boosting their finance and investment. The move was announced by the Bush Administration.The USA also pushed for the agreement to include more countries for its benefit. Later on Australia, Peru, Vietnam, Malaysia, Canada and Mexico joined the cause making the agreement now as the Trans Pacific Partnership. The latest member to join was Japan in 2012.

Will USA’s proposal to include more and more members in the agreement prove ill for their own benefits? Will the move backfire? Many economists and common people feel so… But President Obama is sure that the USA will be the ultimate winner. Many of the multinational companies are waiting eagerly for the approval of the agreement as well!