TPP: The polarization of world trade

by Leo Quigley
Share This:

The TransPacific Partnership (TPP) is a massive, 5,544-page document weighing roughly 100 pounds. It’s extremely complex and while some of its impacts on our world, such as trade, have been well discussed, things such as copyrights, the impact on human rights, freedom of speech and personal privacy remain the source of debate.

The new trade agreement is the second such ground-breaking, multilateral trade pact that’s been hammered out behind closed doors in recent years – the other being the BRICS pact.

The two are far from similar. The objective of the TPP, led by the U.S., is primarily intended to increase trade between the United States and its 11 partners to shore up and expand the economies of select countries and strengthen the U.S. dollar.

The objective of BRICS is to build a largely Asian/Mideast trade bloc that will exclude the U.S., its petro-dollar and its allies from the export and import business between Russia, China, India, Brazil and South Africa.

The other major difference is that the BRICS includes emerging economies with massive populations, such as China and India, where the populations are rapidly moving towards middle class and demanding a higher standard of living, offering growing markets to member countries prepared to supply them. Russia and China have already cut billion-dollar deals for oil and gas supplies to China, and are working on similar deals with India. In addition they have successfully launched the BRICS Development Bank, a development bank primarily targeting infrastructure projects that will serve as an alternative to the existing American and European-dominated World Bank and International Monetary Fund.

Plans are also being advanced to rebuild the historic Silk Road at a cost of $40 billion. The road, together with a Silk Road Economic Belt and Maritime Silk Road, will run between Indonesia and Europe. It is a forward-looking development and a game-changer that will open the door to new industrial hubs, trade routes and the flow of energy between neighboring countries.

Two defined trading blocs

The TPP includes the U.S., Canada and Australia where domestic markets are mature and not expected to expand dramatically in the future. In fact, these economies are more likely to decline due to an aging generation of baby boomers and a shortage of workers.

In effect, what appears to be happening is, rather than a global free trade agreement or countries making individual, bilateral agreements, the world is moving to two well-defined trade blocs heavily influenced by long-time adversaries, Russia and the United States.

At its present membership, the five BRICS countries claim to include roughly 40% of the world’s population. By comparison, according to the U.S. Business Coalition for the TPP, the TPP will include roughly 11.4% of the world’s population with an annual gross domestic product of nearly $28 trillion that represents roughly 40% of the global GDP and one-third of world trade.

The question becomes: Is the polarization of world trade into Eastern and Western trade blocs going to be a good thing or bad thing for major grain producers that are part of the TPP: namely the U.S., Canada and Australia?

The National Association of Wheat Growers and U.S. Wheat Associates (USW) boards of directors expressed their support following release of the TPP agreement, saying: “It will be beneficial to U.S. wheat producers and improve their competitiveness in the Asia-Pacific region.

Brian O’Toole, chairman of USW, said in a statement: “Half of the wheat we produce each year is available for export and the prices farmers like me receive are sensitive to the demand for that wheat. TPP will not only help us compete on a more level playing field, but will also help boost the economies of the Asia Pacific region. That will boost demand for U.S. wheat and other U.S. agricultural exports.”

Jim McCarthy, president and CEO of the North American Millers Association, told World Grain the association was still in the process of studying the agreement, but said association members are supporters of free and fair trade and think it will open up some good opportunities for trade.

“Suffice it to say, we generally support trade agreements that open up markets,” he said.

Association members want to make sure there’s some fair trade opportunities, McCarthy said: “Our industry is mostly domestically focused. But, if there are opportunities in this new agreement they would be of interest to some of our members. As free traders we would generally welcome anything that is good for agriculture.”

Doug Robertson, president of Canada’s Western Barley Growers Association, told World Grain that while the association would have preferred to see a global agreement put in place rather than the TPP, it felt Canada had to be one of the partners since not being part of the agreement would have been disastrous for the grain and livestock trade with the U.S., which is Canada’s largest trading partner. He said being part of the agreement will have huge benefits, not only for the feed grains and specialty crop industries, but for the beef and hog industries, and especially for the meat trade with Japan.

Wade Cowan, president of the American Soybean Association, said: “The TPP is a good deal for soybean farmers and our livestock customers. We back it and we will push Congress to do the same.

“We know that this will further expand our access to valuable markets in Asia and Latin America, but specifically, there are several key sections of the agreement that will move our trade significantly forward. The sanitary and phytosanitary provisions contained in the TPP will help eliminate many of the non-scientific barriers to market entry that hang us up in particular markets, and the biotechnology provisions in the agreement will help to ensure that from export partner to import partner, science is the common framework on which our soybean technology is regulated.”

The National Farmers’ Federation (Australia) welcomed the release of the agreement, saying it “provides new ground rules for global trade across the Pacific region, and, it will help to drive growth in Australian agriculture and will support a more prosperous economy.

“Agricultural exports are likely to grow considerably once the TPP is fully-operational. Australian farmers currently face a range of tariff and non-tariff barriers across a region which represents one-third of total agricultural exports, totaling $15 million in 2015. Common ground rules and transparency in dealings between member nations will help reduce business costs and encourage farmers to invest more in their businesses and local communities.”

Patti Miller, president of the Canola Council of Canada, said: “Eliminating tariffs on canola oil in Japan is a huge benefit to (Canada’s) canola industry. Once the agreement is fully implemented, the TPP will put us on a level playing field in one of our most valuable export markets.”

Japan is a long-standing and consistent market for canola seed, but tariffs of approximately 15% have prevented oil exports. Through the TPP, the canola industry estimates that when tariffs are fully eliminated in Japan and Vietnam over five years, exports of canola oil and meal could increase by up to $780 million annually.

“Canada has a globally competitive canola processing sector,” she said. “By eliminating tariffs on value added products, the TPP will increase the value of our exports and bring benefits to the whole canola value chain. This increased value will flow through communities across the country.”

Also, she said the inclusion of commitments to prevent biotech-related measures from being trade barriers in the TPP could also be beneficial to the canola industry. Commitments around approval processes of new biotech products and measures to minimize the impact of low-level presence incidences could benefit the canola industry.

Mexican President Enrique Pena Nieto was reported as saying Mexico will seek to diversify its exports and imports. And, to reach this goal the country wants to increase its exports to Asia. He pointed out that while exports to Asia currently account for less than 10 of Mexico’s exports, the U.S. takes about 80% and he is looking to reduce the country’s reliance on the U.S.

Vietnam’s Eurasia Group predicts that Vietnam’s seafood industry will benefit from the elimination of import taxes on shrimp, squid and tuna, now averaging 6.4% to 7.2%. But, the country will still face strict rules-of-origin on materials, which could limit some of the treaty’s benefits to the garment and textile industry.

If the TPP is finally endorsed by all 12 partners it will work to reduce barriers to trade within its area of influence, primarily North America and Australia. BRICS will increase trade primarily between Russia, China, India, South Africa and Brazil.

The question is not so much who will be included as a future trading partner, but who will be excluded?

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.

We want to hear from you — Send comments and inquiries to worldgrain@sosland.com. For reprints of WG articles, e-mail reprints@sosland.com.

Meet the Partners

The Trans-Pacific Partnership (TPP) is a trade agreement among 12 Pacific Rim countries concerning a variety of matters of economic policy, which was reached on Oct. 5, 2015 after seven years of negotiations. Historically, the TPP is an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), which was signed by Brunei, Chile, New Zealand, and Singapore in 2005. Beginning in 2008, additional countries joined the discussion for a broader agreement: Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States, and Vietnam.

Here is a look at the 12 countries that are part of the agreement with information from the CIA World Factbook.

Australia

Following two decades of continuous growth, low unemployment, contained inflation, very low public debt, and a strong and stable financial system, Australia enters 2015 facing a range of growth constraints, principally driven by a sharp fall in global prices of key export commodities.

Agriculture products: Wheat, barley, sugarcane, fruits; cattle, sheep, poultry.

Export partners: China 33.7%, Japan 18%, South Korea 7.4%, U.S. 4.2%.

Import partners: China 20.5%, US 10.6%, Japan 6.8%, Singapore 5%, Germany 4.7%, South Korea 4.7%, Malaysia 4.4%, Thailand 4.3%.

Brunei

Brunei has a small well-to-do economy that depends on revenue from natural resource extraction but is also characterized by a mixture of foreign and domestic entrepreneurship, government regulation, welfare measures, and village tradition.

Agriculture products: Rice, vegetables, fruits; chickens, water buffalo, cattle, goats, eggs.

Export partners: Japan 39%, South Korea 12.5%, Australia 9.7%, India 9.2%, Thailand 6.4%, Indonesia 5.8%

Import partners: Singapore 29.2%, China 26.9%, Malaysia 13.2%, U.S. 8.5%, South Korea 4.5%, U.K. 4.1%.

Canada

As a high-tech industrial society in the trillion-dollar class, Canada resembles the U.S. in its market-oriented economic system, pattern of production, and high living standards. Since World War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban.

Agriculture products: Wheat, barley, oilseed, tobacco, fruits, vegetables; dairy products; fish; forest products.

Export partners: U.S. 76.8%.

Import partners: U.S. 54.5%, China 11.5%, Mexico 5.6%.

Chile

Chile has built a market-oriented economy characterized by a high level of foreign trade and a reputation for strong financial institutions as well as sound policies that have given it the strongest sovereign bond rating in South America. Chilean exports of goods and services account for approximately one-third of GDP, with commodities making up some three-quarters of total exports.

Agriculture products: Grapes, apples, pears, onions, wheat, corn, oats, peaches, garlic, asparagus, beans; beef, poultry, wool; fish; timber

Export partners: China 24.4%, US 12.3%, Japan 10%, South Korea 6.2%, Brazil 5.4%

Import partners: China 20.9%, US 19.8%, Brazil 7.9%, Argentina 4%

Japan

In the years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan develop an advanced economy. Two notable characteristics of the post-war economy were the close interlocking structures of manufacturers, suppliers, and distributors, known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding under the dual pressures of global competition and domestic demographic change. Scarce in many natural resources, Japan has long been dependent on imported raw materials. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, Japan in 2014 stood as the fourth-largest economy in the world after first-place China, which surpassed Japan in 2001, and third-place India, which edged out Japan in 2012.

Agriculture products: Vegetables, rice, fish, poultry, fruit, dairy products, pork, beef, potatoes/taros/yams, sugar cane, tea, legumes, wheat and barley

Export partners: U.S. 18.9%, China 18.3%, South Korea 7.5%, Hong Kong 5.5%, Thailand 4.5%

Import partners: China 22.3%, US 9%, Australia 5.9%, Saudi Arabia 5.9%, UAE 5.1%, Qatar 4.1%, South Korea 4.1%

Malaysia

Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under current Prime Minister Najib Razak, Malaysia is attempting to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology, and services. The administration is continuing efforts to boost domestic demand and reduce the economy’s dependence on exports.

Agriculture products: Peninsular Malaysia - palm oil, rubber, cocoa, rice; Sabah - palm oil, subsistence crops; rubber, timber; Sarawak - palm oil, rubber, timber; pepper.

Export partners: Singapore 14.2%, China 12%, Japan 10.8%, U.S. 8.4%, Thailand 5.3%, Hong Kong 4.8%, Australia 4.3%, India 4.2%, Indonesia 4.2%.

Import partners: China 16.9%, Singapore 12.6%, Japan 8%, U.S. 7.7%, Thailand 5.8%, South Korea 4.6%, Indonesia 4.1%.

Mexico

Mexico’s $1.3 trillion economy has become increasingly oriented toward manufacturing in the 21 years since the North American Free Trade Agreement (NAFTA) entered into force. Per capita income is roughly one-third that of the U.S.; income distribution remains highly unequal. Mexico has become the United States’ second-largest export market and third-largest source of imports. In 2014, two-way trade in goods and services exceeded $550 billion. Mexico has free trade agreements with 46 countries, putting more than 90% of trade under free trade agreements.

Agriculture products: Corn, wheat, soybeans, rice, beans, cotton, coffee, fruit, tomatoes; beef, poultry, dairy products; wood products.

Export partners: U.S. 80.2%.

Import partners: U.S. 48.8%, China 16.6%, Japan 4.4% (2014).

New Zealand

Over the past 30 years, the government has transformed New Zealand from an agrarian economy, dependent on concessionary British market access, to a more industrialized, free market economy that can compete globally. This dynamic growth has boosted real incomes, but left behind some at the bottom of the ladder, and broadened and deepened the technological capabilities of the industrial sector.

Agriculture products: Dairy products, sheep, beef, poultry, fruit, vegetables, wine, seafood, wheat and barley.

Export partners: China 20%, Australia 17.5%, U.S. 9.3%, Japan 5.9%.

Import partners: China 17%, Australia 12.3%, U.S. 11.7%, Japan 6.7%, Germany 4.8%, South Korea 4.5%, Malaysia 4.3%.

Peru

Peru is the world’s second largest producer of silver and third largest producer of copper. The Peruvian economy grew by an average of 5.6% from 2009-13 with a stable exchange rate and low inflation, which in 2013 was just below the upper limit of the Central Bank target range of 1% to 3%. This growth was due partly to high international prices for Peru’s metals and minerals exports, which account for almost 60% of the country’s total exports.

Agriculture products: Artichokes, asparagus, avocados, blueberries, coffee, cocoa, cotton, sugarcane, rice, potatoes, corn, plantains, grapes, oranges, pineapples, guavas, bananas, apples, lemons, pears, coca, tomatoes, mangoes, barley, medicinal plants, quinoa, palm oil, marigold, onion, wheat, dry beans; poultry, beef, pork, dairy products; guinea pigs; fish.

Export partners: China 18.3%, U.S. 16.1%, Switzerland 6.9%, Canada 6.6%, Brazil 4.2%, Japan 4.1%.

Import partners: China 21%, U.S. 21%, Brazil 4.7% Mexico 4.6%, Ecuador 4.2%.

Singapore

Singapore has a highly developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP higher than that of most developed countries. Unemployment is very low. The economy depends heavily on exports, particularly of consumer electronics, information technology products, medical and optical devices, pharmaceuticals, and on its vibrant transportation, business, and financial services sectors.

Agriculture products: Vegetables; poultry, eggs; fish, ornamental fish.

Export partners: China 12.6%, Malaysia 12%, Hong Kong 11%, Indonesia 9.4%, U.S. 5.9%, Japan 4.1%, South Korea 4.1%.

Import partners: China 12.1%, Malaysia 10.7%, U.S. 10.3%, South Korea 5.9%, Japan 5.5%, Indonesia 5.1%, UAE 4.2%, Saudi Arabia 4%.

United States

The U.S. has the most technologically powerful economy in the world, with a per capita GDP of $54,800. U.S. firms are at or near the forefront in technological advances, especially in computers, pharmaceuticals, and medical, aerospace, and military equipment. However, the United States’ advantage has narrowed since the end of World War II. Based on a comparison of GDP measured at Purchasing Power Parity conversion rates, the U.S. economy in 2014, having stood as the largest in the world for more than a century, slipped into second place behind China.

Agriculture products: Wheat, corn, other grains, vegetables, cotton; beef, pork, poultry, dairy products; fish.

Export partners: Canada 19.2%, Mexico 14.8%, China 7.6%, Japan 4.1%.

Import partners: China 19.9%, Canada 14.8%, Mexico 12.5%, Japan 5.7%, Germany 5.3%.

Vietnam

Vietnam is a densely populated developing country in Southeast Asia that has been transitioning from the rigidities of a centrally-planned economy since 1986. Agriculture’s share of economic output has shrunk from about 25% in 2000 to 18% in 2014, while industry’s share increased from 36% to 38% in the same period. Vietnamese authorities have reaffirmed their commitment to economic modernization and a more open economy. Vietnam joined the World Trade Organization (WTO) in January 2007, which has promoted more competitive, export-driven industries.

Agriculture products: Rice, coffee, tea, pepper, soybeans, sugarcane, cashews peanuts, bananas; poultry; fish, seafood.

Export partners: U.S. 20%, China 10.4%, Japan 10.3%, South Korea 5%.

Import partners: China 30.4%, South Korea 15%, Japan 8.9%, Thailand 4.9%, Singapore 4.7%, U.S. 4.4%.

Partners