With Europe at the fore, it seems hard to justify paying attention to a congressional hearing about a trade deal nobody’s ever heard of. But the most important trade agreement in a generation—the Trans-Pacific Partnership (TPP), the subject of a House Ways and Means Committee hearing yesterday—is quietly advancing. The pact, a free-trade deal including the US and several other Pacific Rim nations, will profoundly affect economic and security relations between the US and Asia. And it may ultimately reshape global economics.
Negotiations are only starting, and with Japan just joining the talks they could go on for years. The true significance of TPP lies in what it promises: a new type of broad alliance for a world where trade and investment issues are no longer separate, and together underpin a new geopolitical reality. It’s the first of what could be many “coalitions of the willing” to unlock economic and financial efficiency. And if works, it will act as a magnet to pull many more countries into its fold.
TPP’s emergence follows nearly a decade of disappointment in trade talks. The World Trade Organization’s (WTO) Doha Development Round of talks first collapsed in 2003 and effectively died with the financial crisis. Doha’s moribund state is a direct result of the massive changes in the international economic system that the crisis brought to the fore. Now there is a new approach for trade and investment negotiations.
The WTO and global trade talks under its auspices are built on a divide between developed and developing economies. With developing countries’ increasing economic clout, this divide no longer makes sense. China, the world’s second-largest economy, is a developing country. So are Brazil (seventh), India (ninth), Mexico (fourteenth), Turkey (seventeenth), and Indonesia (eighteenth)—and these and their developing peers’ share of global economic activity is growing dramatically. The breakdown of the dichotomy between developed and developing economies—with developed countries loath to grant powerful developing economies their traditional advantages, and developing countries equally loath to relinquish them—torpedoed Doha.
No less fatal to Doha were the changes in global finance. In yesterday’s world, developed countries were assumed to be mature and less risky, dispensing aid to emerging markets and shepherding developing countries into the international economic regime in exchange for major concessions. That seems almost quaint today, when French President Nicolas Sarkozy goes to China with his hat in hand to ask for help rescuing the Eurozone, IMF intervention in Europe requires Brazilian funding, and the preferential treatment of companies and investments by developing economies is a core global issue.