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A Beginner's Guide to the Trans-Pacific Partnership

After years of negotiations, the United States, Canada, Japan, and nine other countries reached an agreement Monday that would create a free trade zone around the Pacific. However, the Trans-Pacific Partnership, or TPP, is already causing controversy.

While supporters of the TPP argue that it will expand U.S. exports and create higher-paying jobs, critics feel that it will result in an outflow of American jobs to overseas economies. Further criticism surrounds the mystery of the agreement; the exact content and wording of the TPP was kept relatively secret during negotiations. Most of what we know about it comes from leaked documents and general announcements.

Regardless, the TPP will now go to Congress for approval, where it has already faced apprehension from both parties. Congress will have months to deliberate, and in the meantime, we have plenty of time to familiarize ourselves with the agreement and its possible outcomes.

Biggest of its Kind

The TPP would be the largest regional free trade agreement in history. In the US and Japan, the world's largest and third largest economies are represented in the deal. The other countries involved include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Notice any big names missing there? That's right, despite being the world's largest exporter and falling right in the middle of the Pacific Rim, China decided not to take part in the negotiations. In some way, this could actually be a chance for other developing Asian economies to cut into China's export market, but some have argued that China will eventually join in on the TPP.

Intellectual Property at Forefront

For U.S. negotiators, intellectual property protections have been a major talking point. The U.S. has been battling Asian countries for years over trademarks and patents, and negotiators were aiming to layout 12 years' worth of protections. The final TPP wording provides at least five years of protection.

What is not entirely known at the moment is what exactly these protections will look like. U.S. negotiators put the focus on U.S.-made drugs and software, as the pirated market for these products has run wild in Asia for years.

From the perspective of the major drug companies, the TPP will help eliminate counterfeits and put more money in their pockets. Less counterfeits is also good news for consumers, as the fake drug market has become increasingly dangerous.

However, many critics are concerned about the expansion of "patent linkage", a policy that establishes a link between drug marketing approval and the status of the patents corresponding to the originator's product. The TPP would make patent linkage mandatory, meaning that it would be much harder for generic drug companies to compete with the pharmaceutical giants.

The TPP has also raised concerns over privacy and Internet freedom. The agreement would force member nations to adopt policies similar to the U.S. Digital Millennium Copyright Act, an often criticized law that encourages internet providers to monitor users' activity and send out takedown requests for infringing materials.

A History of Free Trade

While it is the largest of its kind, the TPP is not the only noteworthy free trade agreement. In fact, some critics have pointed to the success, or lack thereof, of prior FTAs. The argument basically surrounds whether free trade deals are good or bad for American workers.

One of the most notable deals in the past was the North American Free Trade Agreement (NAFTA), signed by former President Clinton in 1994. Clinton was an outspoken supporter of NAFTA, claiming that it would create an export boom to Mexico that would create a million jobs over five years.

In 2012, the U.S. Chamber of Commerce published a report hailing NAFTA as a success, claiming that it had created five million American jobs since it had been signed. However, this only took into account jobs created by exports, not jobs lost due to growing imports. According to the Economic Policy Institute , trade deficits with Mexico cost the U.S. nearly 700,000 jobs by 2010.

Defining Obama's Legacy

Love him or hate him, Barack Obama is sure to be one of the most consequential presidents in American history. With historic policies like the Affordable Care Act and the Iran nuclear deal already under his belt, the TPP is just another initiative that will help define Obama's legacy.

Although TPP negotiations predate the Obama presidency, this deal has been a major focus of the administration for years. For the U.S., it would represent a massive foreign policy shift away from the Middle East and North Africa and towards a stronger relationship with East Asia.

This could also be Obama's chance to reestablish American dominance over the global economy by stifling the growing power of China. "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," President Obama said in a statement about the TPP. "We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment."

Other Key Notes

As stated earlier, the deal will need approval from Congress before it takes effect in the United States. Interestingly enough, now that he has notified Congress of the agreement, Obama has to wait 90 days before he can even sign it. In that time, the exact wording of the deal must be made public for 60 days, meaning that we might not be able to actually read it until November.

As the debate heads to Congress, the TPP will also be a focus of the ongoing presidential race. Candidates from both sides, including Bernie Sanders and Donald Trump, have already bashed the agreement, while some, such as Hillary Clinton, have not taken a position yet.

In summary, we simply don't know all the details about the Trans-Pacific Partnership right now. Even when the wording becomes public, and even if it passes through Congress, we likely won't be able to measure the effects for many years down the line. Even still, the TPP is important to the future of the U.S. and global economy, and we should be paying attention.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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