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  August 18th, 2016 | Written by

TPP: The Nitty Gritty

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  • What's actually in TPP?
  • Automobiles and auto parts is the biggest sector covered under TPP.
  • TPP is first trade agreement to tackle digital commerce.

Despite all of the negative rhetoric on trade and the Trans-Pacific Partnership (TPP) being heard in the U.S. presidential campaign, many of the provisions in agreement are not well known.

In general, the agreement is meant to free up trade among the United States, Japan and 10 other Pacific nations.

Edward Alden, a senior fellow at the Council on Foreign Relations, in a recent article on the website World Politics Review, singled out half a dozen key TPP provisions for a deeper dive.

Automobiles and Auto Parts. This is the biggest sector covered under TPP. The U.S., and Japan are the numbers two and three can prodicers in the world after China, and Mexico is seventh. Import tariffs will be gradually eliminated under TPP: 40 percent in Vietnam, 23 percent in Mexico, and 19 percent in Malaysia.

U.S. tariffs on light trucks—the largest-selling category of vehicles in the country—at 25 percent, will be eliminate only after the agreement is 30 years old. Forty-five percent of the value of a vehicle must come from TPP members to qualify for the lower tariffs. NAFTA requires 62.5 percent. TPP critics say this provision could open the door to Chinese components in Japanese and Mexican cars.

Biologic Drugs. Trade deals have included provisions for the protection of intellectual property for over a couple of decades. The issue with biologic drugs is that they can save lives, so developing countries want access to cheaper generic versions sooner.

U.S. drug companies wanted 12 years of protection under the TPP. The agreement gives them five to eight years.

Free Flow of Data. “The TPP is the first trade agreement that truly tackles the emerging world of digital commerce,” Alden noted in his article.

TPP encourages the crossborder electronic transfer of information by, among other things, prohibiting tariffs on electronic transactions. It also eliminates data localization laws, which require companies to store collected data in-country.

State-Owned Enterprises. “At Washington’s insistence, the TPP for the first time includes rules covering these state-owned enterprises,” Alden wrote. SEOs predominate in countries like Vietnam “but the real U.S. goal,” according to Alden, “is to lay down a marker for China if it one day joins the TPP.”

Currency Manipulation. The TPP brings the issue of enforcement against currency manipulation into a trade agreement for the first time. Although not subject to the usual dispute-resolution procedures of the TPP, currency manipulation will instead be the subject of a side deal which will require detailed reporting on government interventions in markets.

Investor-State Dispute Settlement. “The TPP includes standard language that permits companies to seek binding arbitration when governments violate agreed investment rules in a way that harms their investments,” Alden explained. But these provisions are coming under criticism as companies use them to attack government decisions. The European Union wants changes to these procedures under the Trans-Atlantic Trade and Investment Partnership (TTIP) currently being negotiated with the U.S.