It took nearly eight years, but a dozen countries on both sides of the Pacific Rim, which account for 40% of the world's GDP reached a trade agreement. Attention will now shift to the ratification process.
Canada may offer the first challenge. National elections will be held October 19. The Conservative Prime Minister Harper has supported the efforts, but his two main rivals are either openly critical (New Democratic Party) or lukewarm (Liberals). The latest polls put the Liberals slightly ahead. Geographically, there appears to be an East-West split, as one might imagine.
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The US and Japan probably have the most at stake. For the US, the Trans-Pacific Partnership is an essential component of the so-called Asian Pivot. It excludes China (at least initially), and is seen to raise the bar to future trade agreements. It addresses some non-tariff barriers to trade, regulation, government procurement, and state-owned enterprises. Japan's Prime Minister Abe was slow to embrace TPP efforts, but his advisers, especially in METI, see it as a powerful weapon to weaken the domestic obstacles to reform, like the agriculture cooperatives.
Reports indicate that Japan has agreed to reduce tariffs on a wide range of agricultural goods, including what, pork, beef and poultry. Ultimately this will likely have an almost imperceptible impact on measured inflation. The quotas for raw milk and rice that are to be imported duty-free account for about 1% of domestic production.
The US imposes a 2.5% tariff on Japanese auto imports. This will be eliminated over more than a decade. Japanese producers service the US market primarily by building locally and selling locally. This is to say Japanese car makers have pursued a direct investment strategy to penetrate the US market rather export orientation. The sales by local affiliates outstrip exports by a factor of four.
Typically, the advocates of free-trade agreements oversell the direct economic benefits, in terms of jobs that will be created and the growth that will be generated. After all, there are many factors that influence job creation and growth outside of trade. The importance of this trade agreement may lie with taking the agreement further than other trade agreements. There will be a wider number of goods that can be traded duty-free, and the tariff barriers on other goods will be reduced. More importantly, there is a mutual recognition of many regulations. This includes an exclusivity period of drugs derived from living organisms (biologics) and patent protection for pharmaceuticals.
