Understanding the TPP trade agreement

Understanding the TPP trade agreement

On Oct. 5, 2015, trade ministers from 12 nations, including the United States, reached an agreement on the Trans-Pacific Partnership (TPP) trade agreement. Trade talks on the TPP agreement have been ongoing for several years. Other countries besides the U.S. involved in the TPP agreement include: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Together, these 12 nations account for approximately 40% of the world’s economic output. Full details of the 30 chapters of the final TPP agreement were released on Nov. 5. There are many TPP resources available on various websites.

The United States already does a considerable amount of export business with the other TPP countries, totaling an estimated $622 billion in 2013. The TPP agreement would reduce more than 18,000 current tariffs that inhibit American products from being exported to the other TPP countries. Some examples include a 38% tariff on U.S. beef entering Japan, a 40% tariff on U.S. poultry entering Malaysia, and a 34% tariff on U.S. pork entering Vietnam. Japan also has large tariffs on U.S. dairy products, wheat, corn, and rice. On the flip side, the U.S. agreed to reduce current tariffs on sugar that is imported into the U.S. from TPP countries, which has been a sticking point with some farm groups, the sugar industry, and some members of Congress.

The TPP agreement would also open up U.S. trading possibilities with a wider range of Asian countries on more goods and services. It is also hoped that having a stronger economic alliance with Japan and the other Asian countries will also strengthen the U.S. national security in that region of the World. China, which has the largest economy in Asia, is not a partner in the current TPP agreement; however, it is hoped that China may at some point be added as a TPP trade partner.

The TPP agreement would also force the member nations to comply with certain labor and environmental regulations, which was very important to the U.S. negotiators. The agreement will ban forced and child labor, in addition to establishing certain wage guidelines and other workplace standards. The TPP agreement will also ban illegal fishing, wildlife trafficking and illegal logging. The TPP agreement will provide the U.S. more authority to contest export rejections that are made on the basis of sanitary rules for plant and animal diseases, without scientific evidence or proper grounds.

TPP impact on agriculture

Most observers estimate that the agriculture industry will be a winner from the TPP agreement over the next several years, if the agreement is approved. As of the 2014-2015 fiscal year, the U.S. exported approximately 47 percent of the soybeans, 42 percent of the wheat, and 13 percent of the corn that produced in the U.S. in 2014. The U.S. also exported over 20 percent of U.S. pork production, and significant amounts of beef, dairy, and poultry products, rice, fruits, and vegetables.

The reduction in the significant tariffs in Japan, Vietnam, and other Asian countries with the TPP agreement should help open up new markets for U.S. grain and meat products. Even with the current tariffs, annual U.S. agricultural exports in 2014 totaled over $13 billion to Japan, $2.3 billion to Vietnam, and just under $1 billion to Malaysia. Overall, the U.S. agricultural exports totaled $63 billion to the other eleven TPP countries, or 42 percent of the total U.S. agricultural exports. Many of the Asian countries have a rapidly growing middle-class population, which tends to be favorable for higher levels of U.S. agricultural exports.

From an agricultural standpoint, Minnesota has a lot at stake with the pending TPP agreement. Minnesota ranks first in the U.S. in sugar beet and turkey production, third or fourth in corn and soybean production, second or third in pork production, seventh in dairy production, and ninth in wheat production, as well as being a major producer of beef, other poultry products, and vegetables. The total estimated value of Minnesota’s agricultural exports in 2013 was $8 billion, with the top five exports being soybeans, feeds and fodder, corn, pork, and wheat. Currently, several Asian countries have some high tariffs on exports for most of the leading agricultural export commodities.

Opposition to the trade agreement

While there are many agriculture groups and companies that support the TPP agreement, there are also some who oppose the agreement. Because most trade agreements tend to create winners and losers, along with other issues in multi-nation trade agreements, there is rarely uniform support for these types of agreements. The old saying goes “the devil is in the details,” and many members of Congress and trade experts want to wait until they can review the full text of the TPP agreement before pledging support to the agreement. As mentioned earlier, there are a total of 30 chapters to the TPP agreement, with lots of potential provisions that could be troublesome for the economics of certain products or commodities, or to certain groups or individuals, including members of Congress.        .

Some members of Congress and corporate leaders are concerned that the TPP agreement does not have specific language to address the issue of currency manipulation and monetary policy difference among the member nations. Some agricultural leaders fear that the currency manipulation may lead to U.S. export products being undervalued, and thus lowering the economic benefit to U.S. farmers and ranchers. Labor unions have also opposed the TPP agreement, feeling that the agreement did not go far enough to level the playing field for work conditions and wages in other countries, compared to standards for the U.S. workforce.

Most experts expect the Congressional debate regarding the TPP legislation to last for months, and that final approval may not come until mid-year or later in 2016, if at all. The 2016 Presidential election adds another wrinkle to achieving approval of the TPP agreement. Hillary Clinton, the leading Democratic candidate, as well as several leading Republican candidates, have already announced opposition to the TPP agreement for various reasons.  Some observers fear that this may keep members of Congress from taking any action on the TPP agreement until after the 2016 Presidential election. Many agricultural leaders are hoping that the TPP debate and final approval can move more quickly, in order to potentially open up expanded export markets for U.S. agricultural products.

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