Tpp essay

Insights

Primer: The Trans Pacific Partnership BY JACQUELINE VARAS | NOVEMBER 16, 2015

Introduction

After years of negotiations and weeks of anticipation, the final text of the Trans-Pacific Partnership (TPP) has been released.[1] TPP is a trade agreement between the United States, Japan, and ten other Pacific nations. These countries represent 40 percent of the world’s Gross Domestic Product and, combined, would form the largest free trade area ever created.[2]

Source: Forbes[3]

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http://americanactionforum.org/experts/jacqueline-varas

The Trade Promotion Authority, passed earlier this year, established guidelines for the passage of trade deals like TPP. These guidelines stipulate that an up or down vote from Congress cannot occur for at least 90 days after the President notifies Congress of his intention to sign the agreement[4], which he did on November 5, 2015. This gives the public and Congress ample time to analyze its contents in detail and determine its implications for the American economy.

Tariffs and Non-Tariff Barriers

The primary purpose of TPP is to eliminate barriers to trade. One such barrier, tariffs, drives up the cost of foreign goods in order to encourage the sale of goods manufactured at home. These taxes on imports make foreign goods and services more expensive, reducing trade and limiting competition. Expanding competition, however, is generally thought to lower prices, incentivize innovation in manufacturing, and encourage the creation of higher quality goods.

TPP eliminates or reduces all tariffs on goods traded between partner countries. Currently, tariffs imposed on U.S. exports are as high as 100 percent on goods and 700 percent on agriculture products. The TPP agreement would abolish many of these tariffs, translating into approximately 18,000 tax cuts on U.S. goods sold abroad.[5]

TPP also aims to increase trade in services. Services make up a substantial portion of U.S. trade, accounting for $711 billion of exports in 2014.[6] TPP expands market access in this area by prohibiting quantity restrictions on imported services, outlawing discrimination against foreign service providers, and encouraging the open exchange of services in all sectors.[7]

Electronic Commerce

TPP is the first trade agreement to establish guidelines concerning electronic commerce.[8] Specifically, it bans forced data localization laws, which mandate that firms place physical servers in areas where they would like to do online business. These laws place undue burdens on businesses and make cross-border data flows more expensive, restricting electronic commerce and hurting consumers.[9] TPP also prohibits customs duties, another form of import taxes, on electronic transmissions and includes several provisions to facilitate paperless trading. These features all aim to encourage e-commerce as a growing method of international trade.

The agreement is also the first to specifically sets guidelines for the trade of digital products. Namely, it establishes a free market for digital goods by outlawing trade discrimination against them.[10] Digital goods include software, mobile apps, online games, or any other products that are shipped electronically.

Biologics

Biologics, a relatively new form of medicine made up of living cells, are among the fastest growing pharmaceuticals on the market. Some suggest that biologics will comprise 32 percent of major pharmaceutical sales by 2023.[11] While these drugs may be a life-saving breakthrough in medical science, they can also be very expensive: the yearly costs of commonly used biological drugs can range from over $20,000 to $200,000. [12]

TPP provides manufacturers of biologics in the Asian-Pacific region with at least five to eight years of data exclusivity before competitors can enter the market with their own non-innovator versions, called biosimilars. This would be the first time that some countries, like Mexico, have data protections for biologics. U.S. law,

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which currently guarantees 12 years of exclusivity, would not be changed. [13]

This provision has raised serious concerns among biologic manufacturers as to their ability to recover upfront investments before biosimilars enter the market. PhRMA, a representative of the pharmaceutical industry, issued a statement denouncing TPP for its lack of data protection. The group suggests that strong intellectual property laws are essential to freely encourage innovation.[14] Some, however, argue that without the market entrance of lower-priced biosimilars, the poorest consumers would be hurt most.[15] AAF research found that this is not necessarily the case: the complexity of biologics prevents biosimilars from achieving the same cost savings previously seen in the case of traditional small molecule generics.[16]

Agriculture

U.S. agriculture is likely to be a primary beneficiary of the agreement, as 85 percent of U.S. agricultural exports are currently sold to TPP nations.[17] The deal would boost agricultural trade even further by significantly lowering tariffs and opening up nations like Japan, New Zealand, and Malaysia to competition in agricultural trade. For instance, taxes would be immediately removed on over half of our agricultural exports to Japan and on over 90 percent of exports to Malaysia and New Zealand.[18] And for many agricultural products, tariff-rate quotas (TRQ) would be either newly established or increased, allowing more U.S. products to be imported tariff- free by our TPP partner countries.

Rice is a prime example. Currently, U.S. rice exports to Japan face significant market access barriers with tariffs as high as 800 percent.[19] TPP would immediately establish a new country-specific quota (CSQ) for tariff-free U.S. rice exports starting at 50,000 tons and rising to 70,000 tons over 13 years.[20] However, some U.S. rice growers are apprehensive about the consequences of eliminating tariffs, especially as it pertains to our trade with Mexico.[21] While low transportation costs have historically made Mexico our largest destination for rice exports, TPP could even the playing field for other rice-producing nations and lower Mexico’s dependence on U.S. rice.