What’s Next for the Trans- Pacific Partnership?
Is it a historic trade deal in the making or just troubled political poison?
Although it’s being touted as the first of several trade deals which look to further drive forward the global free trade agenda, the Trans- Pacific Partnership or TPP has recently come under fire from many directions, including being caught in the crossfire of the U. S. presidential election.
Both Hillary Clinton and Donald Trump have on the campaign trail expressed their opposition to the trade deal and have pledged not to enact it. This stance is in stark contrast to the broader support the agreement has from the business community writ large as expressed through business advocacy groups such as the U. S. Chamber of Commerce and many others.
This tension has left many scratching their heads as to the future of the TPP and guessing as to whether the deal will eventually ever be implemented in its current form, and if so, when and by whom.
GOLD STANDARD OR WORST DEAL SINCE NAFTA?
When concluded in October 2015, the TPP was hailed by some as a next wave in globalization and as a model for trade deals going forward. With its broad geographic and economic coverage, it was to herald a sort of NAFTA- ization of the Asia- Pacific and is an integral part of the Obama Administration’s pivot toward Asia. The 12 countries concluding the agreement include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, with others such as Indonesia, Korea and the Philippines also expressing an interest in eventu- ally joining. The combined economic power of these 12 nations represents about 40% of all trade between these countries and a whopping 36% of global trade.
The deal itself is also comprehensive in that it takes aim at lowering tariffs on over 18,000 items covering both agricultural products and industrial goods as well as textiles and clothing. It also covers trade and services including expansions of intellectual property protections, national treatment for various services such as financial services and government procurement, and investment protections.
The agreement also provides for a dispute settlement mechanism which bypasses the court systems of the countries involved. This provision has turned out to be one of the more controversial and contentious aspects of the agreement and has given rise to significant opposition to the deal. This opposition is manifest, most notably but not solely, by the major party candidates for the U. S. Presidency with both Clinton and Trump having expressed not just non- support for the TPP but direct opposition to it.
In Donald Trump’s case, he has taken on the populist mantle owned early on in the primary season by none other than Bernie Sanders. Through his express opposition to not just TPP but to all previous trade deals including NAFTA and CAFTA, Trump has garnered strong support from those individuals who are often displaced or marginalized, however temporary, by changes in domestic economic markets due to increasing trade.
Mr. Trump has vowed to rip up the TPP and start the negotiations afresh, while also pledging to either renegotiate NAFTA and CAFTA or scrap them altogether and start anew. If taken at his word, there will be no TPP.
Trump will also take aim at other agreements currently being negotiated, namely, the Transatlantic Trade and Investment Partnership ( TTIP) and the Trade in Services Agreement ( TISA) and either change the negotiation strategy midstream or completely reinitiate them. Mr. Trump, a man whose businesses have been the beneficiaries of these trade deals over the years, hardly seems the appropriate messenger to carry this mantle and his commitment to opposition is questionable.
Thus, while he has taken a strong stance during the campaign, we may see him soften his position a bit on these deals once the shackles of the office are set upon him. This assumes of course that he wins.
Hillary Clinton’s stance against the TPP in its currently agreed form is newly- found. Her support of the agreement during its negotiation is well documented. However, in response to cries from labor and environmental factions on the left as expressed through Bernie Sanders during the primaries, Clinton has modified her position and moved significantly away from her strong free trade roots into the opposition camp. Given her shifting position, some also question her commitment to opposing the TPP.
Clinton may well be able to have her cake and eat it, too. While expressing open hostility to the TPP, she may be able to rely on President Obama to force a “lame duck” Congress to push through finalization and signing prior to her tak-
ing office, thus providing her the shelter she needs politically, while achieving the goal of its implementation.
Given where the polls currently stand, this latter scenario is a likely outcome, especially if many free trade Republicans lose seats on November 8 as they will have nothing to lose politically by supporting its passage on the way out the door.
So where does all this leave the agreement? It stands in limbo for the time being and not just in the U. S. The uncertainty around whether the U. S. will be able to push through the agreement is generating concern and leading to a slowing of the ratification process as other countries have taken note of the political uncertainty surrounding the TPP in the U. S. They too have put their negotiations or ratifications on hold.
On September 16, Vietnam’s National Assembly agreed to defer ratification of the agreement. The Japanese Diet is also considering a delay in ratification with none other than the son of former Prime Minister, Koichi Koizumi, leading the calls for additional time to consider the agreement. Additionally, certain non- member Asian Pacific countries who had expressed an interest in joining, such as Indonesia and the Philippines, appear to be pulling back on their interest. Philippine President Duterte, fresh off a visit with Chinese President Xi Jinping, has asserted his country’s “separation” from the U. S. calling into question whether the previously expressed desire to jump on board still exists at all.
Thailand has specifically not joined the TPP and while consideration of the TPP has been discussed openly in the media and elsewhere, Thailand does not look positioned to join for the time being. This is partially based on the growing relationship with China, who sees the TPP as a potential threat to Chinese influence over Asian trade, and also Thailand’s own internal situation.
Failure to join TPP could mean that Thailand and others are less competitive in these markets and could result in significant migration of investment by TPP member states out of non- participating countries and into participating ones. For example, Thailand could see a significant amount of Japanese and U. S. investment migrate to Vietnam, where domestic production costs would be relatively lower. Yet, all is not lost. The TPP took a number of years to negotiate and final agreement was eventually reached. Such investments of time and resources are not easily cut adrift. And renegotiation is not a realistic option given that it would involve bringing all 12 players back to the table and a significant effort by each government and additional investment, which is likely not desirable. Accordingly, despite all the uncertainty around when the agreement will be ratified in various countries, we may well see the TPP ratified within the next 12 months.
Implementation of this agreement will be a huge boost to international trade and investment throughout the AsiaPacific and those players who have signed on will see significant developmental benefits which come from free trade. Those who do not sign on may find themselves losing out to strengthening trade relationships among the TPP members and could see traditional trading relationships disrupted, all at a cost to their own societies’ growth and future development plans.
Trade delegates at the signing of the Trans- Pacific Partnership Agreement in New Zealand in October 2015.