On May 18th, the U.S. International Trade Commission (ITC) released an 800-page report on the likely impact of the Trans-Pacific Partnership (TPP) Agreement on the U.S. economy as a whole and on specific industry sectors, as well as on the interests of U.S. consumers. This post highlights the report’s assessments, in particular, relating to services, digital trade and the TPP chapters that cut across the Agreement.
The ITC conducted a quantitative assessment that estimated the economic effects of TPP provisions related to tariffs and tariff-rate quotas, selected nontariff measures affecting trade in goods and cross-border trade in services, and restrictions affecting foreign investment. It found that the “TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy”. The Commission expects most gains in the agriculture and food sectors and anticipates declines in the manufacturing, natural resources and energy sectors.
With regard to services, according to ITC projections, TPP implementation would result in higher output in nearly all services sectors, except transportation, logistics, travel and tourism. While U.S. service exports to its TPP partners’ markets would increase with the lowering of barriers, U.S. services imports would likely rise more, “worsening U.S. net exports in services with the world”.
The TPP’s e-commerce and other digital trade-related provisions are more wide-ranging than previous U.S. free trade agreements (FTAs) and are considered by many to be “the most transformative measures in the agreement”. New provisions that protect cross-border data flows and prohibit data localization requirements are considered particularly crucial to the development of cross-border trade in services and “vital to optimizing the global operations of large and small U.S. companies in all sectors”. The e-commerce chapter will likely have a positive economic impact on a wide array of U.S. businesses across a broad range of U.S. economic sectors.
The report also addressed the 23 TPP chapters that do not specifically apply to the agriculture, nonagricultural goods or services sectors, but rather are cross-cutting as they apply to more than one sector. They include customs administration and trade facilitation, trade remedies, technical barriers to trade, sanitary and phytosanitary measures, investment, government procurement, competition, intellectual property rights, labor, environment, dispute settlement, and transparency and anticorruption.
While the Commission noted that it is generally difficult to quantify the impact of such provisions on the U.S. economy, they could affect it by strengthening and harmonizing regulations, increasing certainty and decreasing trade costs for firms that trade and invest in the TPP region.
The report assesses the impact of such provisions using a qualitative approach, based generally on testimony at the Commission’s public hearing, written submissions, reports of trade advisory committees, interviews by Commission staff and Commission industry expertise. It contrasts TPP commitments with current practices and obligations under existing U.S. trade agreements. For each chapter, the report provides an assessment, a summary of its provisions and a summary of views of interested parties. Highlights of the assessments follow.
Customs Administration and Trade Facilitation: The TPP is the first U.S. trade agreement to include disciplines on the imposition of customs penalties. It also expands on prior commitments by obligating the TPP countries to cooperate on preventing duty evasion, smuggling and other customs offenses. By reducing trading costs for U.S. businesses, the chapter would be expected to have a positive impact on the U.S. economy.
Technical Barriers to Trade (TBT): The TBT provisions would likely provide significant benefits for U.S. firms investing in and exporting to TPP parties by lowering costs and creating a more level playing field. The chapter would, inter alia, require all TPP parties to permit foreign firms to participate in regulatory, standards and conformity assessment processes on an equal footing with domestic interests.
Investment: The chapter would likely impact the U.S. economy positively by providing new protections for U.S. investors in the non-US FTA countries: Brunei, Japan, Malaysia, New Zealand and Vietnam. However, it is unlikely that TPP would generate significant new investment flows into the U.S. since the economy is already substantially open to foreign investment.
Government Procurement: The most significant new government procurement opportunities for U.S. businesses would likely be in Brunei, Vietnam and Malaysia, which are not covered by an existing U.S. FTA or the WTO Government Procurement Agreement.
Competition: New obligations in the TPP chapter include establishing detailed rules on procedural fairness in competition law enforcement, consistent with U.S. law and practice. The chapter provides a regional standard that requires parties to adopt or maintain laws proscribing fraudulent and deceptive commercial activities.
State-owned Enterprises (SOEs) and Designated Monopolies: The TPP would be the first U.S. FTA to include a separate chapter on SOEs and to seek to comprehensively address the commercial activities of SOEs that compete with private companies in international trade and investment. Generally, the chapter is considered a positive step towards disciplining SOEs to assure that they compete fairly in commercial activities.
Intellectual Property Rights (IPR): U.S. industries that rely on trademarks, patents, copyrights, trade secrets and other IPRs would likely benefit from full and effective implementation and enforcement of the IPR chapter. It would reduce losses from infringement and increase exports of IPR-intensive services and goods, as well as sales opportunities for foreign affiliates.
Labor and Environment: These chapters are not expected to have significant effects on the U.S. economy, and there are concerns that they may not be enforced effectively. TPP goes further than any other major trade agreement to address environmental concerns.
Regulatory Coherence: The regulatory coherence chapter, the first in a U.S. FTA, would likely have a positive, but limited, impact on U.S. companies investing in and exporting to TPP countries. It encourages the use of good regulatory practices in developing and implementing domestic measures, and seeks to foster an open, fair and predictable regulatory environment in the TPP region.
Transparency and Anticorruption: The transparency provisions are expected to improve the overall business environment for U.S. firms, especially in Brunei, Japan, Malaysia, New Zealand and Vietnam. The TPP’s new anticorruption provisions will combat tax evasion and raise the standards for bookkeeping in the private sector.
The ITC prepared the report in response to a request by the U.S. Trade Representative and a requirement of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which gave the President Trade Promotion Authority.
Jean Heilman Grier
May 24, 2016