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Department of Agricultural, Environmental, and Development Economics


International Trade Economist: Trans-Pacific Partnership Would Boost U.S Agriculture

After seven years of negotiations, 12 nations agreed to terms of the Trans-Pacific Partnership trade agreement in early October.

While each country now needs to ratify the agreement for it to be put into effect, an international trade expert at The Ohio State University said TPP could significantly boost the market potential for American farmers, entrepreneurs and other small-business owners.

“TPP is the largest regional free trade agreement that has been struck in the past two decades,” said Ian Sheldon, Ohio State’s Andersons Professor of International Trade and an economist in the Department of Agricultural, Environmental, and Development Economics.

Sheldon presented on the agreement at the Agricultural Policy and Outlook Conference Series organized by the department. The series kicked off on Dec. 7 on the Ohio State campus.

The partnership includes 12 countries that account for approximately 40 percent of the world’s economy: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States. The agreement is anticipated to reduce more than 18,000 tariffs, including some agricultural trade barriers.

Several institutions are forecasting impressive economic growth under TPP.

The U.S. Department of Agriculture’s Economic Research Service estimates that TPP will result in a 6.6 percent increase in agricultural trade by 2025. This increase will account for an additional $8.5 billion in the agricultural marketplace, assuming the complete elimination of existing agricultural tariffs by 2025, Sheldon said.

Additionally, the ERS anticipates that the agreement will result in a 33 percent overall increase in U.S. exports and a 10 percent increase in imports by 2025.

“American dairy farmers may benefit from a loosened dairy sector in Canada,” Sheldon said. “Japan’s beef market will get freed up a bit.”

In addition, the Peterson Institute for International Economics, a private, nonprofit and nonpartisan research institute, estimates that under TPP, $225 billion will be added to global gross domestic product by 2025, including $77 billion to U.S. GDP. The institute forecasts that U.S. manufacturing industry exports will grow by about 4.5 percent by 2025 due to TPP.

However, Sheldon said, some of the biggest winners look to be smaller countries involved in the partnership, such as Vietnam. 

“We will see a much bigger impact on some of the emerging economies included in the negotiations,” Sheldon said. “For example, Vietnam is anticipated to receive a 10.5 percent increase in GDP thanks to TPP.

“My sense is that Vietnam is a winner because China is not in the agreement.”

Vietnam, which is a low labor cost economy, will expand as a manufacturing hub in industries such as textiles, and will have preferential access to these other 11 economies included in the agreement, he said.

“However, at the same time, it looks like the agreement partners are trying to tighten up things like state-owned enterprises, which would impact Vietnam since it is a communist country," Sheldon said. “These stipulations could also impact China, should it choose to participate in the future.”

Sheldon said the long-term objective of TPP is to align Asian economies and serve as a template for future free trade agreements that might include China.

Additionally, Sheldon notes that the agreement is anticipated to have an important impact on trade in services, rules on intellectual property rights, as well as environmental and labor regulations.

For example, through TPP there will be stricter enforcement of the Convention on Trade and Endangered Species, he said. Additionally, recognition of unions will be pushed, especially in developing countries that participate. Rules of origin will be important, which is always a complex and contentious issue in international trade discussions, Sheldon said.

However, in regards to the impact on agriculture, trade barriers such as the labeling and approval of genetically modified foods as well as food safety issues are not included under TPP, Sheldon said, noting that these issues are seen as the stalemates of international agricultural trade debates.

These issues are currently included in the Transatlantic Trade and Investment Partnership (TTIP) discussions, which are under negotiation between the European Union and the U.S. If the final TTIP agreement includes these elements, agricultural trade growth under TTIP would far outweigh trade growth under TPP, Sheldon said.

However, TTIP is still far from being agreed upon and signed.