The Pacific trade pact would still benefit the other 11 members
WHEN, three days after his inauguration, Donald Trump pulled America out of the Trans-Pacific Partnership (TPP), a 12-country free-trade deal that his predecessor, Barack Obama, wanted to be his legacy in Asia, it was the fulfilment of a campaign promise. “Great thing for the American worker, what we just did,” he said, as he signed away new markets for American carmakers, farmers and drugs companies, along with the prospect of over 100,000 new American jobs.
Among the other 11 members, the shock was not just over the new president’s hostility to America’s historical role as promoter of an open, rules-based trading order, of which the Asia-Pacific region has been the greatest beneficiary. Without the United States, which accounted for three-fifths of the bloc’s combined GDP, TPP was, in the words of the Japanese prime minister, Shinzo Abe, “meaningless”. After all the sweat and political capital expended in crafting the agreement, which was signed in late 2015 but which only Japan has ratified, TPP was, nearly everyone agreed, now fit only to be buried.
What a difference three months make. This week in Toronto, the surviving members—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam—met to discuss how to move the partnership forward without America. At the end of May, they will meet again for a more substantive gathering in Hanoi. There, bet on TPP confounding the undertakers and rising from the dead.
That may seem strange. After all, although Mr Trump convinced himself that TPP was lousy for America, it was the other members who had to make most of the “concessions” in terms of opening markets. They did so because the American market is a huge prize. (Their own tariffs are bad for consumers, too, but this never seems to matter politically.) Some, including Japan, also saw TPP as a mark of America’s strategic commitment to the region in the face of a rising China. So they promised to lower barriers, open their service industries to investment and competition, strengthen patent protection and tighten environmental standards. It really was, as its boosters said, a “gold-standard” deal.
Yet Deborah Elms of the Asian Trade Centre, a trade-advisory group in Singapore, says the remaining 11 members’ gains from TPP would still be large even without America (as are the forgone gains for America in several sectors including food and services). The gains apply even to the poorest member, Vietnam, whose garment and footwear industries, underpinned by cheap labour, would benefit from access to the markets of the other rich members. For instance, Ms Elms points out, Australia has a 9.5% tariff on swimwear. Assuming every beach-lover owns three or four costumes, Australia alone represents a big potential market for Vietnamese bikinis and budgie-smugglers. Some aspects of implementing an agreement without America might even prove easier. One example: communist Vietnam was forced to agree to a “side letter” with America insisting on higher labour standards, including allowing verifiably independent trade unions. After America’s withdrawal, this uncomfortable obligation falls away.
Yet most countries have been shy about being seen to take the lead in reviving the TPP—with all respect to tiny New Zealand, always an unabashed champion of open trade. For several members, including Singapore, Malaysia and Vietnam, a chief concern is for a revived club not to be seen as an affront to China. For Japan, in contrast, that is precisely the point—though it will never admit it in public. Its bigger concern, given its reliance on American security, is not to be seen as anti-Trump.
Here, Mr Abe’s tour of the golf courses at Mar-a-Lago with the American president in February paid dividends. Their joint statement afterwards referred to Japan “continuing to advance regional progress on the basis of existing initiatives”. In other words, Mr Trump gave his blessing for Japan to try to keep TPP going. The Hanoi gathering is a Japanese initiative. Most other members, once reassured that a revived TPP will be structured as neither anti-China nor anti-Trump, seem ready to follow.
Another set of multilateral negotiations is under way to liberalise trade in Asia: the Regional Comprehensive Economic Partnership, or RCEP. Some mistakenly call it a China-led initiative, and are suspicious of it as a consequence. In fact, as Bilahari Kausikan, a Singaporean ambassador-at-large, underlines, it is led by the ten-member Association of Southeast Asian Nations (ASEAN) and is intended to meld existing free-trade agreements that ASEAN has with six other countries. One of the countries is indeed China. But four others—Japan, South Korea, Australia and New Zealand—are American allies, while the sixth, India, as Mr Kausikan puts it, is “hardly a Chinese stooge”.
Others think there is scope for TPP and RCEP to come closer or even merge, given their seven shared members. But RCEP is far from a gold standard. TPP would open up all services to all members. RCEP negotiations, by contrast, take place at a snail’s pace, from a low base. It was seen as a breakthrough, Ms Elms points out, when ASEAN’s members agreed among themselves to allow foreign competition in the market for food deliveries by bicycle.
Meanwhile, much needs to be done before TPP rises again. Not least, the surviving team of 11 needs to find a form of words to deal with the fact that the agreement of 2015 speaks of 12 members. A provisional fix ought to be possible, however. And for some, one incentive is the hope that a future administration in Washington, aware of the damage Mr Trump’s withdrawal has done to American credibility, will interest itself again in Asian trade. For now, as the 11 prepare to give it a go, they can console themselves with the thought that had it not been for American pressure during the original negotiations, there would be no agreement to revive now.
By Banyan for The Economist
Asia roundup; Aussie rallies on upbeat employment report, Dollar index slumps despite rising U.S. treasury yields, Asian shares surge Amid holiday-thinned trading – Thursday, February 15th, 2018
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