Talking Trade blog
Asia gets to decide what happens with the TPP
Published 23 November 2016
The Trans-Pacific Partnership (TPP) ball is back in the court in Asia.
The 11 members of the agreement (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) get to decide what happens next with the most advanced trade agreement in the region.
Donald Trump has chosen to take the Americans out of the trade ballgame. His video announcement confirmed his intentions to withdraw the United States from the Trans-Pacific Partnership (TPP) agreement when he takes office in January.
Experts will wrangle over what, exactly, this means. Since the TPP is not yet active, there isn’t an agreement to withdraw from and Trump is probably not going to “un-sign” the deal from February 2015. At the very least, President Trump will not be putting TPP legislation forward in Congress for implementation. This avoids an extended period of uncertainty.
He will not change his mind. He will likely not renegotiate the agreement. He has been on record opposing trade agreements like the TPP, including NAFTA, for decades. Under a Trump presidency, the TPP will not proceed--in any configuration--in the United States.
The other 11 TPP members, including those in Asia, must now decide what to do with the agreement.
Now what happens? There are at least four options.
First, the TPP is simply dead. It was negotiated, concluded, signed and will never be implemented because the current trigger mechanism (that requires the United States, Japan and at least four other member states to ratify) will not be pulled.
Second, the TPP will be put in a metaphorical “freezer” for some unknown time period. It was negotiated, concluded, signed and will have some set of members ratify the agreement (so far, Japan, New Zealand, Malaysia, and Singapore have taken concrete steps moved towards ratification). But then it will stall until the trigger mechanism is finally implemented with either all 12 original members or at least the US, Japan and four other members ready to go.
Third, the TPP will move ahead without the United States, exactly as it currently stands, with a (likely) temporary amendment to the trigger mechanism to allow entry into force without the US.
Fourth, members will move ahead without the United States, with a (possibly temporary) set of amendments to adjust the agreement in the interim. The amendments would include the trigger mechanism and potentially other provisions that are not needed if the Americans are not included.
In all four options, the United States is finally no longer dictating the terms. Countries like Japan, New Zealand and Singapore can decide what comes next for TPP.
The incentives for signing the TPP were not just to gain access to the American market. It was also about creating new rules and a different type of framework better suited to today’s modern economy.
The TPP is broader than other trade agreements with provisions that include all goods, addresses services and investment, and contains innovative provisions in a host of new areas. It has deeper commitments in areas that matter to companies like new rules for digital trade and e-commerce and streamlined provisions for customs and trade facilitation. It addresses issues like labor, the environment and competition.
The interlocking nature of these rules is fundamentally different from the types of often shallow trade agreements that criss-cross Asia. The TPP is meant to help unleash new sources of economic growth is member countries.
These conditions have not changed, whatever Donald Trump may say to the contrary.
If Asia choses to move ahead with the TPP, the exclusion of the United States may actually be a blessing in disguise. American markets are already relatively open, with limited barriers to entry.
Asian companies will be able to access the American markets on the same terms they have always received, but could get impressive new benefits for trade within TPP countries. They will also have fewer direct American challengers, since US companies will have a harder time competing.
American companies will not receive TPP benefits, like lower tariffs or access to services or investment opportunities in TPP markets, without physically moving operations into Asia.
Hence, Trump’s decision—which he claims is to create better jobs at home—is actually likely to accelerate outsourcing. American companies that want to compete in Asia will need to be in Asia to take advantage of benefits from trade agreements in Asia.
Over time, the United States may come round to the realization that joining the TPP might make sense. Trump’s attempt to sign great bilateral agreements might be less successful than he imagines. Other countries might view the US as a less-than-trustworthy partner and wonder whether the final deal might be implemented as planned.
But in the meantime, Asian governments and the rest of TPP members can decide whether they want Donald Trump to dictate their fate.
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