TPP: Who Needs Uncle Sam?
Can the trade pact survive without the US? It’s a long shot.
Can the Trans-Pacific Partnership (TPP) survive without the United States? That is what Asia is pondering with the election of Donald Trump, who has proclaimed he will pull out of the 12-member pact during his first days in office.
Japan’s Prime Minister Shinzo Abe has already said that the trade deal “has no meaning” without the US. Yet he continues to push parliament to ratify the agreement, which a special committee of the lower house of parliament did in early November.
The full lower house has until November 30 to finalize the deal before the current session ends. Abe has long maintained that being in the TPP was an essential element in his economic revitalization plan known as “Abenomics.” Without it, China appears the big winner in terms of extending its regional hegemony and Japan, without it, is going to be one of the losers in its campaign to maintain its own regional influence.
Regional leaders are used to a little Asia-bashing during American presidential elections in which both party candidates take strong positions, which they invariably change after the votes have been counted. This year will be different. President-elect Trump recently stated in no uncertain terms that he will pull the US out of the deal just as soon as he takes office.
Laying out his priorities for his first days on the job, Trump said last week: “On trade I’m going to issue a notification of intent to withdraw from the Trans-Pacific Partnership, a potential disaster for our country.”
He did leave open the possibility of more trade negotiations in a future without TPP. “We will negotiate fair bilateral trade deals.” One of them might be a free trade agreement with Japan, something the two countries have lacked for years.
Hopes have faded that the US Congress would ratify the TPP agreement during the lame duck session this winter, the period between the election November 8 and the day the new Congress is seated and the new president inaugurated in January.
It was thought that this small window of opportunity would allow members to vote more freely, as many of them are retiring or were defeated, whereas President Barack Obama, a TPP advocate, is still in office until January 20. However Republican leaders have nixed that idea.
A TPP minus the US?
For the pact to continue, the remaining 11 partners would have to change the rules that state it won’t go into effect until and unless at least six nations representing 85 percent of the pact’s total GDP. As the United States accounts for about 60 percent of the pact’s total GDP and Japan another 20 percent, it is plain that America’s withdrawal from the partnership would effectively scuttle the deal.
Malaysia’s Prime Minister Najib Razak has said that effectively the deal in its present guise cannot come into force without the US. But he was apparently referring to the requirements clause rather than any merits of the deal.
“Malaysia and the 10 other partners can carry on without the U.S provided the requirement clause is amended,” said Ong Ka Chuan, deputy minister for international trade and industry.
It should be recalled that the TPP started out as merely an agreement between four Asia-Pacific countries, Singapore, Brunei, New Zealand and Chile. It took on its larger form only after the US agreed to take part, in part to head off China forming its own bloc.
New Zealand role
One of the original partners, New Zealand, has emerged as probably the strongest supporter of the go-it-alone option. Prime Minister John Key at the APEC meeting in Lima, Peru last week, said his government had done some modeling of the potential benefits for his country of a TPP without the US. In such a case, he said, New Zealand would retain about two-thirds of the projected benefits, worth approximately US$2.7 billion. Based on his soundings, he believed “they’d rather go it alone than not get there at all.” New Zealand was the first and so far only partner to ratify the agreement.
But while the political climate in both the European Union and post-Trump US is that protectionism is on the rise, in Lima last week the leaders of APEC argued that open markets must be maintained and action should be taken build an open trade region among the Asian Pacific economies.
Still, while APEC is arguing for open markets, it probably won’t be through TPP. Other Asian partners seem resigned to the pact’s demise and are turning to other options. Hanoi announced that it will shelve ratification for the time being due to the election of Trump. “There are not sufficient conditions for Vietnam to submit a proposal for ratification [to parliament], “ said Prime Minister Nguyen Xuan Phuc.
Phuc said this with some regret since he believed that the TPP would be a good deal for Vietnam, Hanoi is already a member of other free trade agreements (FTA) and will join more in the future to help spur economic growth.
Despite trade advantages from the partnership, Hanoi saw value in its participation as reducing an excessive reliance on China by joining what was perceived to be a pro-US alliance.
Asian countries seeking other options to TPP have a ready-made alternative in the China-led Regional Comprehensive Economic Partnership (RCEP), an economic framework consisting of 16 nations, including the 10 nations of ASEAN, plus China, India and South Korea – but not the US or Canada.
In some ways, it might be a better alternative for countries such as Vietnam with less-sophisticated economies since RCEP focuses more on tariff reductions and less on such things as labor regulations, intellectual property and other service industry limitations.
But taking part in the TPP would have provided some countries with larger international profile, which was an important motive for countries like Vietnam and Malaysia taking part. The 11 remaining countries in the fold might benefit from some of the trade enhancing agreements, but without the US it won’t be the same.