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Trans-Pacific Partnership (TPP) And The Controversy Surrounding It

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Question:

What Is Trans-Pacific Partnership (TPP) and the Controversy Surrounding It?

 

Answer:

Introduction

A free trade agreement (FTA) refers to the cooperation among countries that have agreed to eliminate trade barriers such as tariffs and import duties to facilitate trade activities between the countries involved (Cui & Jiang, 2012). FTAs are instrumental strategies of opening foreign markets as it reduces barriers to trade. As an economic policy, FTAs allow for exports and imports all the involved countries at low or no tariffs. Due to this, it is believed that FTAs brings about a win-win results for all the countries involved. However, economists and policymakers have criticized FTAs arguing that they are always controversial in nature, particularly due to the perceived benefits and drawbacks associated with them. Examples of popular FTSs include the Trans-Pacific Partnership Agreement (TPP), Free Trade Area of the Americas (FTAA), and the North Atlantic Free Trade Area (NAFTA). FTAs have a direct impact on employees, employers, managers, and other key stakeholders. In this regard, this essay is going to address the controversial nature of FTAs by discussing the advantages and disadvantages of FTAs drawing illustrations from the Trans-Pacific Partnership Agreement.

 

Trans-Pacific Partnership (TPP) and the controversy surrounding it

TPP refers to a free agreement that was negotiated among 12 countries, namely Canada, Brunei, Chile, USA, Japan, Malaysia, Peru, Singapore, Australia, Vietnam, and New Zealand towards 2015 (Peter, 2016). If implemented, the TPP has significant benefits to the partner countries, for example, it would increase the access to new markets for the goods and services that are produced by the member states. The TPP was formed with the goal of providing a transparent and predictable environment for business activities. Upon its ratification, the TPP will ensure a flowing environment for investment and trade activities through the establishment of policies and regulations that are transparent (Australian Government, 2017). It will result in the reduction of costs of imports and exports to promote regional economic growth by eliminating the challenges to trade activities. Despite this, the TPP has been regarded by some partners, particularly the US as very controversial in nature because it will create loopholes for corporations in the US and Australia to sue one another in extraterritorial tribunals, violation of copyright rights, and loss of jobs (Peter, 2016).

 

Advantages of FTAs

One of the advantages of FTAs is that it brings about a competitive edge to the key stakeholders in such as producers and manufacturers in the countries involved (Doan, Mare, & Lyer, 2015). Basic policies and regulations that bind the countries involved in the agreement enable the manufacturers of particular products in these countries to specialize in the production of good and services that they produce, after which they will receive preferential treatment in their markets, hence, increased generation of revenue. For example, the TPP aims at increasing trade activities by expanding the markets for partner countries. FTAs enable manufacturers and producers to increase their market share in other foreign countries, a step that enables them to make more profits.

Key stakeholders such as the consumers of products and services in the countries involved will enjoy the benefits of reduced prices of commodities due to free trade agreements (Cui & Jiang, 2012). Economists and policy makers argue that the formation of FTAs reduces the costs of imports and exports in the various countries that are involved. The reduced cost of exports and imports have a direct impact in the reduction of prices of the commodities because of the reduced costs of production of commodities. This brings about the lowering of prices at which the manufacturers offer their products to the consumers. As a result, the consumers can acquire goods and services at affordable costs, for example, consumers in Brunei and Malaysia will acquire vehicles from Japan and US at affordable prices upon the ratification of TPP. Besides, the consumers can purchase products that cannot be produced locally in their countries.

FTAs are beneficial to employees because they increase employment opportunities among all the various countries involved in the partnership (Kang & Bael, 2013). The formation of FTAs allows for the outsourcing of labor at a much-reduced courts from the countries in the agreement. This creates widespread employment opportunities for individuals in other countries, for instance, the FTA agreement that exists between China and New Zealand has improved the rate of employment in these two countries (Kang & Bael, 2013). This has reduced the rate of unemployment and poverty, hence, improved economic growth and regional integration. TPP as an FTA was formed with the goal of eradicating the issue of unemployment among the twelve countries involved. It has rules and regulations that allow the free movement of workers from the involved countries. For instance, countries like Japan and US would offer employment of all member countries into their massive manufacturing industries. In addition to this, the employers can acquire cheap labor from the member countries. This lowers the cost of production, which in turn results in the cost of products and services.

 

Disadvantages of FTAs

As already alluded in the introduction, the formation of FTAs such as the TPP and NAFTA come along with numerous controversial issues. This is because of the widespread negative impacts that the trade agreements have on employees, employers, managers, and other key stakeholders in the countries involved as discussed in the section below.

The formation of FTAs is controversial because it comes along with significant disadvantages to employees in some of the countries that are involved in the partnership (Sandrey & Grinsted, 2008). This is because it contributes to massive loss of jobs resulting from the increased job outsourcing by employers in the major industries within the involved countries. The ability to outsource cheap labor is a major advantage to the employers; however, it is a major blow to the local employees in the involved countries because it promotes the arrival of foreigners who take away the jobs of local employees in some countries (Ramasamy, Yeung, & Laforet, 2012). For example, the ratification of the TPP has been widely opposed by the American employees and labor and trade unions because of the predicted potential massive loss of jobs that it will cause in the country (BBC News, 2017). Upon ratification of the TPP, workers from Japan, New Zealand and other partners in the TPP partnership will flock into the US due to the perceived notion of readily available opportunities. Besides the loss of employment, the overflow of foreign labor will result in the reduced wages because of the arrival of cheap labor.

The formation of FTAs is also a controversial topic because it is a major threat to the growth of budding industries in some countries in the involved countries (Buckley, Clegg, Cross, Liu, Voss, & Zheng, 2007). This is because the elimination of the barriers allow partner countries to establish their subsidiary companies in other countries or export large volumes of their products in partner states, and this may kill the emerging firms. For example, the FTA between China and New Zealand interfered with the growth of small firms in both countries. This is because the Chinese firms gained the rights to operate freely in New Zealand, and this brought about stiff competitions in the New Zealand markets (Cai, 2012). The Chinese companies that produce similar products to those of the local New Zealand industries have stormed and dominated New Zealand’s local markets by producing substitute products and services in the country (Antell & Wallgren, 2012). A similar scenario is also predicted in the TPP partnership as multi-national industries, for example, motor manufacturing industries from Japan and the US will kill the budding motor and other industrial manufacturing firms in countries like Malaysia and Brunei. Debates will rise over the benefits of importing cheap cars or the need to grow manufacturing industries in such countries, leading to unending debates among policy makers in the involved countries.

FTAs are controversial because they reduce profit margins of local investors in the economies of the involved countries. According to Durmaz and Tasdemir (2014), the presence of substitute products reduces a company’s performance, and hence, the Chinese companies have reduced the performance of New Zealand’s companies. Free trade agreements allow foreign companies to storm the markets of partner countries with products and services. These products and services may be highly similar, hence, serve as substitutes for the locally produced products. This significantly reduces market share and consequently, reduced profit margins. This is very harmful to investors and managers of local firms because it leads to the collapse of these firms.

 

Conclusion

In summary, the formation of FTAs is a very controversial topic among economists and policy makers in various countries. This is because of the numerous benefits and drawbacks it has on employees, managers, employers, and key stakeholders in the economy. The benefits of FTAs such as NAFTA and TPP is the increased access to markets for products of the involved countries due to the elimination of trade barriers. However, FTAs are controversial because of the drawbacks it has on the employees, employers, managers, and investors. FTAs reduces market shares and profit margins of organizations. It also promotes the outsourcing of workers, which is a major contributor to retrenchment and layoff. Finally, it kills the growth of budding industries in the involved countries due to the invasion of the market by multi-national companies from partner countries.

 

References

Cui, L. & Jiang, F., 2012, ‘State ownership effect on firm’s FDI ownership decisions under institutional pressure: A study of Chinese outward investing firms, Journal of International Business Studies, pp. 1-21. Doi:10.1057/jibs.2012.1

Kang, Y. & Bael, T., 2013, ‘Barriers to New Zealand-China economic integration: A case of the dairy industry and beyond, New Zealand Journal of Asian Studies, Vol. 15, no. 1, pp. 1-7.

Sandrey, R. & Grinsted, H., 2008, ‘China and New Zealand: an assessment of the recent FTA agreement. Tralac Working Paper No 5. [Online]. Available: www.tralac.co.za.

Antell, F. & Wallgren, C., 2012, ‘Foreign market entry: the strategic decision of foreign     market entry by service firms. Master’s. Linnaeus University.

Doan, T., Mare, M., & Lyer, K., 2015, ‘Productivity spillovers from foreign direct             investment in New Zealand, New Zealand Economic Papers, Vol. 49, no. 3, pp. 249-275.

Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P., 2007, ‘The determinants of Chinese outward foreign direct investment, Journal of International Business Studies, Vol. 38, pp. 499-518.

Cai, P. Y. (2012). Representations of Chinese overseas investment in the media. East Asia Forum. Canberra.

Durmaz, Y. & Tasdemir, A., 2014, ‘A Theoretical Approach to the Methods Introduction to International Markets, International Journal of Business and Social Science, Vol. 5, no. 6(1), pp. 47-53.

Ramasamy, B., Yeung, M. & Laforet, S., 2012, ‘China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, Vol. 47, no. 1, pp. 17-25.

Peter, M. (2016, November 13). TPP: Trans-Pacific Partnership dead, before Trump even takes office. [Online]: Available at: https://www.smh.com.au/federal-politics/political-news/transpacific-partnership-dead-before-trump-even-takes-office-20161113-gso9kn.html> [Accessed May 1 2017].

BBC News. (2017, January 23). TPP: What is it and why does it matter? [Online]: Available at: <https://www.bbc.com/news/business-32498715> [Accessed May 1 2017].

Australian Government. (2017, February 7). About the Trans-Pacific Partnership Agreement. [Online]: Available at: <https://dfat.gov.au/trade/agreements/tpp/pages/trans-pacific-partnership-agreement-tpp.aspx> [Accessed May 1 2017]

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