One of the major issues swirling about in international economics is the debate on the Trans-Pacific Partnership (TPP). What we find particularly interesting is how trade negotiations have changed since the last time such a deal made headlines.
Rather than just dealing with bananas, toys or textiles shipping across oceans on large cargo ships, many of the goods now at stake are intangible assets such as intellectual property (IP). And that changes how the negotiations proceed, and often, get stalled.
What if some of the countries negotiating a free trade agreement like TPP have IP laws more restrictive than the others? It would typically mean that their negotiators would seek to impose their stricter IP laws on the less regulated countries, which could result in new government regulation, tax treatment, cyber security and rights protection in countries that might not have much awareness or experience enforcing them.
More importantly, however, stricter IP law enforcement could potentially put a brake on economic activity, in which case, it will be debatable whether IP free trade will benefit all the participating economies to the same degree.
This is precisely the reason why today’s trade agreements, especially TPP, do not analyze so easily in today’s complex modern economy. The most often cited study of TPP is by the Peterson Institute for International Economics, which forecasts that the agreement will add 0.4% to U.S. GDP over 10 years. But clearly, analysts have trouble predicting what will happen in a dynamic global economy even a year from now. Looking 10 years out is frankly guesswork at best.
Our view: The inherent complexity of negotiating trade deals does not mean they should be dropped completely. Fundamentally we believe in free trade with normal goods because it should ultimately lead to further economic growth in all economies. But for an intangible asset such as IP, we are not so quick in thinking that this equally benefits all nations. We don’t have all the answers, and the framework for trying to forge the right policy toward trade is still a work in progress. We hope the right leadership will emerge to take on this daunting challenge. As a result, a TPP agreement may not immediately be a big market mover.
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