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TPP: Significantly Changing Global Trade

ASCM CEO

Friday October 16, 2015


Last week, 12 nations reached an agreement on the Trans-Pacific Partnership (TPP), which is aimed at lowering trade barriers to goods and services and establishing enforceable rules related to labor and the environment. In short, it’s the world’s largest free-trade agreement, with member countries accounting for 40 percent of the world’s economic output.

“After nearly seven years of negotiations, the TPP promises to deliver unprecedented free and fair global trade among the 12 participant nations,” Frank Holmes writes in the Forbes department “Great Speculations.” The TPP “will remove barriers to foreign investment, streamline customs procedures and create an international investor-state dispute settlement system, among much more.” 

Current TPP members include Canada, the United States, Mexico, Peru, Chile, Japan, Vietnam, Malaysia, Brunei, Singapore, Australia, and New Zealand.

In his commentary, Holmes cites data from the Peterson Institute for International Economics, which estimates that once the TPP is ratified, the savings could add $223 billion to the world economy by 2025. For some, this is welcome news, as business is slowing worldwide.

“The deal is a victory for [US President] Obama, who sees it as boosting economic growth, enhancing competitive industries, and binding like-minded Pacific countries at a time when China—not part of the bloc—is adopting a more assertive economic and military posture in the region,” writes William Mauldin, for The Wall Street Journal

The TPP deal, which must be ratified by each participating country’s congress or parliament, was signed by trade representatives after bitter battles over intellectual property protection for biologic drugs, automotive assembly rules, and dairy market controls.

Noticeably absent from the TPP are China and Korea, both of which Holmes says might reconsider in the coming years. “The business relationship between the U.S. and China—the world’s largest economies—grows stronger every day, and China doesn’t want to see its competitive edge dulled by other Asian countries that chose to be members of the TPP,” Holmes writes for Forbes.

The Wall Street Journal’s Mauldin points out that the “TPP includes stepped-up powers for the U.S. to put pressure on developing nations to improve labor practices—such a requiring Vietnam to allow independent trade unions and Malaysia to cut down on human trafficking.” 

The TPP does have its critics. For example, US pharmaceutical companies have expressed their disappointment about the shorter time limit (five to eight years) for biologic drug exclusivity. US labor unions also oppose the TPP because leaders doubt the deal will directly benefit workers. 

Influencing supply chains

Although the TPP has yet to be ratified, it has the potential to greatly influence supply chains all around the world. Consider the following explanation of “tariffs, currencies, and trade blocs” from the APICS Operations Management Body of Knowledge Framework (OMBOK): “Import and export taxes, relative currency valuation and volatility, and special agreements between cooperating countries often are significant considerations in the design and operation of a supply chain.” 

Now, in addition to strategic sourcing and supply chain decisions, professionals in the field also will have to consider complex geopolitical and economic factors. With its multifaceted array of certification and education options, APICS is an important resource. Take, for example, the APICS Certified Supply Chain Professional (CSCP) program, which is the most widely recognized educational program for supply chain and operations management professionals around the globe. In addition, the CSCP designation is highly sought by employers and recruiters. Find out more about APICS certifications by visiting apics.org/certification