The TPP Without America
The countries of the Pacific Alliance – a small Latin American trade bloc – will hold a summit next week in Vina del Mar, Chile. All eyes will be on another meeting, though, held on the sidelines of this summit. That meeting will bring together the remaining 11 members of the Trans-Pacific Partnership – as well as China, South Korea, and Colombia – March 14-15 to explore what future the TPP might have without the United States.
The U.S. was the largest and most influential member of the TPP, which would have been the biggest free trade area in history, representing 40 percent of the global economy. However, now that President Donald Trump has definitively confirmed his intent not to pursue congressional ratification of this Obama-era trade deal (although his administration will send a representative to the Vina del Mar talks), the remaining 11 members of the trade agreement must decide whether to forge on without America.
As trade representatives prepare for Vina del Mar, what might a so-called “TPP minus one” deal look like, and how will this affect U.S. trade and strategic interests in the Asia-Pacific region?
First, says Matthew Goodman, Senior Adviser for Asian Economies at CSIS, it is important to remember that “there would have to be a technical change to allow the deal [TPP] to go forward without the United States.” As it stands, the agreement must be ratified within two years by either all 12 of the original signatories or at least six of the states composing 85 percent or more of the total GDP of the original signatories. Absent the United States, it is impossible to meet this condition, so the deal must be updated if the remaining TPP members wish to continue without Washington.
However, beyond this technicality, the deeper challenge will be convincing the TPP 11 that a rump agreement without U.S. involvement is still worth their while. On its face, the TPP is a classic free trade agreement which, by lowering tariffs and trade barriers in nearly half of the global economy, could have raised GDP in member countries by an average of 1.1 percent and increased trade roughly 11 percent by 2030 according to the World Bank.
Yet it is the rule-setting provisions of the agreement that truly set it apart. These include progressive treatment of e-commerce and data flows, which prohibits members from requiring data centers to be located within their countries; standardized intellectual property rules; improved transparency and fairness requirements for state-owned enterprises; and beefed-up dispute settlement arrangements for labor and environmental regulations – through an Investor-State Dispute Settlement system.
Those kinds of reform reach beyond the scope of typical free trade agreements, and promised to set a new gold standard for global trade. They were also painful commitments to make for countries that rely heavily on protectionist policies, though. For example, says Goodman, Vietnam only “agreed to stricter rules … in exchange for open access to U.S. markets for Vietnamese goods. Without those benefits, Vietnam is going to have a difficult time accepting a TPP 11 agreement, even if it could be negotiated.”
On the other hand, the far-reaching nature of TPP reforms offers a powerful incentive for some countries to push for the deal’s continuation. According to Jeffrey Schott, Senior Fellow at the Peterson Institute for International Economics, “limited concessions opening the U.S. market to other TPP members were only part of the deal’s benefits.” Many members, continues Schott, looked to the free trade area as a way to “bolster their own domestic economic reform to become more efficient, productive, and competitive in global markets.” For that reason, countries like Japan and New Zealand have continued to push TPP ratification through their own legislatures, despite Washington’s withdrawal from the pact.
As a result, the Trump administration may find it extremely difficult to replace TPP with the network of improved bilateral free trade agreements that Trump has posed as an alternative to large free trade areas. Countries like Japan – with which the United States does not yet have free trade relations – were only persuaded to make painful political concessions and open access to sensitive markets because the package deal presented by the TPP was so enticing. As Dr. Yorizumi Watanabe, former Deputy-Director General at the Economic Affairs Bureau of Japan’s Ministry of Foreign Affairs, told The Cipher Brief in December, “the idea of replacing the TPP with a bilateral deal is a non-starter … the plurilateral nature of TPP makes it attractive for Japan because Asian production networks are so integrated.” In addition, says Schott, the Trump administration’s decision to withdraw the United States from a deal that was conceived, crafted, and negotiated over five difficult years by Washington “has had the immediate effect of undermining the credibility and reliability of the U.S. as a trading partner.”
China looks ready to enter into this economic and strategic void left by the United States. Beijing is courting TPP members, and will send a representative to the Vina del Mar meeting. Meanwhile, negotiations for the Regional Comprehensive Economic Partnership (RCEP) trade agreement between China and 15 Association of Southeast Asian Nations member countries will continue apace. Chinese President Xi Jinping also appears to be embracing this opportunity to present himself and China as the new beacon of free trade and regional economic integration, exhorting countries to open their arms to globalization and “say no to protectionism” at the World Economic Forum summit in Davos this year. “However,” says Goodman “the loss of TPP is also a loss for China, because Beijing had started to realize…that TPP could be a useful tool to drive its own economic reforms.” The TPP is also a far more comprehensive trade agreement than RCEP, and its existence provided a tailwind for those negotiations.
The challenges to reviving TPP without U.S. involvement may yet prove too great for its remaining members to overcome, but the appetite for trade liberalization and regional economic integration it provided remains strong. Given that interest, some form of the agreement may well survive America’s departure. The resulting deal could even be attractive enough to tempt a second look from Washington.
Fritz Lodge is an international producer at The Cipher Brief. Follow him on Twitter @FritzLodge.