Insights into Editorial: Pacific Ocean’s 11: on TPP without U.S.

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Insights into Editorial: Pacific Ocean’s 11: on TPP without U.S.


 

Context:

In a major breakthrough, trade ministers from 11 Pacific Rim countries said they reached a deal to proceed with the free-trade Trans-Pacific Partnership deal that was in doubt after US President abandoned it.

The revival of the Trans-Pacific Partnership minus the U.S. opens opportunities for India.

TPP in a nutshell

Twelve countries that border the Pacific Ocean signed up to the TPP in February 2016, representing roughly 40% of the world’s economic output.

  • The pact aimed to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth. Members had also hoped to foster a closer relationship on economic policies and regulation.
  • The agreement was designed so that it could eventually create a new single market, something like that of the EU.
  • But all 12 nations needed to ratify it, before it could come into effect.
  • US participation was the major linchpin for the deal. It may be possible for the other countries to forge a smaller scale pact in its place, but it can’t go ahead in its current form.
  • Those other member states are: Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.

Former President Barack Obama treated trade deals as a priority during his tenure, and this particular deal would have bolstered America’s position in the Asia-Pacific region, where China is growing in influence.

But US opponents have characterised the TPP as a secretive deal that favoured big business and other countries at the expense of American jobs and national sovereignty.

How big a deal was the TPP?

The 12 countries involved have a collective population of about 800 million – almost double that of the European Union’s single market. The 12-nation would-be bloc is already responsible for 40% of world trade.

The deal was seen as a remarkable achievement given the very different approaches and standards within the member countries, including environmental protection, workers’ rights and regulatory coherence – not to mention the special protections that some countries have for certain industries.

The US pulling out will be seen as big blow for other nations that signed up.

United States withdrawal

US President argued that the agreement would “undermine” the U.S. economy and their independence.

  • Instead he introduced an economic strategy of “putting America first”, stating that he would negotiate “fair, bilateral trade deals that bring jobs and industry back onto American shores.
  • As part of this plan, Trump confirmed his intent for the United States to withdraw from the Trans-Pacific Partnership on his first day in office.

Without the US does it definitely fail?

To take effect, the deal would have had to be ratified by February 2018 by at least six countries that account for 85% of the group’s economic output. The US would need to be on board to meet that last condition (US contributed 60% of the combined Gross Domestic Product of the 12 members).

TPP’s future was uncertain given US withdrawal. Several signatories signalled their intentions to rework TPP without US participation.

Some countries, including New Zealand, have suggested some sort of alternative deal may be possible without the US.

Whereas Japan’s Prime Minister Shinzo Abe has said a TPP without the US – and its market of 250 million consumers – would be “meaningless”.

TPP has been resurrected — and it’s happening without the US

When US President was visiting Vietnam, trade ministers from the remaining 11 nations agreed in Danang in principle to a new pact, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), revising some of the features of the TPP.

  • For the agreement to take effect, the pact requires domestic ratification, which is expected to be complete by 2019.
  • This major step taken by the 11 countries of the Pacific Rim excluding the U.S. is a reflection of two things.
  • These countries recognise that multilateral free trade, contrary to any misgivings, is beneficial in the long run. The TPP in its current form has significant protections for labour and environment and is in this regard an advance over other free trade agreements.
  • The U.S.’s self-exclusion reflects a failure on the part of the Trump administration; studies have shown significant benefits in comparison to minor costs — in terms of jobs — to the U.S. on account of the pact.

Countering China

Countries like Japan are eager to use the salvaged TPP to counter China’s growing sway.

Beijing is increasingly seeking to influence the region, notably through its Belt and Road Initiative that aims to foster greater trade across Asia and Europe through huge investments in things like roads, railways and ports.

Major Asian powers will continue to seek opportunities to balance against China — with or without the U.S. and despite Trump’s withdrawal from TPP, China won’t necessarily find it easy to draw countries fully into its orbit.

Suspicions about American commitment

US President couches his regime’s policies as populist nationalism — ‘protecting labour’ in the case of the abandonment of the TPP, promoting jobs in fossil fuel-intensive sectors to justify the repudiation of the Paris Accord, and retaining American exceptionalism in West Asian policy in scrapping the Iran nuclear deal.

While rhetoric to this effect had fuelled his presidential campaign with a heavy dose of populism, the actual effect of going through with these actions has been to create a suspicion among America’s allies about his reliability when it comes to standing by old commitments.

US President’s agenda to pull his country out of multilateral agreements has coincided, ironically, with the rise of China as the leading world power promoting globalisation.

 A Way forward for India

The pressure on New Delhi to fast-track on-going free-trade negotiations with countries that were part of the TPP, such as Canada, Australia and New Zealand, is going to increase.

The eagerness of members to conclude the Regional Comprehensive Economic Partnership (RCEP) — the ambitious free trade pact that India is negotiating with the 10-member ASEAN, China, Japan, South Korea, Australia and New Zealand — will also intensify as seven of its 16 members are also part of TPP.

India must utilise this opportunity to win concessions on services trade liberalisation as part of the plan.