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Applying the Lessons of NAFTA to the TPP

The sheer magnitude of the Trans-Pacific Partnership (TPP) renders it difficult to fully comprehend, a dynamic constellation of disparate nations and their competing interests.  However, as groundbreaking as the agreement might be for global trade, it is not without its historical precedents. Speaking exclusively with the Sourcing Journal, Ron Sorini, Principal of Sorini, Samet and Associates, explained how lessons gleamed from NAFTA could be applied to the final rounds of the TPP.

Addressing the fact that, even in the eleventh hour, TPP negotiations are plagued by persistent disagreement, Sorini expressed confidence that this was less than worrisome. “There are still a number of unresolved issues late in the game but this isn’t really atypical. In fact, when it comes to major trade negotiations like the TPP it’s often the case that there is more internal agreement than is publicly advertised since there are various interests that could be angered if they knew. This was certainly the case with NAFTA. Every major treaty requires difficult decisions that simply won’t satisfy every single constituency,” he said.

Still, the stakes are astoundingly high, especially since, as Sorini observed, the agreement would cover up to 45 percent of global GDP. The eleven countries involved in the negotiations sent $15.1 billion worth of apparel and textile imports to the US last year.

And Sorini explained that the TPP builds upon the historical foundation laid by NAFTA. He said, “The great significance of NAFTA is that it was the first time a free trade agreement was concluded between major developing countries and a developing one. Both the US and Canada were already rich, industrial nations while Mexico was not. This income disparity between signatories was historically novel. With the TPP, you have Vietnam, Singapore, etc. In this sense, the TPP builds on the success of NAFTA.”

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Debate over the basic provisions of the TPP has intensified recently, especially as a conclusion appears on the not-so-distant horizon. The nineteenth round just concluded in Brunei and includes the U.S., Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile, Malaysia, Mexico, Canada and Japan. Sorini predicts that a final settlement will be reached before the conclusion of the year but cautioned that the deadline should be interpreted as somewhat elastic. “Well, the deadline can be considered somewhat fluid–the best case scenario is that an agreement is reached before the end of the first fiscal quarter of 2014. After that congressional elections will have a halting effect since legislators will not want to make controversial commitments and decisions.”

And the issue of timing has another dimension as well; Sorini argued that it a protracted delay could undermine the considerable progress TPP negotiations have made. “Momentum counts. If negotiations drag on too long, skepticism and a general lack of interest start to creep into the picture. Take the DOHA rounds as an example: once a serious attempt at a significant trade agreement, it’s become a kind of international joke. It also squanders some of our credibility as a nation understood to be a leader in these kinds of circumstances. We can’t effectively steward agreements if we have a spotty track record and no one trusts our leadership.”

And commenting on the fierce criticism President Obama weathered for sitting out important TPP conferences in Asia during the shutdown of the federal government, Sorini explained that while symbolically significant, Obama’s actions have to be considered in their proper context. “While President Obama’s absence from major summits was hugely disappointing, and sent the wrong signal to participating negotiating partners, it shouldn’t be a deal breaker. The US still has high-ranking representatives at all the essential meetings.”

Sorini also advised that current macroeconomic conditions make the passage of the TPP a significant boon to US trade. “It’s the right time for the TPP. With increasing competition all along the supply chain, this will be significant in bringing footwear and textile back to US manufacturers. The agricultural sector will benefit greatly,too.”

Many continue to oppose the TPP, some simply on the grounds that it is throttling towards its conclusion too hastily to guarantee its protection of their interests. Tom Donahue, head of the US Chamber of Commerce, said, “We’ve worked [to back the TPP] harder than anybody. But we’re at the same time saying this is going to be a great deal when it gets done. Let’s just not rush it. Speed is important but not without content. We’re willing to slow it down a month, or two or three to get the content right. “

But Sorini counsels that the timing is propitious. “Always remember that a free trade agreement is negotiated at a particular moment in time but circumstances change and demand revision. The state of both manufacturing and distribution have significantly changed.  About 90 percent of NAFTA still works but we need a living, adapting regime of agreements. It makes sense for the TPP to be that new accord. “