New Life for the TPP?

THE DIPLOMAT MAY 22, 2017

Never mind U.S. President Donald Trump: the Trans-Pacific Partnership’s remaining 11 members have vowed unity and pledged to press for a new pact by November. However, Trump has his own plans for bilateral Asian trade deals that “put America first.”

Speaking to reporters Sunday on the sidelines of an APEC ministerial meeting in Hanoi, New Zealand Trade Minister Todd McClay said the so-called “TPP 11” grouping was “very, very united” in pushing forward with the pact.

While at different stages in their considerations, the members “are united in the process and want to get to a place where there is something we can agree to collectively, for leaders then to agree,” McClay told the New Zealand Herald.

Japan plans a meeting of chief negotiators for the free trade grouping in July, with other meetings likely before the APEC Economic Leaders’ summit set for November, also in Vietnam. At this event, a new agreement is expected to be approved between the TPP 11 members comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — minus one original member, the United States.

Japan and New Zealand are the only TPP members to have ratified the original agreement reached in October 2015, which aimed to create the world’s biggest free trade zone with a collective population of 800 million people and accounting for 40 percent of global economic output. However, one of Trump’s first decisions as president was to withdraw from the pact, citing the need to fight for “fair but tough” bilateral trade deals.

Australia, Japan, and New Zealand have fought to resurrect the trade deal, which followed five years of negotiations. It is considered a superior agreement to the 16-nation Regional Economic Comprehensive Partnership (RCEP), which includes China but excludes the United States and represents 29 percent of global trade.

The Hanoi talks also concerned further progressing the RCEP, with a deal to be proposed at the November leaders’ summit.

Olive Branch

Nevertheless, the “TPP 11″ have extended an olive branch to Washington and even potentially Beijing and others to later join the agreement.

According to a statement issued Sunday, the ministers “agreed to launch a process to assess options to bring the comprehensive, high quality agreement into force expeditiously, including how to facilitate membership for the original signatories.”

“The ministers also underlined their vision for the TPP to expand to include other economies that can accept the high standards of the TPP,” the statement continued. “These efforts would address our concern about protectionism, contribute to maintaining open markets, strengthening the rules-based international trading system, increasing world trade, and raising living standards.”

“The 11 countries’ commitment has been explicitly affirmed,” Japan’s economic and fiscal policy minister, Nobuteru Ishihara, said Sunday in Hanoi.

“I don’t expect the U.S. will rejoin the deal so easily, but Japan will continue to work… to return it to TPP membership,” he added.

Yet even among the TPP 11, there are mixed feelings toward a revival of the deal. According to the Nikkei Asian Review, Brunei, Canada, Malaysia, Singapore, and Vietnam have all expressed doubts about the value of the pact without the involvement of the United States, which would have been TPP’s biggest market.

Australia, Chile, New Zealand, and Peru are seen as more positive toward the new deal, including bringing China into the TPP, while Mexico and Japan are both under pressure from Washington to pursue bilateral deals with the world’s biggest economy.

However, even without the United States, the TPP 11 is still seen holding promise for participants, according to trade advisory group the Asian Trade Center, which sees benefits even for the poorest member, Vietnam.

For example, Vietnamese apparel makers could benefit should Australia eliminate its 9.5 percent tariff on imported swimwear. And an agreement without the United States would remove some “uncomfortable obligations” for Vietnam, such as allowing verifiably independent trade unions, the Economist noted.

New Zealand, the world’s 53rd largest economy, still expects annual tariff savings without U.S. involvement at NZ$220 million (US$152 million), compared to the original estimate of NZ$270 million.

“It is still significant savings for us — and that it is the first free trade agreement for us with Japan, Mexico, Peru, and Canada,” New Zealand’s McClay said.

Australia’s Trade Minister Steven Ciobo said “calmer heads have prevailed” following the revival of the TPP, with the latest announcement vindicating his government’s strategy of keeping “all options on the table.”

“With the U.S. withdrawing, the metrics around the TPP have changed. However, there’s a strong desire for this to still happen,” he was quoted saying by the Australian Financial Review.

“So we’ve got to do the methodical approach to realize the benefits.”

Having invested considerable prestige into the pact, Japanese Prime Minister Shinzo Abe sees the TPP as an important part of efforts to open up sheltered sectors of the world’s third-largest economy such as agriculture, to greater competition.

“Japan’s prime minister and government paid a tremendous amount of political capital to make [the TPP] happen. They won’t waste it,” Kotaro Tamura, a former Japanese lawmaker, told CNBC.

US Won’t Return

However, U.S. Trade Representative Robert Lighthizer said Sunday that Washington would not return to the TPP, with the United States favoring bilateral over multilateral trade deals.

“The United States pulled out of the TPP and it’s not going to change that decision. That does not mean we will not engage in this region,” Lighthizer told a news conference in Hanoi.

“The president made a decision, that I certainly agree with, that bilateral negotiations are better for the United States than multilateral negotiations.”

Trump’s pick for ambassador to Japan, businessman William Hagerty, told the U.S. Senate Foreign Relations Committee that he saw “advancement taking place that encourages me that we will be able to still achieve a good deal of what we’d hoped to accomplish in the TPP, what might have been hoped before.”

Yet Japan has been less inclined to promote a bilateral deal, despite speculation that friendly ties between Abe and Trump might produce an agreement.

Japanese trade minister Hiroshige Seko told reporters Sunday that Tokyo and Washington had agreed to establish “high-level” trade standards to promote “mutually beneficial trade.”

However, Deputy Prime Minister Taro Aso has previously pushed back against a proposed bilateral trade deal with the United States, suggesting a multilateral agreement was more beneficial.

“In a bilateral deal… you can’t get back what you lose from a compromise with the United States,” he said during an April visit to New York, suggesting that Tokyo would be happier making concessions to Washington if it knew it could get benefits elsewhere in a multilateral pact such as the TPP.

Meanwhile, the Trump administration has already announced a trade deal with China to open its market up to U.S. credit rating agencies and credit card companies as well as resume U.S. beef imports, under a “100-day action plan.”

However, the Washington Post described the deal as “at most… provid[ing] a few billion dollars’ worth of business for relatively pro-Trump constituencies – red-state agriculture and Wall Street.”

“In granting this market access, however, China would be doing little more than reversing a scientifically obsolete 13-year-old ban on U.S. beef and obeying a five-year-old World Trade Organization ruling against its credit-card protectionism. Additionally, the plan offers China the right to purchase U.S. liquefied natural gas, which is a potentially lucrative area, though China does not actually commit to buy any,” it said.

According to the U.S. daily, “managed trade” aimed at increasing U.S. exports at the expense of competitors is the Trump administration’s preferred policy option, with a similar approach eyed for talks with Canada and Mexico.

Yet while the Trump administration pursues bilateral deals, the TPP and RCEP have shown that Asia remains committed to multilateral agreements in pursuit of free trade. In the race for market access, Washington could find its competitors gaining the advantage unless it returns to the negotiating table.