TPP too big to fail, says visiting US trade deal specialist Petri

Too much political capital has been invested in the Trans-Pacific Partnership trade deal for it to fail at the final hurdle, says Peter Petri, a professor of international finance at Brandeis University and co-author of a study on the economic benefits of the TPP.

Negotiations are about to accelerate this month after US legislators granted US president Barack Obama's administration fast-track approval, which means he can take a trade deal to Congress for a so-called "up or down" vote that can only accept or reject the deal, not alter it.

Petri said the US president, along with other political leaders, now has a lot at stake to get an agreement after nearly a decade of negotiations.

"In that process much political capital has been invested. What I see coming out of this is not something that has been thrown together at the last minute to get something signed but something that has been considered and has had the sharp edges sanded off," Prof Petri said.

In his view, getting fast-track approval for the trade agreement spanning the Pacific Rim and involving 12 countries, was a bigger hurdle than gaining final Congress approval.

"I think the drama is now thankfully mostly over and, once we get a TPP, which will hopefully happen soon, I think first of all that the terms of the agreement will surprise people positively, that they are much less extreme than has been represented in much of the popular discussion, and the benefits will become clearer."

Prof Petri, who's currently in New Zealand, said a TPP deal would give New Zealand agreements with a number of countries it would have found impossible to negotiate with on a bilateral basis.

"New Zealand is a specialised economy and it would want a lot of concessions in some of the agricultural areas and countries wouldn't give it to you because they wouldn't see the reciprocal access. So in the TPP, all of that is possible because you can get something from Canada, it can get something from Japan, Japan can get something from the US, so you can get a lot more in these multilateral deals."

His economic modelling, which has been criticised for including only the benefits and not also the costs of a potential TPP deal, estimates New Zealand could enjoy a 2% economic boost from increased investment and market access. About a quarter of that would come in agriculture.

Dairy remains a sticking point in the negotiations though, particularly because Canada is heading into a general election in October and political factors were working against what most Canadian policymakers knew had to be done, he said. "I don't know what will happen there."

Trade Minister Tim Groser has said New Zealand will back away from signing a deal unless more concessions are made on dairy.

The Petri study showed a TPP deal would probably boost the US economy by about 0.4% but the long-term benefits, which had not been well-explained, were bigger than they looked at the beginning, he said.

Where the deal differs from other free-trade agreements is that it includes alignment of regulatory settings across borders rather than simply removing quotas and tariffs. It has faced staunch opposition from those who claim it undermines national sovereignty through investor-state dispute settlement provisions and through its treatment of intellectual property and medical procurement.

Prof Petri said the TPP was intended to get a like-minded group of countries developing a set of rules for the next generation of trade issues which have not been dealt with in the World Trade Organisation for more than two decades and the world economy has changed tremendously in that period.

The idea is to get a set of rules that can be expanded to a much wider group of countries such as Europe and also hopefully China in the long-run and the benefits then are much larger if it works, he said.

"The TPP is really a strategy for rebuilding a rules-based trading system when our 'Plan A' has begun to fail in the WTO," he said.

A draft of part of the TPP trade deal leaked today to the Politico website suggests the US is demanding increased protections for pharmaceutical companies, restricting access to the lower-cost generic versions of drugs that agencies such as New Zealand's Pharmac buy.

The draft copy of the intellectual property chapter of the trade agreement as it stood on May 11, before the Guam negotiating round, includes what is known as 'patent-linkage' provisions that would prevent regulators in TPP countries approving generic versions of drugs whenever there were unresolved patent issues, the Washington-based Politico website reported.

The draft would make linkage mandatory, as it is in the US, allowing drug companies to fend off generics by claiming patent infringements, the website reported.

Politico also cited US trade officials saying the draft may not survive in the final form of the agreement because of the degree of compromise required to get all the signatories on board.

That's also Prof Petri's view. He says the US will pull back slightly on its expectations on the IP front. But he said mainly American and European consumers are paying prices that fund the research and development costs of new drugs and that had to be rebalanced to other countries.

(BusinessDesk)