US technology companies, banks and farmers are among the biggest beneficiaries of falling tariffs that are part of the trade deal designed to liberate commerce among 12 Pacific Rim nations, according to a text of the agreement released on Thursday.
The Trans-Pacific Partnership (TPP), which is to affect almost 40 percent of the global economy, maintains protection for a handful of politically sensitive US industries by keeping existing tariffs in place for as long as 30 years for pickup trucks and 13 years for some types of footwear.
The text released on Thursday, after negotiations wrapped up last month, includes thousands of tariffs that affect a broad variety of US-made products from Harley Davidson motorcycles sold in Malaysia, to toilet seats shipped to Vietnam to General Electric Co turbines.
“We do see pretty widespread benefits across the economy,” US Trade Representative Michael Froman said in an interview.
Release of the TPP text starts the clock ticking for ratification by the 12 Pacific Rim nations involved. In the US, that means a 90-day notice to Congress and at least a 60-day public review period before a vote by lawmakers, which is not expected to come before March. With the publication, supporters and critics now have fodder for their arguments.
The TPP is the biggest trade deal the US has negotiated since the North American Free Trade Agreement and stands as a significant achievement for US President Barack Obama, who has been working to reassert US influence in the Pacific region.
TRADE SECRETS
Although China is not among the signatories, the accord reflects one of the main points of friction between the world’s two biggest economies by requiring the participating countries to outlaw theft of trade secrets, explicitly including thefts through computer hacking.
After massive breaches of commercial and government databases in recent years, US trade officials say they hope the rules would not only deter hacking from within the 12 TPP countries, but also set an international precedent that becomes a norm in agreements with other countries, eventually including China.
ASIA STRATEGY
The trade deal is a central part of Obama’s strategy for balancing China’s expanding economic influence and is set to bolster his diplomatic position when he travels to Asia for meetings with regional leaders. Along with Canada, Mexico and Chile, the other countries joining with the US are Australia, New Zealand, Brunei, Japan, Malaysia, Singapore and Vietnam.
ELECTION YEAR
Froman and the rest of the Obama administration must now try to win over Democrats who are wary of the impact on US jobs and Republicans who are reluctant to back a Democratic White House in an election year.
Obama’s toughest task might be lobbying members of his party. Only 28 of 188 Democrats in the House voted to give the president fast-track negotiating authority to push the trade talks along. Former secretary of state Hillary Rodham Clinton, the Democrat frontrunner to succeed Obama, has announced her objections to the TPP after having called it central to the US pivot toward Asia while she served in the administration.
MARKET SHARE
Froman plans to sell the deal to Congress and trade skeptics by arguing that if the US does not ratify the agreement, it might lose out on more trade in the future because Asian countries, including China, are negotiating free-trade pacts with each other that could put the US at a disadvantage.
“If we don’t get TPP, then we’re just going to see a smaller and smaller market share,” he said. “It’s not like we’re going to maintain a status quo. We’re going to lose out in these markets,” Froman said.
ECONOMIC ANALYSIS
The TPP is to eventually lower all tariffs among its member countries on all goods to zero. Eighty percent of imports the US receives from the 11 other countries are already brought in without tariffs, and goods subject to tariffs are hit with a levy that averages 1.4 percent. The deal also addresses regulations and practices known as non-tariff trade barriers, which are ways countries protect industries.
Trade officials said that the Obama administration has not completed an analysis of the economic impact. They pointed to research by the nonpartisan Peter G. Peterson Institute for International Economics, a pro-trade research organization, that estimates the TPP would add US$77 billion to the US economy annually by 2025. That is second to the US$105 billion Japan would gain, according to the analysis.
LOW-SKILLED JOBS
Critics, such as the consumer group Public Citizen, said the agreement makes it easier to send jobs overseas and would increase income inequality in the US by driving down wages of low-skilled employees who are likely to face more competition from those paid far less in Vietnam and Malaysia.
At agricultural machinery maker Deere & Co, spokesman Ken Golden said the trade agreement would open new markets to domestic agricultural producers who buy Deere equipment and reduce tariffs imposed on products it manufactures at facilities in the US, Mexico and New Zealand.
BIG WINNERS
Last year, 38 percent of Deere’s US$36 billion in revenue came from sales outside the US and Canada, Golden said. The company does not break down exports further, he said.
General Electric and Caterpillar Inc are likely to be big winners as trade barriers drop for sales of heavy machinery such as construction equipment, power generation equipment and large vehicles, particularly in countries such as Vietnam and Malaysia that do not already have free-trade agreements with the US, Peterson Institute senior fellow Caroline Freund said.
DOMESTIC DEVELOPMENT
“A lot of countries have big infrastructure projects going on right now and the US is well equipped to take advantage of these preferences,” Freund said.
Each country has thousands of tariffs with duties ranging from zero to the double-digits depending on whether there are domestic producers to protect and how much a country depends on imports of certain products.
The impact of the pact is likely to be greatest in Japan, Malaysia and Vietnam because the US already has free-trade agreements with most of the countries and the others have such small economies that more trade is not likely to boost the bottom lines of US companies.
Tariffs will not fade away all at once. Vietnam imposes a 70 percent tariff on cars it imports from the US. That would stay in place for three years and then begin dropping to zero over the following decade. In Malaysia, tariffs of 25 percent on road rollers, 20 percent on pile drivers and 10 percent on bulldozers is to fall to zero over several years.
The thousands of pages of TPP text released on Thursday also address barriers to trade that are less obvious than tariffs. Countries protect markets through regulation, with US trade officials pointing to Asian nations that keep US cosmetics at bay by requiring eye shadow to be inspected as if it were a pharmaceutical.
The agreement standardizes rules of origin for products made in any TPP country, as the North American Free Trade Agreement did for the US, Canada and Mexico, meaning that a product made in any of the member countries is treated as a domestic product for trade purposes.
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