Back from the dead
Retooled Trans-Pacific Partnership moves forward without the US, and even post-Brexit UK may want to join the club.
Once considered dead after US President Donald Trump pulled his country out of the deal signed by his predecessor, the Trans-Pacific Partnership (TPP) has come back to life with its 11 remaining members agreeing to move on with the giant freetrade agreement.
Now that Vietnam and Canada have finally agreed to new terms, the TPP has been resurrected under the unwieldy new name Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP-11.
And while Mr Trump said last week that he’d be open to rejoining the TPP, Japan insists the modified pact will be signed in March.
The US president said during an interview with CNBC in Switzerland that he would consider rejoining the TPP under “substantially better” terms because the United States “had a horrible deal”. But Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura said the next day that the TPP was pieced together on the assumption that it basically “would not be renegotiated”.
TPP Minister Toshimitsu Motegi also said “the terms of the TPP-11 have already been decided on, and we think our priority is bringing this TPP-11 into force”.
While Prime Minister Shinzo Abe said “it would be good” if the US were to re-enter negotiations, it is unlikely that terms will change. Meanwhile, another big albeit geographically unconnected economy might be looking to join.
UK Trade Minister Greg Hands said Britain was considering joining the TPP after it completes negotiations to leave the European Union, its location in the Atlantic Ocean notwithstanding.
“Nothing is excluded in all of this,” Mr Hands was quoted as telling The Financial Times. “With these kinds of plurilateral relationships, there doesn’t have to be any geographical restriction.”
The prospect of a new major economy joining the pact can’t be ruled out, says Stanley Kang, chairman of the Joint Foreign Chambers of Commerce in Thailand, whose members include chambers from six CPTPP countries.
“As we all know, the new TPP is weaker without the US and they will have to bring in new members,” he said.
Asean members, he noted, have been concentrating on t he China-backed Regional Comprehensive Economic Partnership (RCEP), for which talks are more than two years behind schedule. Japan has emerged as the champion of the TPP as Tokyo aims to counter the growing influence of Beijing.
The current CPTPP members are Japan, Vietnam, Malaysia, Brunei, Singapore, Australia, New Zealand, Canada, Mexico, Peru and Chile.
“The new TPP will continue under Japan’s leadership as it wanted a trading platform in which it could have a strong diplomatic voice,” Mr Kang told Asia Focus. “The possibility of the UK joining is, meanwhile, questionable at present as they are currently in talks over Brexit and we still have no idea what they are going to do afterward. Are they going to pursue a bilateral approach or a multilateral approach? We still don’t know.”
Kaewkamol Pitakdumrongkit, deputy head of the Centre for Multilateralism Studies at Nanyang Technological University in Singapore, said it was clear the UK would seek opportunities to advance trade liberalisation with other markets after Brexit.
“They can do that through the WTO but we know that liberalisation through the WTO has been slow in recent years,” she told Asia Focus in an interview a day before the new CPTPP deal was agreed.
“The TPP is a mega-FTA and a high-quality trade deal that has potential to set trading rules for years to come. For these reasons, the TPP is attractive to the UK wanting to further liberalise trade. The current TPP members may also be keen to include the UK. Moreover, the TPP agreement is still open for outsiders to join.”
Nevertheless, some CPTPP economies may see limited benefit for themselves or the UK, given that its merchandise exports to the pact’s 11 members, at US$32.3 billion, were just 8% of the country’s total in 2016.
Exports account for 15% of the $2.8-trillion GDP of the UK, which exported $404 billion worth of goods in 2016. Around 70% of the shipments consisted of machinery and computers, vehicles, gems and precious metals, electrical equipment, mineral fuels and oil, aircraft and spacecraft, optical and medical devices, plastics, and organic chemicals.
The majority of UK exports do not go to TPP-11 countries — not a single one of them was a top-10 export destination in 2016. Japan and Canada were the closest at $6.4 billion (1.6%) and $6.2 billion (1.5%) that year.
Top imports by the UK include gold, cars, packaged medication, gas turbines, mobile phones and related equipment, vehicle parts, computers and aircraft. Most come from Germany, China, the US, the Netherlands and Belgium. Again, among the TPP11, only Canada and Japan come close to the top 10 at 2.1% each of total UK imports.
The UK has trade deficits with most of the TPP-11 but enjoyed a surplus of $3.8 billion with Singapore in 2016. But Dr Kaewkamol believes participation of the world’s fifth largest economy could still help pact members.
“UK participation in the TPP would be beneficial for the other members. The UK market would increase the TPP’s market size. For businesses, this will increase the economies of scale and beget more opportunities for them in terms of connecting to both consumers and suppliers,” she said.
“For the agriculture sector, the TPP members who will gain most are agricultural exporters. Why? Because the UK agricultural sector is small, accounting for about 0.7% of UK GDP, and UK relies on EU products. Hence, the UK is keen to get agricultural products from TPP members. The latter could see an increase in their exports.”
Nevertheless, the possibility of UK entry still seems remote, given both its geographic location and unfamiliarity with trading practices, regulations and other norms on the other side of the world.
“The UK interest is natural as they are leaving the EU but they have to make a real effort to gain trust from the existing members,” Mr Kang said.
In any case, London cannot start actively negotiating new deals until it officially leaves the EU in March 2019.
“The UK will have to finish its Brexit talks with the EU first. Then, it will have to confirm its tariff and services schedules with WTO. Once that is done, it can turn to the TPP,” said Dr Kaewkamol. “The UK schedules submitted to the WTO will affect its negotiations to join the TPP. That information will serve a baseline for the UK. TPP preferential tariff rates will be more than the WTO tariffs.”
Agreement on a rebooted TPP was the result of two days of talks last week in Tokyo, with the 11 members now expected to sign a formal deal on March 8 in Chile.
Canadian Prime Minister Justin Trudeau said Ottawa had been coaxed back to the deal by Tokyo and Canberra. Canada had made waves earlier by insisting that trade agreements under the TPP-11 must include “progressive” elements such as guarantees for labour, gender, indigenous people and the environment along with protections for its cultural industries such as movies, TV and music.
In light of an improved arrangement on cars with Japan and the suspension of intellectual property provisions that had been a concern, Mr Trudeau said Canada had arrived at the “right deal”.
With the TPP set to continue under a new name, the UK will have some time to monitor its progress before deciding where to look for post-Brexit partnerships. But Tim Farron, the former Liberal Democrat leader, thinks joining the CPTPP “smacks of desperation”.
“These people want us to leave a market on our doorstep and join a different, smaller one on the other side of the world. It’s all pie in the sky thinking,” he said.
The US, meanwhile, may look to flesh out Mr Trump’s vague proposal to rejoin the pact. While no one is holding their breath, most members would be happy to have America back in the fold. Either way, the TPP has officially come back from the dead.
As we all know, the new TPP is weaker without the US and it will have to bring in new members. The UK interest is natural as they are leaving the EU but they have to make a real effort to gain trust from the existing members” STANLEY KANG Chairman, Joint Foreign Chambers of Commerce in Thailand