Pacific Alliance countries in TPP deal
Long running and sometimes secretive talks on a Trans Pacific Partnership (TPP) trade deal involving 12 countries culminated in agreement in principle on 6 October, although there will now be a long period of discussion at national legislative level before any formal treaty is approved. Three Latin American countries – Mexico, Chile, and Peru, who along with Colombia also happen to be members of the Pacific Alliance group – have been directly involved. For them, and for the region more widely, TPP could have far reaching consequences.
TPP has been described as world’s single largest free trade deal, with the 12 Pacific Rim countries involved representing a population of over 800m people and some 40% of global GDP. The big players in the group include the US and Japan, along with a number of Asian economies (including Australia, Malaysia and Vietnam) and a trio from Latin America: Mexico, Peru, and Chile. China is not a participant. TPP has been viewed with suspicion by much of the political left and by nationalist Latin American governments, in part because it is seen as a US-led initiative and in part because a number of clauses of the overall deal have been negotiated in secret – although, shortly after the negotiating teams had finalised the deal, the US administration said that it hoped to release the full text within a month.
The main outlines of the complex deal are that it provides for reductions in trade tariffs, not only on physical goods, but also for trade in services. It also covers a range of intellectual property and patent matters. One of the last sticking points was over the treatment pharmaceutical patents, and the timescale of patent protection before generic production of specific medicines can begin.
A key issue for the Latin American participants, who have already built up a network of bilateral free trade agreements (FTAs), is that it generalises import tariff cuts to all 12 participants, meaning that they widen their preferential access to a bigger range of Pacific Rim markets. Peru, to give one example, will gain access to the Australian market, a country with which it has not yet signed an FTA. Mexico only has an existing FTA with Japan, so in one fell swoop it will gain preferential access to markets in Australia, New Zealand, Brunei, Malaysia, Singapore, and Vietnam. Also important is that TPP allows the accumulation of local content rules – meaning that tariff reductions apply not just to goods produced in individual member countries, but also to those created by production chains spread out across various countries. Peruvian trade minister Magali Silva said the overall effect “is like having the 12 countries acting like a factory”.
But there are some downsides. Critically important for Mexico is that TPP in effect means the renegotiation of some aspects of its two-decades-old North American Free Trade Agreement (Nafta) with the US and Canada, who are both also TPP members. That may involve some dilution of existing benefits. It has been reported that Nafta’s 55% local content rule for automobiles will be replaced by a TPP 45% local content requirement (not as bad as the 30% which had apparently first been proposed by Japan). As a result Mexico may face increased competition in the US market from auto components produced by the Japan-centred value-added production chain. On balance Mexican negotiators believe the benefits outweigh the potential risks. “The Trans-Pacific Partnership will translate into greater opportunities for investment and well-paid jobs for Mexicans”, President Enrique Peña Nieto said. There is also an asymmetry in that Colombia, the fourth member of the Pacific Alliance group, is not a TPP member. However, the other three Alliance countries have said Colombia may apply for TPP membership in the near future.