The US, Japan and 10 other Pacific Rim nations have struck the largest trade pact in two decades, in a huge strategic and political victory for US President Barack Obama and Japanese Prime Minister Shinzo Abe.

The Trans-Pacific Partnership covers 40 per cent of the global economy and will create a Pacific economic bloc with reduced trade barriers to the flow of everything from beef and dairy products to textiles and data, and with new standards and rules for investment, the environment and labour.

The deal represents the economic backbone of the Obama administration’s “pivot” to Asia, which is designed to counter the rise of China in the Pacific and beyond. It is also a key component of the “third arrow” of economic reforms that Mr Abe has been trying to push in Japan since taking office in 2012.

But the TPP must still be signed formally by the leaders of each country and ratified by their legislatures, where support for the deal is not universal. In the US, Mr Obama will face a tough fight to push it through Congress next year, especially as presidential candidates such as the Republican frontrunner Donald Trump have argued against it.

It is also likely to face parliamentary opposition in countries such as Australia and Canada, where the TPP has been one of the main points of economic debate ahead of an election on October 19.

Critics around the world see it as a deal negotiated in secret and biased towards corporations. Those criticisms will be amplified when national legislatures seek to ratify the TPP.

But Mr Obama spoke forcefully on Monday for the benefits that he said it would bring. “When more than 95 per cent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules,” the US president said.

The deal represents another big win for Mr Obama, coming just one month after the US and its European negotiating partners reached an accord to prevent Iran developing a nuclear weapon.

Shinzo Abe, Japan’s prime minister, called the deal a “major outcome not just for Japan but also for the future of the Asia-Pacific”.

After five years of negotiations, the final round of talks in Atlanta went round the clock for six days as officials thrashed out the remaining sticking points. The final breakthrough on dairy products did not come until 5am on Monday.

If the TPP comes into force, it will be the biggest trade agreement struck since the 1994 completion of the Uruguay round, which created the World Trade Organisation.

Many of the negotiations, particularly in the final stage, have been focused on traditional trade issues and the flows of products such as butter and car parts.

In Japan, for example, it will cause the eventual reduction of tariffs on beef imports to about 9 per cent from more than 30 per cent currently. Some of those changes are likely to take decades to flow through. The US, for example, has negotiated a 30-year transition for its own tariffs on car imports.

But much of the TPP is intended to break new ground and establish rules for 21st century commerce.

The agreement includes enforceable labour standards that will, for example, mean a TPP member such as Vietnam will have to allow the creation of independent unions for the first time in its history. It includes similar provisions on the environment that mean countries not doing enough to combat trafficking in endangered animals could face trade penalties.

The TPP also includes rules of conduct for state-owned enterprises and a ban on hindering the free flow of data across borders.

Among its most contentious elements is an Investor-State Dispute Settlement mechanism that will allow investors to bring TPP governments to arbitration. Critics fear that will allow multinational corporations to undermine governments’ ability to regulate them.

But, significantly, in response to pressure from Australia, the US agreed to exclude the tobacco industry from that mechanism, meaning that cases such as the current one by Philip Morris against Australia over its plain packaging laws would not be possible within the TPP.

On a global level, the conclusion of the TPP also puts new pressure on the EU to conclude its own negotiations for a Transatlantic Trade and Investment Partnership with the US before Mr Obama leaves office in 15 months’ time.

It will also put pressure on countries such as China and India to finalise their own regional deals

The TPP could therefore herald the beginning of a new era of trade liberalisation globally.

With the now 14-year-old Doha round of global trade talks long stalled, economies such as the US and EU have been turning their focus to “megaregional” agreements such as the TPP as alternatives that might one day be stitched together into a global deal.

Tim Groser, New Zealand’s trade minister and one of the architects of the TPP, said its “strategic” implications for global trade were enormous. “All of this is being lost in these arcane battles over grams of butter and cheese,” he said.

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