By dramatically reconfiguring supply chains in food and processed food, the Trans Pacific Partnership (TPP) could see significant price falls, including more than 12% on ketchup imported from Chile to north American markets, according to a new UNCTAD study of the trade deal's agricultural dimension. The study also said it would be complicated to assess the overall impact of the deal.
Signed in February 2016, the TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. However, it has not been ratified by any of its signatories and remains subject to political developments including the US presidential election in November 2016.
"The TPP could dramatically reconfigure supply chains in food and processed food items in ways that past trade agreements did not," the report says. "The deep and broad commitments in the TPP set up some interesting new dynamics."
"Assessing the overall impact of the TPP is complicated," the report says. But focusing on its unusually deep agriculture provisions brings into sharp relief the "paradox" at the heart of the TPP, the report says.
"On the one hand, some of the most substantial benefits found in the entire agreement can be found in agricultural products and, on the other, food remains subject to some of the most complicated provisions in the deal with the least progressive elements overall," the report says.
To explore the possible international trade dynamics, the study took the example of a hypothetical bottle of ketchup and looked at various scenarios both before and after the TPP comes into force to see what would happen to its price and the shape of the value chain from tomato plant to the supermarket shelf.
The scenario imagines a ketchup-maker in Chile seeking to break into north American markets, and looks at the costs and tariffs applied to tomatoes, sugar and vinegar, ketchup's three main ingredients or "inputs".
"Market research shows that American and Canadian consumers prefer the taste of corn syrup to sugar, so [the manufacturer] alters its recipe for exports to these markets," the report says. "It is able to save 6% …due to lower input costs, and finally 12.5% on the final import tariff to Canada."
However, according to the detail of the TPP, the same Chilean ketchup firm may struggle to export to Japan, where Japanese ketchup manufacturers are afforded protection for longer, though they will still need to import sugar cheaply enough to stay competitive.
Another feature of the TPP is the way it dramatically simplifies the procedure of using "rules of origin" which apply to the inputs that make up finished manufactured products. Unlike other free trade agreements, the TPP uses a single set of product-specific "rules of origin" that apply to all members.
"The Trans-Pacific Partnership is a transformative trade agreement," the report says. "The depth and breadth of the commitments between the 12 members has the power to reshape supply chains and respond to many business concerns in ways that previous free trade agreements did not."
The report, which was written by Clemens Boonekamp, the former director for agriculture at the World Trade Organization, and Deborah Elms, Executive Director of the Asian Trade Centre in Singapore, also points out that already poor non-TPP countries such as Lao Democratic People's Republic and Cambodia will find themselves in an even weaker position outside of the bloc.
A second report on "The Political Economy of the Trans-Pacific Partnership" has been written by Harvard professor Craig VanGrasstek. Both reports are part of a new UNCTAD series, "Exploring New Trade Frontiers", looking at topical issues.
