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Where The TPP Misses The Mark For Small Business And Entrepreneurs

Source: Nish Acharya - Forbes

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On Thursday, the White House finally released the mammoth document known as the Trans-Pacific Partnership (TPP). The proposed trade agreement is over 6000 pages, not including side agreements, and will be available for the public and Congress to review over the next 90 days.

The scope of the agreement is enormous. It estimates that, upon full implementation of TPP by all participating nations, 40% of the world’s economy will function more smoothly. And nearly 18,000 taxes and tariffs will be eliminated on products from technology to life sciences and manufacturing.

For small business and entrepreneurs, there is almost nothing of relevance in TPP. This is mostly because small, young companies don’t focus their energies on exporting to new markets. For innovators and startups on the path to becoming larger companies, TPP makes exporting, international expansion and cross-border collaboration easier.

According to Jonathan Stoel, a parter at the law firm Hogan Lovells, the TPP represents the alignment of similar economic goals between the United States, Japan and the other nations in the TPP. In particular, the United States and Japan have done much to resolve older trade disputes over the last few years, and already have similar world views about issues like data privacy, according to Stoel. Additionally, the diversification of the US and Japanese economy to be more knowledge-driven, less reliant on manufacturing and with a common manufacturing rival in China, made for better timing for this agreement.

The sector where TPP may most benefit innovators and entrepreneurs is clean energy and the environment. The agreement eliminates tariffs on environmentally-beneficial products and technologies, such as solar panels, wind turbines, wastewater treatment products, air pollution control mechanisms, as well as air and water quality monitors. Many of the TPP member’s countries had tariffs and other barriers in places in these sectors in the hopes of developing a domestic industry. With this agreement, the emphasis changes towards innovation and rapid adoption of clean technologies.

Intellectual property is the area where TPP has received the most scrutiny. It requires every member nation to crack down on counterfeit products – a boon to IP-dependent companies in technology, life sciences, manufacturing and energy. In addition, patents will, theoretically, proceed in multiple jurisdictions simultaneously – thus reducing the cost, time and uncertainty around patenting and IP recognition. These steps will greatly benefit startups based in the United States who are worried about IP protection and the costs of the patent process.

In the area of medicine, pharmaceuticals and public health, the agreement continues to be controversial. According to the White House, TPP “eliminates tariffs on medicines and medical devices, helping lower costs for hospitals, clinics, aid organizations, and consumers.” Medicines like amoxicillin, penicillin, and anti-malarial medicine, which are critical in the developing world, will remain available at lower cost, but perhaps only by the company holding its patent. TPP recognizes the Doha Declaration on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Public Health, which affirms the rights of countries to take measures to protect public health.

In other words, pharmaceutical companies and biotech startups will benefit from the recognition of common intellectual property norms. But if a nation, such as Vietnam, determines that a major local health concern requires the rapid distribution of low-cost versions of specific medications, it maintains the right to do so. What remains unclear is whether or not Vietnam can source those medications from generic manufacturers, or must negotiate deals with the patent-holding pharmaceutical manufacturer. For startups developing orphan drugs or diagnostics for the developing world, this point will be critical to their success or failure.

The willingness of Vietnam, Peru, Brunei and Malaysia to join TPP also highlights a strategic change in how countries position themselves economically. By joining TPP, each country forfeits some of the benefits of being a low-wage, manufacturing economy. The agreement places strict limits on currency manipulation, protects collective bargaining for labor unions, requires acceptable labor laws around wages and working conditions, and protections for the environment. A particular emphasis was placed on the reduction of illegal logging, fishing or wildlife trafficking.

These countries are willing to lose their labor cost arbitrage advantage because of the much bigger advantages of being viewed as a stable place to do business by the private sector. According to Stoel, the Vietnamese and others believe that the legal and operational familiarity bred by participation in the TPP will encourage more long-term investment than would have come through labor cost arbitrage. The desire of other emerging markets to join the TPP, including Thailand, Philippines and Indonesia, in the near future speaks to this change in mindset.

There is a section for small business. All TPP countries will be required to create a website and a committee to help small business. The website will have all the information that a small business would need to import/export their products to and from a TPP-member country. The committee will regularly review trade policy to ensure that small businesses have the opportunity to import and export seamlessly. The TPP’s lack of focus on innovation and entrepreneurship is understandable in that startups and small business don’t individually export much. But in aggregate, small business accounted for 33% of US exports in 2014, according to the US Trade Representative. In a world where innovation and entrepreneurship are being rapidly adopted as a leading strategy for economic development, it is somewhat odd that the negotiators of TPP included so little for high-growth entrepreneurs.

 

In an earlier column , I made the point that TPP will benefit America in the long-term, when these agreements are all operationalized. For this to happen, the United States will have to remain vigilant on the enforcement of the labor, environmental and IP requirements of the agreement. And other nations will have to pass the reforms needed to make it work.

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