The Trans-Pacific Partnership (TPP) will create the most powerful and lucrative trading bloc since the inception of the European Union. Or maybe not. To paraphrase Donald Rumsfeld, we should worry about the unknown unknowns, an awkward phrase that says a lot about blindly tap dancing across political mine fields. The TPP most likely will have a positive impact on America's meat business and a negative impact on several other of our industries. Until we fully understand the fine print in the agreement which seems to have been written in invisible ink, we can't be sure.
Until we can find a way to read that invisible ink, we will have to take the USDA's Foreign Agricultural Service at its word. They have published these market benefits - some taking as long as 10 years to fully materialize - for American produced meat products:
- Japan will eliminate duties on nearly 80% of tariff lines, including processed pork. Remaining tariffs will be cut and the “Gate Price” system significantly altered.
- Nearly all Malaysian tariffs will be locked in at zero percent.
- Vietnam will eliminate tariffs currently as high as 34% in five to 10 years.
- Brunei will eliminate all tariffs immediately.
Beef and veal
- Japan’s beef tariff, currently as high as 50%, will be reduced to 9%.
- Japan will eliminate duties on 75% of tariff lines, including processed beef products.
- Vietnam will eliminate tariffs currently as high as 34% in three to eight years.
- Malaysia will lock tariffs in at zero percent.
- Brunei will eliminate all tariffs immediately.
What made it imperative to the Obama administration was the opportunity to counter the rapid expansion of Chinese economic influences in the Pacific. Their growing power as a regional trading partner, coupled with recent military chest-thumping, made a pivot toward the East and away from our traditional focus on Europe mandatory. Over the next half century, the world's economic center will slowly transition from London to Beijing. The American economy will be forced to follow.
The tipping point for the U.S., though, was Japan's entry into the Partnership. They are still the dominant economy in the region, at least for a few more years. Adding the expanded trading opportunities with that country to the markets offered by Canada, Mexico, Australia and seven other nations means we're still sitting at the head table instead of standing out in the cold with our noses pressed against the window, tying to stave off economic frost bite.
Although the debate rages on about how the TPP will effect American businesses - like all trade agreements, some will be hurt; others will be sending a lot more money to the bank - most people agree that American agriculture will be a big winner. How big depends on whether or not Japan's government fully accepts agricultural reform. The country has always been xenophobic about 'foreign' influences on their ag production.
Will the Abe government throw open the barn doors and welcome American agricultural products? No. There is no way Japanese politicians will step into that losing proposition. The agricultural interest's kick back will be sudden, loud and death sentence to political careers.
Reporting in the East Asia Forum, Aurelia George Mulgan, wrote "Former official of the Ministry of Agriculture, Forestry and Fisheries (MAFF), Kazuhito Yamashita, argues that ‘there will be hardly any impact’ on rice. Tariffs will be maintained on rice imports. While the zero-tariff import quota for US and Australian rice will expand by 78,400 tonnes, the Japanese government will purchase the same amount of domestic rice for stockpiling, thus isolating it from the domestic market and preventing any falls in the domestic price."
In other words, American rice will never reach Japanese supermarkets. Absolute minimum amounts will be bought and stored by the government for discrete disposal later.
According to Mulgan, Yamashita argues that there will be "little impact on beef and pork producers, although tariffs and duties on these products will either be reduced or abolished. Even if the price of beef drops after the tariff is reduced from 38.5 to 9 per cent over 16 years, the existing beef calf production subsidy system will still be sufficient to insulate farmers from any impact."
Our old frenemy, Viet Nam, is looking for important new foreign investment with the signing of the agreement. The Thanh Nien News reported that the Hanoi-based Vietnam Institute for Economic and Policy Research said "the country will see the biggest increase in foreign direct investment (FDI) thanks to the agreement, compared to the other 10 member economies."
Nguyen Mai, chairman of the Vietnam Association of Foreign Investment Enterprises, said the strongest growth will be in manufacturing, textile, electronics, and software outsourcing.
Where will all that investment money come from? "US investors will definitely rise to the top in Vietnam," he said.
Meanwhile, just up the road a bit, The Canadian supply management program, which has always artificially propped up dairy, poultry and eggs, becomes a threatened government program.
Anthony Winson (PhD), professor in the College of Social and Applied Human Sciences at the University of Guelph, says supply management "has been an important advantage for the some 16,000 dairy and poultry related farming families across the country, helping to maintain the viability of small towns, and helping to keep the economy moving through the goods and services those farm families purchase."
Dr. Winston claims the Canadian beef market has seen a number of dramatic ups and downs and allowing foreign producers to enter the protected marketplace threatens the stability and reliable source of income for Canadian ranchers.
How willing will the Canadian government be to tell its ag producers that they are just going to have to enter a wide open international market and sink or swim, based on their own initiatives? After decades of government protection, are they capable of surviving what will likely become an economic slugfest dominated by their more powerful neighbors to the south?
A timid approach-with-caution attitude of American and Canadian trade organizations is shared by all 12 participants. Spokespersons in each country are quick to love the concept but even quicker to suggest what can best be called 'off-the-book' protections for their most favored industries.
Duenden Nikomborirak, research director of the Thailand Development Research Institute, in a story published by Thailand's Bangkok Post, spoke about the fears of every participating nation when she said, "The pact will trigger a new supply chain effect in which global production for certain industries such as production for certain industries such as automotive and parts will relocate to TPP member countries to enjoy rules-of-origin advantages. Countries which sign up to the pact stand to gain, while those that stay out will lose out."
Will Durant, professional humorist and amateur politico, wrote the cleverest comment about TPP. "It’s been awfully fun to watch the different branches of government quiver like Aspen trees in a force 5 tornado arguing the pros and cons of the Trans Pacific Partnership (TPP) trade pact. The TPP is either an environmental travesty designed to set the union movement back 100 years, or the spine of the Pacific Rim’s economic pushback against China. Depends on who you talk to. One or the other: nothing in between. It’s two cliffs and a gorge."
Without all the details spelled out, though, no one knows how deep that gorge might be. An inconsequential rut in the emerging Pan-Asian Trade routes or a bottomless chasm that will swallow entire industries and condemn American workers to consignment work when they're forced to compete against Southeast Asians paid a dime an hour; no benefits, no OSHA protection?
Here is the bottom line: if it is passed by Congress, it will be the crown jewel in what the fringes of the Republican party will call King Obama's long and lawless reign. Handing him that triumph with the next presidential election so near will be akin to a gnat trying to swallow an elephant. If it is not passed by Congress and an 11 nation trading bloc leaves American industries stumbling at the starting gate, the public's opinion of their incessant dithering will sink even lower than the high single digits it now enjoys.