Talking Trade blog
TPP Collapse? Plan B for everybody else
Published 07 September 2016
A previous Talking Trade post considered a "Plan B" strategy for what happens to the United States if the Trans-Pacific Partnership (TPP) negotiations fails to get through Congress. Without the Americans, Japanese and at least four of the 12 member countries, the agreement cannot come into force.
While the picture is grim for the United States, the Plan B outlook for the remaining 11 members is less bleak.
This is not to say that the rest of the TPP parties should give up on the agreement now. Plan B for everyone else comes with both greater costs and often significantly fewer benefits for the 11 TPP members than alternative paths. While other members are already connected through existing free trade agreement (FTA) deals, many of these do not provide the same level of coverage as the TPP. Future plans are likely to suffer from the same problem.
For some TPP members, the single biggest benefit from the TPP came from using the agreement to embark on domestic level reforms. Whatever alternative paths might be imagined in the near term for individual members, none will have the same impact as the 12 country TPP agreement and none will create the same pressures for domestic level changes. This loss of momentum is going to be hard to see and difficult to replace.
Other members could simply wait for the Americans to get the job done in Congress. After all, the argument goes, it took years for deals with Korea, Columbia and Panama to be approved and the TPP may be no different. Perhaps. But how long, the others might reply, must the bride remain standing at the alter waiting?
What will likely not happen in "Plan B for everybody else" is a stripped down version of the TPP that cuts out the US. The rest of the member countries will probably not sign a modified deal between themselves. The current TPP document represents a carefully crafted set of benefits and compromises built on the prospect of 12 members. If the Americans are out, the remaining 11 will not just accept what remains.
For many, the default Plan B option will be the Regional Comprehensive Economic Partnership (RCEP) negotiations. Leaders from the seven countries (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam) involved in both talks are currently meeting in Laos.
TPP members involved in RCEP have taken mixed views towards this “other” megaregional. While some have been enthusiastic supporters from the beginning, others have not pushed terribly hard. After all, they have had the TPP which will provide significantly better benefits than anything on offer in RCEP.
But if the TPP is not going to happen, Plan B will surely involve higher ambition by all seven TPP players in the RCEP talks.
Note, however, that RCEP does not automatically create the same kind of “game changing” outcomes that TPP might have done. RCEP will not—importantly for many TPP countries—open agricultural trade in the same way. It will not drop tariffs to zero on most products and, if it does so at all, will provide market access only over long periods of time. Services markets will be opened, but with many exceptions—considerably more exceptions than the TPP ever countenanced.
The same is true across the board. While some will cheer this news, given the high level of integration already in place between most TPP members with other RCEP economies, unless RCEP manages to go beyond existing agreements, the deal will not provide much new impetus for TPP members to experience economic growth in a time of global slowdowns.
Hence the TPP Plan B for RCEP will have to involve greater enthusiasm, interest and energy invested in the process of negotiations in Asia. Otherwise, the final result for TPP RCEP members will not go terribly far in creating favorable outcomes and would be a largely wasted opportunity.
Outside of RCEP, Plan B will involve additional trade deals. In Asia, especially, trade remains an important pillar of economic growth and development plans. Trade agreements are a means to help ensure pathways remain open in the future.
Brunei, Malaysia, Singapore and Vietnam may be able to push fellow ASEAN members to implement more of the ASEAN Economic Community (AEC) commitments and progress beyond sweeping statements of intent in the AEC Blueprint 2025.
ASEAN is also engaged in “upgrading” existing trade agreements, such as the ASEAN-China FTA. South Korea’s President Park just asked for the ASEAN-Korea FTA to undergo a similar procedure. Depending on how these exercises are carried out, there is scope for improvement over what TPP members currently receive through these FTAs.
TPP members are likely to return to negotiations with the European Union (EU) with renewed interest as well. Completed FTAs with Singapore and Vietnam remain lodged with the European Court of Justice. The deal with Canada is being sent through national level parliaments. Bilateral talks with Japan and Malaysia have been proceeding slowly and may pick up momentum along with new discussions with Australia and New Zealand.
Now that China and South Korea have completed their bilateral trade agreement, the time is ripe to deepen discussions of the trilateral China-Japan-Korea (CJK) talks. A trade agreement that linked up the three economies of Northeast Asia would be a blockbuster and even a relatively shallow deal could unite supply chains in important ways.
The Latin American partners in the TPP have continued to deepen their integration through the Pacific Alliance (PA). If the TPP fails, the PA members could follow the EU and sign agreements with either individual members of ASEAN or opt for a region-wide trade deal. Currently, Singapore, Japan, Australia, New Zealand and Canada are observers to the PA.
The Chinese Premier just announced at the G20 summit that his country would begin feasibility studies on a bilateral trade agreement with Canada.
Bilateral agreements are usually seen as easier and faster to negotiate and, therefore, preferable to governments. But for companies, bilateral agreements rarely match up nicely with the way business is actually conducted.
Few firms buy and sell goods or services in just one market—even if that one market is huge. In the long run, larger, more comprehensive agreements are much better for firms than smaller, more limited agreements.
This is what makes the TPP such an important agreement for business. But, if the deal never makes it out of Capitol Hill in Washington, the remaining TPP countries have many options that can be pursued in the near term. As Plan B strategies go, these are certainly better than nothing.
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