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The U.S. and 11 other Pacific Rim nations have struck the largest trade deal in a generation. The wide-ranging Trans-Pacific Partnership sets new rules for labor and environmental standards and reduces and phases out thousands of tariffs on American producers, among other provisions. But there's substantial opposition to the accord. Jeffrey Brown learns more from Greg Ip of The Wall Street Journal.
After nearly a decade of negotiations and five nights of round-the-clock talks this past week, the U.S. and 11 other Pacific Rim nations announced the largest trade deal in a generation today. The stakes are big.
Together, the countries shown here, and which include Japan, Canada, Mexico, Australia, and Vietnam, make up more than 35 percent of world trade, totaling some $28 trillion. But there's substantial opposition to the accord, called the Trans-Pacific Partnership.
Jeffrey Brown looks at the deal, at the compromises and at the road ahead.
It's a wide-ranging accord that seeks to lower trade barriers and expand agricultural markets.
Among other things, it sets new rules for labor and environmental standards, reduces and phases out thousands of tariffs on American producers, provides between five and eight years of intellectual property rights for biologic drugs made here, and makes it easier for the U.S. to sell dairy products in countries like Canada and Japan.
But many provisions are the subject of deep skepticism and outright opposition from voices across the spectrum. And getting it approved by Congress during an election year is no small matter.
Greg Ip is chief economics commentator for The Wall Street Journal and the author of the forthcoming book "Foolproof," and joins us now.
Welcome back, Greg.
GREG IP, The Wall Street Journal:
First, an overview, huge dollar amounts, right, wide range of areas covered, and enormous economic stakes. It's a big deal.
It's a very big deal. It's the biggest trade deal that has been negotiated since the Uruguay agreement of the World Trade organization, which was some 20 years ago.
It's also the first trade agreement to be negotiated by the United States under the Obama presidency. The scope is very large, roughly 40 percent of world GDP. It covers areas that have heretofore not been covered in agreements of this size, like services, like intellectual property.
It's important in geostrategic terms because it's as important for the countries that are in it as the countries that are not, more importantly China.
All right, we will get to that afterwards.
But in strictly economic terms first, the Obama administration and supporters point to what they see as benefits. Give us a couple of examples that they're pointing to that's in this deal.
Well, there are specific areas where the United States is very competitive that it has had trouble getting to other countries' markets, agriculture, for example.
Under the agreement, countries like Japan and Canada, which have highly protected dairy sectors, will have to open up more to the United States. Then there are newer industries where the U.S. is very advanced like drugs, intellectual property, high-end services like accounting and engineering. When those services are exported to other countries, signatories to this agreement can no longer discriminate against American companies.
And there will be mechanisms that American companies that feel they have been discriminated against can challenge countries in their own courts.
You mentioned intellectual property. That's an important one and often has not been part of trade agreements and was very difficult to negotiate.
Well, for example, the United States has a lot of research-intensive pharmaceutical companies. And it was important to them that the most advanced drugs that are called biologics have 12-year patent protection in other countries, like they do here.
Now, they didn't get that. They had a compromise. They will get like five to eight years of protection. That's great for the American pharmaceutical companies, but perhaps not so much for some of the buyers of those drugs.
Now, as we have said, a lot of opposition has been throughout and will continue. Point to some of the particular areas where the opposition is.
Well, one is the pharmaceutical biologic agreement, because people who worry about the access by poorer countries to the most advanced drugs are afraid that they will be forced to pay extremely high prices, because they can no longer purchase generics on account of the longer patent protection this law provides.
Auto companies may not be happy that Japan will have more access to the U.S. automobile market at a time when American companies have always struggled to penetrate the Japanese market. And at a much larger level, the criticism of people like Bernie Sanders, who is running for president, is that free trade agreements always seem to benefit companies and rich and wealthy people more than it does the average working person.
Traditional group, labor — labor will be — has already said they're against many of the parts of this.
That's correct. That's probably where you're going to hear the stiffest criticisms.
All right, go back to the geopolitics now, right, OK, because a lot of this is in the context of China, rising China. Right? China is not part of this deal.
And China couldn't really be part of this deal because many of the things the United States wanted — for example, governments may not allow government-owned companies to have special privileges — is simply not compatible with the way the Chinese economy is today, which remains dominated by state-owned enterprises.
And so the United States was adamant that we create a framework that favors its more liberal vision of trade. China is welcome to join, but it is going to be a while before China is politically and economically ready to do that. And this in the meantime is a sign of U.S. leadership, at a time when there's a lot of uneasiness about the fact that China's economy is growing so much and that it has managed to persuade other countries to sign up for its vision of multilateralism, like the Asian infrastructure…
It's interesting. They're not there, but of course they're very much there. So, this is seen as, as you say, an act of leadership, but also perhaps a model for future — some kind of deal?
But I think, at the same time, is that one of the big selling points you will hear from Barack Obama is that irrespective of what you think of the economic pluses and minuses of the deal, China is out there and there is a contest in some sense between the United States and China for economic leadership.
And if the United States doesn't step forward to write the rules, China will, and those rules will not be as friendly to Americans as U.S. rules.
All right, now, just in our last minute, you mentioned Bernie Sanders and you could go through the list of politicians, right, because it's a campaign year.
This is going to spin out over the next couple of months, play out inevitably in the political — in the presidential campaign.
Well, first, we have to get the text of the agreement. That will be at least another month, and then Congress will probably be asked to vote on it some time early next year.
They have already voted for something called trade promotion authority, which basically means we will vote yea or nay on this agreement, but we cannot amend it. And that vote passed very, very narrowly. And most Democrats voted against it. You shouldn't take for granted that this will pass.
That said, Republicans, who now control both houses of Congress, by and large support free trade, and so I think they have a lot to lose by not letting the president on this one matter get what he wants.
All right, Greg Ip, thank you so much.
Thank you, Jeff.
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