TRANS-PACIFIC PARTNERSHIP Benefits to U.S. Agriculture

An article published on October 16th, 2015 by the United States Department of Agriculture, http://www.fas.usda.gov/sites/default/files/2015-10/tpp_details_alcohol_10-16-15.pdf, describes how the TPP will provide significant new market opportunities for United States exporters. The TPP will promote economic growth in the Asia-Pacific region, which will increase the demand for U.S. food and agriculture products. In specific, the TPP strengthens trade rules and provides new market access for US exports to Japan, Malaysia, Vietnam, New Zealand, and Brunei. Without the TPP, US alcohol exports to the TPP region face a competitive disadvantage and are subject to many duties and tariffs. The US exported $579 million of wine, $359 million of beer, and $539 million of distilled spirits to countries in the TPP region in 2014. Of that, the US exported $2.9 million in alcoholic beverages to Malaysia. Malaysia’s current import duties for wine range from $2.08-$25.58 per liter, for beer are $1.18 per liter, and for distilled spirits they range from $0.71-$22.04 per liter. Under the current agreement, all of the import duties for alcoholic beverages entering into Malaysia will be eliminated 16 years after the agreement is ratified. This could have a significant impact not only on the Malaysian and the United States economy, but also on all of the other countries that Malaysia imports their alcoholic beverages from.

What impact will this have on Malaysia’s economy? How will Malaysia’s domestic alcohol industry be affected by the TPP? Will the US and other countries have an opportunity to export significantly more alcohol to Malaysia?

TPP Trade Deal: Who Stands to Gain, Suffer in Asia-Pacific

According to the article, (http://www.bloomberg.com/news/articles/2015-10-06/tpp-trade-deal-who-stands-to-benefit-suffer-in-asia-pacific), the TPP deal sealed Monday in Atlanta will bring various gains and losses to the countries involved, as follows:

  • Japan: Japanese car and auto-parts makers may be the biggest winners, as they gain cheaper access to the US, the industry’s largest export market. During negotiations, Japan was forced to reduce some of the protections granted to its rice farmers, creating a non-tariff import quota of 1% total consumption, while livestock farmers may be hit harder, as tariffs on beef will be cut from 38.5% to 9%.
  • Australia: The TPP deal will remove approximately $9 billion of import taxes from Australian trade, and they will gain access to the US sugar market. Additionally, the cut in the beef tariff will help Australian ranchers, and seafood and most horticulture products will see tariffs dropped as well. Furthermore, Australia and New Zealand successfully pressured the US to compromise on the amount of time that pharmaceutical companies will get to monopolize new biotech drugs, which could lead to cheaper drug prices and more competition.
  • New Zealand: Tariffs are due to be eliminated on 93% of New Zealand’s trade with its TPP partners, representing annual savings of approximately $259 million New Zealand dollars, with the Dairy industry seeing savings of approximately $102 million New Zealand dollars per year. Additionally, tariffs on beef exports will be completely eliminated, with the exception of Japan, where they will drop from 38.5% to 9%.
  • Vietnam: Vietnam will be among the biggest winners, with GDP being boosted approximately 11% and exports growing 28% in the next ten years. Reduced imports in the US and Japan will benefit the country’s apparel manufacturers and the fishing industry will benefit from elimination of import tax on shrimp, squid, and tuna. Eliminating import taxes on pharmaceutical products, however, will lead to tougher competition between domestic Vietnamese companies and foreign companies. The TPP will also increase patent protection, restricting Vietnamese companies’ access to new products as well as inhibit their ability to produce new drugs.
  • Malaysia: State-owned enterprises in Malaysia may suffer from the TPP deal, which calls for equal access to government procurement, however electronics, chemical products, palm oil, and rubber exporters are among beneficiaries.
  • China: Since China failed to join the TPP, they are likely to be among the biggest losers, and are now indicating some interest in joining the TPP in the future. In the meantime, Chinese exporters may lose some market share in the US, Japan, and Vietnam. To combat these losses, China will try to reach more free-trade deals with other countries, especially in Asia.

Trans-Pacific Partnership Deal is Reached

According to the article, (http://www.nytimes.com/2015/10/06/business/trans-pacific-partnership-trade-deal-is-reached.html?_r=0), the 12 Pacific Rim countries involved in the TPP reached a final agreement on Monday, preparing President Obama for what could be the toughest fight of his final year of presidency: securing approval from Congress.

Now that negotiations of the TPP have come to an end, the deal will face months of scrutiny in Congress, where opposition is imminent. Regardless, for President Obama the deal could be a legacy-making achievement; the TPP draws together countries representing 40% of the global economy, and spins them into a web of common rules governing trans-Pacific commerce. The argument that the TPP will be key in limiting China’s power in the global economy is Key to the President’s hard sell of the act to Congress. Obama stated: “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Trans-Pacific Free Trade Deal Agreed Creating Vast Partnership

According to the article, http://www.bbc.com/news/business-34444799, the Trans-Pacific Partnership (TPP), the biggest trade deal in decades, was struck on Monday after five years of bitter and tense negotiations. The TPP cuts trade tariffs and sets common standards in trade for 12 Pacific Rim countries and covers about 40% of the world economy. However, although negotiations have been finalized, the deal is yet to be ratified by law makers in all 12 countries.

For President Obama, the TPP trade deal is a major victory. He stated: “This partnership levels the playing field for our farmers, ranchers, and manufacturers by eliminating more than 18,000 taxes that various countries put on our products.” In opposition, however, US Senator and US Democratic presidential candidate hopeful Bernie Sanders argues that Wall Street and big business have “won again,” stating that the TPP deal will cost US jobs and hurt consumers.

Additionally, China was not involved in the TPP agreement, however the Obama administration is hoping that it will be forced to accept the majority of the standards outlined by the TPP. He was quoted: “When more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

Furthermore, the final round of TPP negotiations were delayed over how long pharmaceutical companies should be permitted to maintain a monopoly on their drugs. The US wanted twelve years of protection, while Australia and New Zealand argued for five. A compromise was reached, however the definitive protection period has yet to be confirmed.

Finally, the auto industry as well as the agriculture industry were also areas of intense negotiations. In regards to the auto industry, countries agonized over how much of a vehicle must be manufactured within a TPP country in order to qualify for duty-free status. Agriculture was another sticking point, as countries such as New Zealand wanted more access to markets in Canada, Mexico, Japan, and the US; Canada wanted to keep access to its dairy and poultry markets strictly limited, however.

What does Trans Pacific Partnership mean for Vietnamese Clothing Industry?

While the whole world is looking at TPP passage, the Vietnamese Clothing Industry will have a special interest in TPP proceedings. Vietnam is one of the major apparel exporters to the United States and a free trade agreement would mean a cost reduction of up to 16.5% due to tariff waiver. Such a reduction will make Vietnamese apparels more competitive in the US market alone.

Let us take for example Cotton T-Shirts. In 2014, the United States Import for these articles was $3.9 billion. The major import was from Honduras who had 12% ($503 million) of the import share while Vietnam was 8th with 5.1% ($205.6 million) worth of imports. For 2015, Vietnam has already exported t shirts worth $173.9 million dollars till July, while the leaders Honduras have exported $299.4 million. Now please note that this data is only for t-shirts. There are many other categories of clothing where Vietnam is doing extremely well (like Shirts, where it is the top exporter to US).

So what does TPP mean for Vietnamese T Shirt manufacturing? If we note that in the top 10 exporters to US, only Mexico and Vietnam are TPP partners. Thus any reduction in tariffs will give an advantage to these two countries over other countries which will lead to greater exports from Mexico and Vietnam. Moreover, considering Vietnam, China and India are the only Asian countries in top 10 suppliers, we will see an influx of many manufacturers from other Asian countries to Vietnam to take advantage of the partnership benefits.

With the stated benefits for Vietnamese clothing industry, what effects can we see on the economies of non-TPP countries esp. China and Honduras, for whom US is the main export market? What will the influx of new manufacturers mean for labor rates in Vietnam? With the TPP taking a backseat, what is the future of the market where many foreign companies are trying to get a foothold?

*US Import data for T shirts and shirts taken from https://usatrade.census.gov for HTS code 610910.

What the Trans-Pacific Partnership Means for Southeast Asia

An article published on July 27th, 2015 in The Diplomat (http://thediplomat.com/2015/07/what-the-trans-pacific-partnership-means-for-southeast-asia/) describes how the Trans-Pacific Partnership could be a huge step in the right direction for the four Southeast Asian countries of Singapore, Brunei, Vietnam, and Malaysia that are involved in the negotiations. These countries could see significant financial and social reforms stemming from the TPP. For example, Vietnam and Malaysia currently have some of the world’s highest tariffs and non-tariff barriers against foreign businesses, which has reduced foreign competition and caused rapid growth in their economies. Even with their high tariffs, Vietnam still exported almost US$7 billion worth of apparel and US$2.4 billion worth of footwear to the United States in 2012. Upon completion of the TPP, Vietnam will be able to export to the United States at a 0% tariff rate, which will make their exports much more competitive in the American market and could significantly increase their share of the market. The phasing out of these high tariffs will also expose US domestic industries to more strict competition from overseas, but ultimately the new reforms stemming from the TPP will make these Southeast Asian’s economies stronger. Should the United States and other countries involved in the TPP want increased competition from overseas? Why would the Southeast Asian countries want to open the doors to change and reforms? What effect will the TPP have on industries in the United States? Could the TPP cause even more foreign imports into the United States and other similar countries?