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Talking Trade blog

TPP: Not dead yet


Published 09 March 2017

The Trans-Pacific Partnership (TPP) trade agreement is not dead.

One of the original twelve members has definitely decided to sit out for now.  The rest are gathering early next week in Chile to determine what comes next.

There are four options on the table:

  1. The 11 partners (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) could allow Donald Trump to kill the deal entirely.
  2. The agreement could be put into the freezer.
  3. Bits of the agreement can be salvaged in some fashion—stripped and brought into other settings or converted into bewildering new set of overlapping bilateral agreements.
  4. The agreement can simply move ahead with as many of the current members as possible—ideally all 11 will see the wisdom in remaining on board.

1.  The first option should be rejected out of hand.  It is not simply that one person should not have the power to determine what happens in 11 other countries. 

It is that the TPP contains too many important benefits to allow the deal to founder.  Most of these benefits, as I have argued before, remain even after the United States has withdrawn.

Agriculture is one of the most highly protected and sensitive elements of the agreement for most countries.  Even here, the TPP11 members will receive a mostly balanced mix of benefits for farmers, companies and consumers. 

Tariffs across TPP countries for agricultural products will fall in nearly all product categories.  Many cuts take place as soon as the first day of the agreement.  Others are phased in with time for domestic level adjustment.  A few products, like dairy, sugar and rice, remain sheltered.

The TPP contains more than just tariff cuts.  It also includes valuable rules that help firms move goods faster and easier and opens up services and investment markets.  Many of the provisions in the TPP are new and create opportunities for growth and jobs in areas that have not been addressed in trade agreements in the past.

The TPP has not started, so many may argue that these benefits won’t be “lost” if the agreement never begins.  But we would not be reverting to the status quo before the TPP talks began—we already have a fully completed agreement in hand that is poised to deliver these outcomes. 

2.  Putting the deal into the “freezer” to wait for a more auspicious time is also a poor idea.  Time is rarely on the side of agreements.  Governments change.  Scandals happen.  Leaders come and go.  Many of the provisions in the TPP were first put down in 2010 and the business enthusiasm for the deal will quickly wane if it gets stuffed into drawer somewhere.  Companies will not suddenly come round to push for it to move ahead again the future.

There is an idea floating around in some TPP countries that the United States, especially, might come back to the TPP once midterm elections are done in 2018.  This is an idea that should be dispensed with quite quickly.   It is highly unlikely that midterms will deliver any more favorable views towards the TPP than the current configuration in Washington.  The Democratic party has not been kindly disposed towards the agreement at any point and the Republicans are already in control of Congress and the White House.   Freezing the deal for longer than that risks too many changes in too many other members for it to be effectively thawed in the end.

3.  Tearing up the TPP to put bits of it into other settings is also unlikely to yield results.  The idea sounds appealing, but in practice is probably not going to work. Despite valiant discussions about taking up TPP provisions in RCEP, for instance, very little (or nothing at all) of the TPP is likely to be transported across into these 16 party Asian negotiations, even if 7 countries are in both agreements.  There is simply no appetite by the remaining RCEP countries to accept TPP elements.

Putting TPP provisions elsewhere may be possible, but it is not obvious where such rules might land up.  Nor is it clear how quickly any elements of the TPP would see the light of day in any other setting.  

The best part of the agreement is the interconnected nature of the deal--tearing it apart destroys this feature.  Moving the TPP from a regional agreement to an overlapping set of bilaterals of up to 121 new agreements (or 11x11) between the current parties is a really half-baked idea.  The very purpose of the TPP was to create a regional agreement, better suited to a value chain world, that would replace the noodle bowls of overlapping trade agreements.  The current TPP members are already connected by a series of bilateral trade arrangements. 

4.  This leaves the clearly superior option—move ahead with the current TPP.  The deal is done and provides benefits to members.

How can this be arranged? The current TPP arrangement requires at least 6 members comprising at least 85% of GDP from 2013 to trigger entry into force.  This provision (Article 30.5) has to be changed with US withdrawal, as the United States did not pull out retroactively from 2013 and the 85% threshold cannot be met without including the US.  Hence this sentence must be adjusted.

After that, members will have to decide how much additional alteration to allow in the agreement.  The desire by many to make changes will have to be balanced by the knowledge that each change will trigger at least as many requests from other parties.  Negotiations could easily drag on for several more months or years.  And, at the end, the revised document will have to be sent back through the Japanese Diet and New Zealand Parliament for approval, since they have already granted approval for the existing agreement.

Far easier for officials gathering in Chile next week may be to consider a provisional entry into force adjustment for a set time period, perhaps 3-4 years.  This would alter the TPP just enough to fix the problematic sentence, allow the TPP to move ahead with at least 6 members and, hopefully, all 11 members.  It would give members time to decide how much alteration might be needed in the longer term, as some flexibility could be granted to adjustments as necessary in the provisional period.  For example, the rules of origin for textiles that currently require yarn-forward could be relaxed during the provisional timeline.  Everything that applies to members that are not moving ahead with the TPP during the provisional period remains dormant. 

The meeting next week in Chile is critically important. Ministers have to decide whether they want to defend and promote a gold standard agreement, watch it die, or wither and freeze on the vine.

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Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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