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When it came into force in June 2006, the Trans-Pacific Strategic Economic Partnership Agreement, previously known as P4, between Chile, Brunei, New Zealand and Singapore garnered little attention.

The four countries immediately slashed tariffs on 90% of trade and promised to lower remaining tariffs by 2015. But, on the face of it, the deal offered relatively little in the way of new trade opportunities for Chile.

Singapore’s tariffs on Chilean goods were already very low, New Zealand’s exports were, like Chile’s, dominated by natural resources, while little of Brunei’s huge oil and gas resources would make it across to this side of the Pacific.

Rather than boosting trade between member countries, however, the aim of the Trans-Pacific Partnership was to create a group of small, competitive economies with an interest in liberalizing trade among Pacific Rim countries.

When the agreement was signed, Chile’s then President Ricardo Lagos called it “an alliance to compete in the global economy.”

Like Chile’s other trade agreements, the Trans-Pacific Partnership covers a broad range of issues in addition to tariffs such as trade disputes, farm subsidies and intellectual property. But unlike its bilateral agreements, the treaty was designed so that more countries could join.

Now, four years after it came into force, this is starting to happen.

Partners across the Pacific

In September 2008, the U.S. announced its intention to join the Trans-Pacific Partnership, or TPP. Since then, Australia, Peru and Vietnam have also entered into talks.

The 2008 U.S. presidential election and the drawn-out appointment of President Obama’s trade representative, Ron Kirk, delayed the formal start of negotiations by a year, but events have since moved quickly.

Two rounds of negotiations have taken place, including the latest in San Francisco in June, and two more rounds are scheduled this year with the next taking place in Brunei in October.

The TPP “is a launch pad for the Obama administration’s intention to dramatically increase American exports to the Asia-Pacific and create good jobs here at home,” said Kirk at the San Francisco round.

Negotiations remain at an early stage, but so far no major differences have cropped up between participants, said Barbara Weisel, Assistant U.S. Trade Representative for Southeast Asia and the Pacific who is also the top U.S. negotiator in the talks.

The U.S. interest in the TPP was sparked after recent moves by Southeast Asian economies to create a regional free trade area of their own and the risk that poses to U.S. business, said Weisel.

The TPP is small but it offers the best platform due to its regional scope and the pro-free trade approach of its founding members, said Weisel.

While other deals are “bilateral agreements that will be stitched together later, the TPP is conceived as a regional agreement to maximize trade and boost regional integration,” Weisel notes.

The U.S. already has free trade agreements with two of TPP’s members – Chile and Singapore – and two of its potential members, Australia and Peru.

But by joining a regional agreement, the U.S. hopes the TPP will create a framework for future trade talks on both sides of the Pacific.

A deal for the 21st Century

The potential impact of the TPP on global trade is huge, according to Patrick Kilbride, director of the Americas office at the U.S. Chamber of Commerce.

“This could be a trendsetting group that leads WTO negotiations in the future,” he said.

But the TPP is not just about creating another trade bloc; the U.S. wants to raise the bar for all future trade talks.

At the start of TPP negotiations in November 2009, President Obama said the deal would incorporate “the high standards worthy of a 21st century trade agreement.”

And Ambassador Kirk has spoken of “platinum standards.”

This means higher standards for investment and intellectual property as well as environmental and labor issues, said Osvaldo Rosales, a trade expert at the United Nations’ Santiago-based Economic Commission on Latin America and the Caribbean (ECLAC).

Higher standards in these areas would make it easier for U.S. companies to compete abroad as well as appeasing trade-skeptical groups at home, said Rosales.

Higher standards

In TPP negotiations, the U.S. has focused on non-tariff barriers which can distort trade just as much as high tariffs, said Weisel.

For example, bilateral trade agreements have slashed tariffs on agricultural products, but the gains have been offset by poor food safety standards in some countries, she points out.

One fly in a shipment of fresh fruit and open doors are quickly slammed shut.

But better coordination between regulators in different countries could mean that food safety measures are less disruptive to trade.

The U.S. is also keen to find ways for smaller businesses to benefit from global trade, which would create more jobs at home.

Weisel says such proposals have been well received by other participants in the first two rounds of TPP talks, and many have brought their own ideas to the table.

But not everyone is convinced.

As developing countries tend to be more interested in traditional trade matters such as anti-dumping and farm subsidies, they may resent the U.S. emphasis on intellectual property rights and climate change, said ECLAC’s Rosales.

“The U.S. should give clear signals that similar standards will be applied to the issues that matter to its trade partners,” he said.

Kilbride agrees. “Other economies may well resist tough positions on areas like labor and the environment,” he said.

Weisel argues that higher standards will benefit member countries so much that others will feel pressure to join. For now, however, concern over where TPP negotiations may be heading is keeping some potential participants on the sidelines.

Canada, Japan and Malaysia are all watching how talks develop.

“It is far from clear what [the TPP] is going to look like,” Canada’s Minister for International Trade, Peter Van Loan, told bUSiness CHILE.

“If it becomes a significant free trade body in Asia then, yes, we have a lot of interest in joining,” he said.

U.S. trade concerns

The biggest barrier to an enlarged Trans-Pacific Partnership, however, comes from within the U.S. itself. In the aftermath of the worst economic crisis since the Great Depression, trade has slipped off the political agenda in Washington.

With the jobless rate close to 10% in July and mid-term elections looming, free trade agreements negotiated months ago with Colombia, Panama and South Korea are still awaiting approval in Congress.

Meanwhile, the Obama administration has focused attention on historic reforms of the healthcare and financial industries as well as ending the protracted military endeavors in Afghanistan and Iraq, leaving little time for trade issues.

Still, in the absence of progress in the Doha round of WTO negotiations, the TPP is the only significant item on the government’s trade agenda.

And the political climate is improving as shown by the Obama administration’s willingness to move trade agreements forward, notes Kilbride.

Concrete progress on trade agreements will, however, depend on a brighter economic outlook.

“A weakened economy is not a good scenario for audacious trade initiatives – this is the problem facing Obama,” said Rosales.

And without authorization from Congress to negotiate new deals, the government’s efforts could amount to little.

Asian trade blocs

But if the U.S. wants the TPP to succeed as a means of integrating the Asia Pacific region, then it had better get a move on.

The Association of Southeast Asian Nations (ASEAN), which groups ten South East Asian countries, is planning to expand its free trade area across Asia, creating a regional bloc that would rival the European Union both in terms of population and the size of its economy.

ASEAN has already signed free trade agreements with Japan, South Korea and most recently China, but the challenge now is to knit them together to create a truly regional agreement.

To form such an agreement, these countries would have to overcome decades of mistrust, but their existing economic links and the huge benefits of further integration may well dwarf any cultural barriers, argues Rosales.

Such a bloc would comprise not only a massive slice of the world’s population but also the bulk of its exports, many leading technological firms and huge financial resources.

“The world is going in this direction and the Western Hemisphere has fallen behind,” notes Rosales.

The risk of being left out of the world’s largest markets should be sufficient pressure to convince the U.S. to support an alternative trade initiative for the region.

Next year could be critical. The U.S. will be hosting the 2011 Asia-Pacific Economic Cooperation (APEC) Summit in Hawaii, which is not only President Obama’s birthplace but also a midway point between Asia and the Americas.

That could make it a highly symbolic opportunity to unveil a major new proposal to move trade talks forward across the region.

Advanced negotiations of the Trans-Pacific Partnership could be presented as a partial fulfillment of APEC’s aim of liberalizing trade between its member economies.

As a founding TPP member, Chile has an important role to play in facilitating its expansion, but much depends on the U.S.

With or without the United States, Asia-Pacific trade integration is accelerating, but it’s in the interests of all APEC countries that the U.S. is involved from the outset.

Tom Azzopardi is a freelance journalist based in Santiago