Talking Trade blog
The TPP11 choice in a world of increasing FTA complexity
Published 31 August 2017
Last week, AmCham Singapore came out with a position statement in support of the Trans-Pacific Partnership (TPP) trade agreement. The 11 members of the TPP just wrapped up meetings in Sydney and AmCham members wanted to note that this business community remains committed to high quality trade agreements.
On the one hand, this expression of support should not be surprising. The business community in Singapore will benefit from the type of deep and broad commitments found in the TPP. AmCham first endorsed the idea back in 2009, before any negotiators had even met.
On the other hand, the majority of member companies for AmCham are typically viewed as American and the United States pulled out of the TPP in January. Hence a statement in favor of an agreement that no longer includes the US may be seen as a surprising development.
The split viewpoints on TPP11 are replicated in nearly every TPP country. Businesses, consumer groups and politicians are grappling with an agreement negotiated in one context (a deal that included 12 members) and trying to decide if it still makes sense to proceed in another (an agreement with 11).
The choice, however, is not really between doing a TPP11 deal or not doing the TPP11 and the status quo prior to launching the TPP negotiations. The choice is really between moving ahead with the TPP11 or not in the context of a continuing changing trade environment.
It is this last point that is often overlooked.
The trade world has not stood still since 2010 when the TPP negotiations got underway. Indeed, it continues to evolve even after the TPP talks wrapped up in late 2015.
Just in the last few months, the following free trade agreement negotiations have been launched, moved forward or are headed towards wrapping up:
- Chile-China FTA upgrade
This is nowhere near an exhaustive list either. It’s just meant to illustrate the extent to which countries are continuing to negotiate and open markets to one another.
Clearly, not all of these ongoing FTA agreements will be equally helpful to businesses or consumers. Some of them may take years or even decades to conclude.
The sad truth (for someone in my business) is that firms do not often—or even ever!—actually take advantage of FTA benefits on offer. Sometimes they are unknown or too complicated or too little.
Some of the raft of upcoming FTAs are likely to fall into these categories. They are often between members that do not have much trade between them, suggesting a limited pool of potential firms that might take advantage of an FTA in the future.
Nevertheless, every FTA provides potential preferential access that non-FTA member firms will not receive in member markets. Often, this access is substantial, even if firms are unaware of the benefits or choose not to use it.
In such a world of overlapping trade agreements, smart countries can ill-afford to be left out of potential preferences.
Firms really ought to pay attention as well, since it means that competitor companies may have lower costs in other markets.
One simple example of this is beef into Japan. Right now, Australian beef producers have the edge over everyone else. Why? Because their government signed a bilateral FTA with Japan in 2015, in the middle of TPP negotiations.
At the time, this was seen as an odd move. After all, Australia was simultaneously working with Japan as part of the larger TPP and the likely outcome on beef into the Japanese market was going to be better under the bigger agreement than under a bilateral agreement that included only 2 countries.
Governments generally can swallow more painful market opening in one sector in larger agreements because there are offsetting gains in a much broader range of other areas (plus, the US leverage on Japanese beef vastly exceeded what Australia could bring to bear on the situation).
However, with the withdrawal of the US from the TPP and the delay in implementation, the Australian bilateral with Japan on beef is now looking like a very prudent move. It has given Aussie beef a market edge over everyone else, including TPP members New Zealand, Canada, Mexico as well as American producers.
The FTA with Australia also included an additional benefit of exempting Australian beef from a Japanese safeguard measure that added an additional, significant, cost to American beef imports in 2017.
But, when the TPP11 moves ahead, if the beef gains originally negotiated in the agreement remain in place, TPP countries will also get better access to Japan and other TPP member markets in the future.
The beef example, however, also shows what has been lost already by the delay in implementing the TPP. Because Australian producers have benefits today, they are already sewing up some important contracts in the Japanese marketplace. Once these have been signed, sourcing may not easily shift.
Hence the issue now is not—sign the TPP11 or return to the 2010 status quo. It is to sign the TPP11 or not and deal with the much more competitive landscape of 2017 and beyond.
This is an argument that smart businesses already grasp. Hopefully it is also one that political leaders in TPP countries understand and are willing to communicate to their own constituents.
Time does not improve the TPP11. Instead, it gives more opportunity for further complexity in the trading landscape to develop.
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