Insights Primer: The Trans Pacific Partnership BY JACQUELINE VARAS | NOVEMBER 16, 2015 Introduction After years of negotiations and weeks of anticipation, the final text of the Trans-Pacific Partnership (TPP) has been released.[1] TPP is a trade agreement between the United States, Japan, and ten other Pacific nations. These countries represent 40 percent of the world’s Gross Domestic Product and, combined, would form the largest free trade area ever created.[2] Source: Forbes[3] AMERICANACTIONFORUM.ORG http://americanactionforum.org/experts/jacqueline-varas The Trade Promotion Authority, passed earlier this year, established guidelines for the passage of trade deals like TPP. These guidelines stipulate that an up or down vote from Congress cannot occur for at least 90 days after the President notifies Congress of his intention to sign the agreement[4], which he did on November 5, 2015. This gives the public and Congress ample time to analyze its contents in detail and determine its implications for the American economy. Tariffs and Non-Tariff Barriers The primary purpose of TPP is to eliminate barriers to trade. One such barrier, tariffs, drives up the cost of foreign goods in order to encourage the sale of goods manufactured at home. These taxes on imports make foreign goods and services more expensive, reducing trade and limiting competition. Expanding competition, however, is generally thought to lower prices, incentivize innovation in manufacturing, and encourage the creation of higher quality goods. TPP eliminates or reduces all tariffs on goods traded between partner countries. Currently, tariffs imposed on U.S. exports are as high as 100 percent on goods and 700 percent on agriculture products. The TPP agreement would abolish many of these tariffs, translating into approximately 18,000 tax cuts on U.S. goods sold abroad.[5] TPP also aims to increase trade in services. Services make up a substantial portion of U.S. trade, accounting for $711 billion of exports in 2014.[6] TPP expands market access in this area by prohibiting quantity restrictions on imported services, outlawing discrimination against foreign service providers, and encouraging the open exchange of services in all sectors.[7] Electronic Commerce TPP is the first trade agreement to establish guidelines concerning electronic commerce.[8] Specifically, it bans forced data localization laws, which mandate that firms place physical servers in areas where they would like to do online business. These laws place undue burdens on businesses and make cross-border data flows more expensive, restricting electronic commerce and hurting consumers.[9] TPP also prohibits customs duties, another form of import taxes, on electronic transmissions and includes several provisions to facilitate paperless trading. These features all aim to encourage e-commerce as a growing method of international trade. The agreement is also the first to spec ...

1. Insights
Primer: The Trans Pacific
Partnership
BY JACQUELINE VARAS | NOVEMBER 16, 2015
Introduction
After years of negotiations and weeks of anticipation, the final
text of the Trans-Pacific Partnership (TPP) has
been released.[1] TPP is a trade agreement between the United
States, Japan, and ten other Pacific nations.
These countries represent 40 percent of the world’s Gross
Domestic Product and, combined, would form the
largest free trade area ever created.[2]
Source: Forbes[3]
AMERICANACTIONFORUM.ORG
http://americanactionforum.org/experts/jacqueline-varas
The Trade Promotion Authority, passed earlier this year,
established guidelines for the passage of trade deals
like TPP. These guidelines stipulate that an up or down vote
from Congress cannot occur for at least 90 days
after the President notifies Congress of his intention to sign the
agreement[4], which he did on November 5,
2015. This gives the public and Congress ample time to analyze
its contents in detail and determine its
implications for the American economy.

2. Tariffs and Non-Tariff Barriers
The primary purpose of TPP is to eliminate barriers to trade.
One such barrier, tariffs, drives up the cost of
foreign goods in order to encourage the sale of goods
manufactured at home. These taxes on imports make
foreign goods and services more expensive, reducing trade and
limiting competition. Expanding competition,
however, is generally thought to lower prices, incentivize
innovation in manufacturing, and encourage the
creation of higher quality goods.
TPP eliminates or reduces all tariffs on goods traded between
partner countries. Currently, tariffs imposed on
U.S. exports are as high as 100 percent on goods and 700
percent on agriculture products. The TPP agreement
would abolish many of these tariffs, translating into
approximately 18,000 tax cuts on U.S. goods sold abroad.[5]
TPP also aims to increase trade in services. Services make up a
substantial portion of U.S. trade, accounting for
$711 billion of exports in 2014.[6] TPP expands market access
in this area by prohibiting quantity restrictions
on imported services, outlawing discrimination against foreign
service providers, and encouraging the open
exchange of services in all sectors.[7]
Electronic Commerce
TPP is the first trade agreement to establish guidelines
concerning electronic commerce.[8] Specifically, it bans
forced data localization laws, which mandate that firms place
physical servers in areas where they would like to
do online business. These laws place undue burdens on
businesses and make cross-border data flows more

3. expensive, restricting electronic commerce and hurting
consumers.[9] TPP also prohibits customs duties,
another form of import taxes, on electronic transmissions and
includes several provisions to facilitate paperless
trading. These features all aim to encourage e-commerce as a
growing method of international trade.
The agreement is also the first to specifically sets guidelines for
the trade of digital products. Namely, it
establishes a free market for digital goods by outlawing trade
discrimination against them.[10] Digital goods
include software, mobile apps, online games, or any other
products that are shipped electronically.
Biologics
Biologics, a relatively new form of medicine made up of living
cells, are among the fastest growing
pharmaceuticals on the market. Some suggest that biologics
will comprise 32 percent of major pharmaceutical
sales by 2023.[11] While these drugs may be a life-saving
breakthrough in medical science, they can also be
very expensive: the yearly costs of commonly used biological
drugs can range from over $20,000 to $200,000.
[12]
TPP provides manufacturers of biologics in the Asian-Pacific
region with at least five to eight years of data
exclusivity before competitors can enter the market with their
own non-innovator versions, called biosimilars.
This would be the first time that some countries, like Mexico,
have data protections for biologics. U.S. law,
AMERICANACTIONFORUM.ORG

4. which currently guarantees 12 years of exclusivity, would not
be changed. [13]
This provision has raised serious concerns among biologic
manufacturers as to their ability to recover upfront
investments before biosimilars enter the market. PhRMA, a
representative of the pharmaceutical industry,
issued a statement denouncing TPP for its lack of data
protection. The group suggests that strong intellectual
property laws are essential to freely encourage innovation.[14]
Some, however, argue that without the market
entrance of lower-priced biosimilars, the poorest consumers
would be hurt most.[15] AAF research found that
this is not necessarily the case: the complexity of biologics
prevents biosimilars from achieving the same cost
savings previously seen in the case of traditional small molecule
generics.[16]
Agriculture
U.S. agriculture is likely to be a primary beneficiary of the
agreement, as 85 percent of U.S. agricultural exports
are currently sold to TPP nations.[17] The deal would boost
agricultural trade even further by significantly
lowering tariffs and opening up nations like Japan, New
Zealand, and Malaysia to competition in agricultural
trade. For instance, taxes would be immediately removed on
over half of our agricultural exports to Japan and
on over 90 percent of exports to Malaysia and New Zealand.[18]
And for many agricultural products, tariff-rate
quotas (TRQ) would be either newly established or increased,
allowing more U.S. products to be imported tariff-
free by our TPP partner countries.
Rice is a prime example. Currently, U.S. rice exports to Japan

5. face significant market access barriers with
tariffs as high as 800 percent.[19] TPP would immediately
establish a new country-specific quota (CSQ) for
tariff-free U.S. rice exports starting at 50,000 tons and rising to
70,000 tons over 13 years.[20] However, some
U.S. rice growers are apprehensive about the consequences of
eliminating tariffs, especially as it pertains to our
trade with Mexico.[21] While low transportation costs have
historically made Mexico our largest destination
for rice exports, TPP could even the playing field for other rice-
producing nations and lower Mexico’s
dependence on U.S. rice.
A more controversial consequence of TPP on agricultural trade
involves the Canadian dairy supply management
system. In order to stabilize dairy prices and prevent
overproduction, Canadian farmers are limited in the
amount of dairy they can produce. Similarly, to prevent foreign
competition from bringing down dairy prices,
Canada restricts dairy imports through a quota system. By
giving exporters new access to 3.25 percent of the
Canadian dairy market, TPP expands competition and may put
downward pressure on Canadian dairy prices.[22]
Rules of Origin
Rules of origin dictate that goods manufactured within TPP
nations can qualify for tariff benefits. With today’s
supply chains expanding across borders, these rules are made to
incentivize domestic production. In addition to
goods that are wholly produced or grown in TPP nations, the
agreement also contains product-specific rules for
goods requiring complex production processes. For example, 45
percent of vehicles and 35 to 45 percent of
auto parts must be manufactured within TPP borders in order to
be eligible for reduced tariffs.[23]

6. The Mexican auto industry has criticized TPP’s rules of origin
provisions for being weaker than in the North
American Free Trade Agreement, which requires over 60
percent of automobiles and auto parts to be
manufactured within the partner countries’ borders.[24]
Advocates instead suggest that these rules, combined
with reduced trade barriers, will spur domestic manufacturing
and benefit the auto industry.[25]
AMERICANACTIONFORUM.ORG
http://americanactionforum.org/research/the-new-frontier-of-
pharmaceuticals-biosimilars
Labor
TPP includes the strongest labor and human rights protections
of any trade agreement in history. For instance, it
mandates that all TPP nations give workers the right to organize
into unions and collectively bargain. It also
completely eliminates forced and child labor and requires
partner countries to have laws concerning minimum
wages, hours of work, and occupational safety.[26]
Furthermore, the U.S. made three separate agreements with
countries that are especially lacking in labor standards:
Malaysia agreed to implement significant reforms to
combat human trafficking, and both Brunei and Communist
Vietnam pledged to allow the full freedom of union
activity.
TPP provides partner countries the right to institute trade
sanctions against any nation that does not comply with
these labor laws. Critics argue that these standards are
unrealistic and fear TPP countries will continue to

7. exploit labor to drive down the costs of manufacturing.[27]
AFL-CIO, the largest federation of American
unions, has come out against TPP, citing inadequate ways to
enforce the standards.[28] Others criticize TPP’s
labor rules for the opposite reason: in countries that have never
before implemented basic labor standards,
drastically raising the cost of labor could harm their domestic
economies and trade.[29]
Intellectual Property and Copyright Protections
TPP includes strong intellectual property (IP) standards to
freely encourage innovation in production. It also
extends copyright protections to cover the lifespan of a creator
and 70 years after a creator’s death. Penalties for
breaking these provisions are severe: stealing trade secrets or
pirating copyrighted goods is considered a
criminal offense. Critics worry that these penalties carry
dangerous implications for whistleblowers and online
consumers.[30]
One of the more controversial aspects of TPP’s IP protections
concerns “fair use” exemptions to copyright law.
These exemptions allow the limited use of copyrighted material,
which is frequently utilized by online users
who engage in research, commentary, and criticism.[31]
Opponents condemn TPP for not including mandatory
fair use exemptions, even though the deal does not explicitly
outlaw them.[32] Others warn against exceptions
and limitations to copyright protection. They suggest that
mandating a one-size-fits-all fair use policy would be
harmful to nations with different legal systems and in different
stages of technological development.[33]
Network Neutrality

8. There is no true consensus on the definition of network
neutrality or what it means in practice. Generally, it can
refer to the notion that network providers should not restrict
access or interfere with the speed of data as it
travels to consumers.[34] TPP clearly promotes this concept by
recognizing the benefits of open access to
internet and telecommunication services across nations.[35]
However, it does not mandate network neutrality
among TPP nations.
Critics oppose TPP’s weak language on neutrality. Instead of
simply acknowledging the benefits, they demand
that it be an obligation among trading partners. [36] While
many support global network neutrality rules, they
may be practically difficult to implement. Telecommunications
officials caution that new regulations would
negatively affect the quality of their service and discourage
innovation.[37]
AMERICANACTIONFORUM.ORG
http://americanactionforum.org/insights/what-is-network-
neutrality
Investor-State Dispute Settlement
Investor-state dispute settlement (ISDS), as outlined in TPP,
refers to a procedure by which private companies
can sue foreign governments over discrimination, seizure of
private property, or other wrongful acts. By
utilizing ISDS, TPP participants can more quickly resolve their
issues through mediation. However, some have
asserted that ISDS is biased toward larger corporations at the
expense of U.S. law: if the U.S. enacts a policy
that is unfavorable to a foreign company’s bottom line, ISDS

9. would enable that company to take legal action
against the U.S. outside of our court system.[38]
Others have voiced concerns that ISDS does not go far enough.
TPP specifically excludes tobacco companies
from participating in ISDS, which means that the tobacco
industry would be prohibited from suing TPP nations
that institute anti-smoking regulations. Several members of
Congress have denounced this provision as harmful
to U.S. tobacco growers. They also worry that the exemption
may lead to other sectors being excluded from
ISDS in the future.[39]
Currency Manipulation
Currency Manipulation occurs when a nation’s central bank
devalues its currency relative to the rest of the
world by lowering the price of its goods and spurring export
growth. Critics view this practice as an unfair
scheme to boost exports and condemn TPP for not explicitly
outlawing it.[40] Instead of including rules against
manipulation in the agreement itself, TPP central bankers
negotiated a side deal: a joint declaration in which all
participating nations pledged to refrain from currency
manipulation for competitive gain.[41]
This declaration aims to increase transparency in the crafting of
monetary policy. It obligates TPP nations to
publically report current and future exchange rates as well as
quarterly reports on exports and imports. It also
creates a group of “Macroeconomic Officials” from each TPP
nation that will meet annually, giving TPP
nations an opportunity to challenge any practices they deem
unfair. However, the side deal does not outline any
clear penalties against currency manipulation, which has been a
major point of criticism.[42]

10. The auto industry has voiced strong objections to this point.
U.S. auto manufacturing is the largest exporter in
the country, with auto exports reaching record highs for each of
the past three years.[43] Because of their
dependence on exports, auto manufacturers are also
disproportionately damaged by international currency
manipulation. Ford motors recently slammed the trade deal for
not including laws against devaluation.[44]
Furthermore, the American Automotive Policy Council
introduced its own proposal that would outlaw nations
from manipulating their currencies and reverse the tariff
benefits for any nations that do.[45]
Conclusion
TPP would radically transform U.S. trade in the Asian-Pacific.
As a product of seven years of negotiations
between 12 independent nations, the final deal is undoubtedly
complex. While TPP may not have universal
support in its current form, terms of the deal are not set in
stone. TPP establishes a commission of senior
officials who would regularly evaluate the agreement’s
economic impacts and meet to propose reforms.[46] It
does, however, present a historic opportunity for the U.S. to
join in free trade with some of the fastest growing
economies in the world.[47]
AMERICANACTIONFORUM.ORG
It is now up to Congress to decide if the trade boost generated
from TPP’s tariff benefits outweigh its possible
costs.

11. [1] https://ustr.gov/trade-agreements/free-trade-
agreements/trans-pacific-partnership/tpp-full-text
[2] https://ustr.gov/tpp/overview-of-the-TPP
[3] http://www.forbes.com/sites/jplehmann/2015/04/09/tpp-is-a-
mistake/
[4]
http://www.finance.senate.gov/newsroom/chairman/release/?id=
0d838f3e-527e-43e0-9ebb-ab01a1e8ecd1
[5] https://ustr.gov/sites/default/files/TPP-Guide-to-18000-Tax-
Cuts.pdf
[6] https://www.fas.org/sgp/crs/misc/R43291.pdf
[7] https://ustr.gov/sites/default/files/TPP-Final-Text-Cross-
Border-Trade-in-Services.pdf
[8] https://servicescoalition.org/negotiations/the-trans-pacific-
partnership-tpp
[9] http://americanactionforum.org/insights/the-broad-
implications-of-the-newly-invalid-us-eu-data-pact
[10] https://ustr.gov/sites/default/files/TPP-Final-Text-
Electronic-Commerce.pdf
[11] http://www.economist.com/news/business/21637387-wave-
new-medicines-known-biologics-will-be-good-
drugmakers-may-not-be-so-good
[12]
https://primaryimmune.org/advocacy_center/pdfs/health_care_re
form/Biosimilars_Congressional_Research_Service_Report.pdf

12. [13] https://ustr.gov/sites/default/files/TPP-Final-Text-
Intellectual-Property.pdf
[14] http://phrma.org/media-releases/phrma-statement-on-the-
transpacific-partnership-negotiations
[15] http://www.vox.com/2015/10/5/9454511/tpp-cost-medicine
[16] http://americanactionforum.org/research/the-new-frontier-
of-pharmaceuticals-biosimilars
[17] http://americanactionforum.org/infographics/the-trans-
pacific-partnership-tpp
[18] https://ustr.gov/about-us/policy-offices/press-office/fact-
sheets/2015/october/fact-sheet-how-tpp-opens-
markets-made
[19]
http://www.forbes.com/sites/stephenharner/2011/02/17/wto-
criticique-of-japanese-agriculture/
AMERICANACTIONFORUM.ORG
[20] https://ustr.gov/sites/default/files/TPP-Final-Text-Japan-
Appendix-A-Tariff-Rate-Quotas.pdf
[21]
https://www.politicopro.com/agriculture/whiteboard/2015/10/us
-rice-farmers-worry-about-mexico-tpp-
provision-061889
[22] http://www.dairyfarmers.ca/news-centre/news/policy/trans-

13. pacific-partnership-to-impact-canadian-dairy-
farmers
[23] http://in.reuters.com/article/2015/11/05/us-trade-tpp-autos-
idINKCN0SU10N20151105
[24]
http://www.prosperousamerica.org/inside_u_s_trade_mexican_a
uto_rep_blasts_details_of_u_s_japan_deal_on_rules_of_origin
[25] http://in.reuters.com/article/2015/11/05/us-trade-tpp-autos-
idINKCN0SU10N20151105
[26] https://ustr.gov/sites/default/files/TPP-Final-Text-
Labour.pdf
[27]
http://www.aflcio.org/content/download/150491/3811471/file/T
PPreport-NO+BUG.pdf
[28] http://www.aflcio.org/Blog/Political-Action-
Legislation/The-Hardworking-Families-of-the-AFL-CIO-Will-
Join-with-Our-Allies-to-Defeat-the-TPP-says-Trumka
[29] http://www.npr.org/2015/10/08/446980193/orrin-hatch-on-
tpp-despite-concerns-fast-track-authority-was-
essential?sc=tw
[30] https://www.publicknowledge.org/news-blog/blogs/how-
the-trans-pacific-partnership-jeopardizes-fair-use
[31]
http://www.publiccounsel.org/tools/publications/files/fairuse.pd
f
[32] https://ustr.gov/sites/default/files/TPP-Final-Text-

14. Intellectual-Property.pdf
[33]
http://laweconcenter.org/images/articles/dangerous_exception_f
inal.pdf
[34] http://americanactionforum.org/insights/what-is-network-
neutrality
[35] https://ustr.gov/sites/default/files/TPP-Final-Text-
Electronic-Commerce.pdf
[36] https://www.eff.org/deeplinks/2015/11/release-full-tpp-
text-after-five-years-secrecy-confirms-threats-users-
rights
[37] http://www.cnet.com/news/politicos-divided-on-need-for-
net-neutrality-mandate/
[38] https://www.washingtonpost.com/opinions/kill-the-dispute-
settlement-language-in-the-trans-pacific-
partnership/2015/02/25/ec7705a2-bd1e-11e4-b274-
e5209a3bc9a9_story.html
[39] http://thehill.com/policy/finance/221197-mcconnell-seeks-
to-protect-tobacco-industry-in-trade-deal
AMERICANACTIONFORUM.ORG
[40] http://thehill.com/policy/finance/255013-nearly-160-house-
lawmakers-sign-currency-manipulation-letter
[41]
http://www.treasury.gov/initiatives/Documents/Press%20Releas

15. e%20-
%20Joint%20Declaration%20Fact%20Sheet.pdf
[42]
http://www.treasury.gov/initiatives/Documents/TPP_Currency_
November%202015.pdf
[43] http://www.wsj.com/articles/u-s-car-exports-top-2-million-
1423174695
[44]
http://www.prosperousamerica.org/ford_statement_on_the_trans
_pacific_partnership
[45] http://americanautocouncil.org/TPP
[46] https://ustr.gov/sites/default/files/TPP-Final-Text-
Administration-and-Institutional-Provisions.pdf
[47] http://www.bloomberg.com/news/articles/2015-02-25/the-
20-fastest-growing-economies-this-year
AMERICANACTIONFORUM.ORG