The Economist: A serviceable deal

11/13/2015

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Nov 13, 2015 | Source: The Economist

IT DID not take long for America’s presidential candidates, busy though they must be, to digest the 6,000 pages of the agreement creating the “Trans-Pacific Partnership” (TPP). America and 11 other countries of the Pacific Rim struck the trade deal in early October, but the full text was not released until November 5th. Within days Bernie Sanders, a Democrat, had rendered judgment: “It’s even worse than I thought.” Donald Trump, a Republican, labelled it “insanity”.

Even people of a less protectionist bent are unimpressed, complaining that TPP’s short-term benefits will be indetectably modest. One estimate suggests that in its first ten years it will cause its members’ exports of goods and services to rise by just $308 billion in total. In 2003-13 global trade in goods and services grew by more than $1 trillion a year on average. A ten-year horizon misses the point, however. TPP’s real promise lies in the liberalisation of trade in services. Just as it took decades for supply-chain integration to flower into the rapid goods-trade growth of the 1990s and 2000s, the pay-off from TPP, and deals like it, is further off.

TPP cuts tariffs for some important industries, such as cars and agriculture, but its main concern is to eliminate non-tariff barriers, such as onerous customs procedures, buy-domestic rules for government agencies and regulatory barriers to trade in services. Indeed, Hillary Clinton, another Democratic presidential candidate, who was for TPP before she was against it, once said it set “the gold standard” in this respect.

Not all services can be traded: outside of border-straddling cities, the international trade in manicures, say, is limited. Yet parts of other service industries, including finance, telecommunications, education and health care, are increasingly tradable thanks to advances in information technology. Such services account for an enormous share of GDP and employment in most rich countries, but only a tiny sliver of trade. Liberalisation could open them up to global competition. Hospitals in America, for instance, could outsource patient monitoring to nurses in Malaysia, diagnostics to technicians in India, and consultations to doctors in Canada, to the benefit of all four countries.

 

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