US’s Exit From TPP Means Its Pacific Clout’s at Risk

With Thailand inching closer to applying for formal membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – the successor to the proposed Transpacific Partnership (TPP) doomed by US President Donald Trump – concerns have died down that there would be no agreement after US withdrawal.

Instead, the fundamental reality is that the United States will be on the outside looking in at one of the world’s biggest free trade agreements, one that was engineered painstakingly by the administrations of Presidents George W Bush and Barack Obama to benefit the United States. The US President’s strategy to replace the agreement by gaining trade clout via bilateral agreements so far is dead in the water.

In addition, the US’s biggest nightmare is that Chinese officials over the past few months have been exploring the possibility of seeking advice and joining the new agreement, according to an Oct.11, 2018 report in the Hong Kong-based South China Morning Post. The TPP was specifically designed to ring-fence China to neutralize the country’s massive and growing trade clout. The Trump administration has so far been stymied in trying to put together a bilateral trade agreement with Beijing despite threats of massive tariffs.

In the CPTPP, Thailand would replace the US as the 12th country, joining Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam in an economic space that comprises 13 per cent of the global economy. US withdrawal reduced the size of the economies covered, from 40 percent of global trade to around 13.5 percent although the agreement framework remains. Some 22 provisions that mattered for the US but were irrelevant for or did not enjoy support from other members were suspended or fundamentally changed from the original 2016 agreement.

Even as other nations show interest in applying for membership, the CPTPP is already one of the world’s biggest free trade agreements, meaning that not only would it create an economic giant, it is expected to yield considerable influence vis-à-vis countries such as the US who instead want bilateral agreements with its members. It gives its member countries significant leverage to balance and counterbalance their positions.

That leverage partly explains why US attempts at entering into bilateral free trade agreements (FTAs) with members of CPTPP have not yielded meaningful results even though the US has massive security leverage over the member countries. That this hasn’t worked as well as the US might have expected shows how the CPTPP is already becoming a platform that allows the member states to counterbalance such pressures.

Even Japan, the US’s staunchest ally in Asia, has been resisting US blandishments for an FTA. The 2019 US Economic Report of the President, released in March, clearly expresses its “anger” over the way Japan continues to impose high tariffs on beef and pork, suggesting that the Trump administration will adopt a tough stance in its upcoming trade negotiations with Tokyo.

Ironically enough, the economic report refers to the way other countries such as Australia face much lower tariffs than the US, not realizing that both Japan and Australia are following a CPTPP regime and that this trade regime cuts the tariffs between them, in some cases to zero.

For instance, under the CPTPP, while Australian beef exporters pay 9 percent tariff on their exports to Japan, their US counterparts will continue to face a 38 percent rate, putting the US at a great competitive disadvantage which inevitably will cut into sales for US beef exporters soon.

In fact, the latest data released by Japan’s government show Japan’s beef imports from Australia, Canada, Mexico and New Zealand — all members of the CPTPP — jumped more than 50 percent in January from a year earlier. Significantly enough, this surge happened against the context of Japan’s resolve to not negotiate or enter into an FTA with the US, although it has shown some willingness to negotiate current tariff rates.

Similarly, US attempts at entering into bilateral FTAs with Malaysia and Thailand under the ASEAN initiative framework have also hit an impasse and continue to linger. While Taiwan has expressed its interest in doing an FTA with the US, doing so would not only be extremely difficult as it would invite strong Chinese opposition and would negatively hit already fragile US-China relations.

While the CPTPP, without the US, doesn’t have the power or the potential to rewrite the rules of global trade, the fact that this 11-member platform quickly did away with some particular provisions that the US had been advocating ever since the Bush and Obama administrations about investor-state dispute settlement and intellectual property rights shows the limits of US influence, which keeps shrinking due to the countries’ resistance with regard to entering into bilateral FTAs.

There is also speculation about a possible US return to the agreement. However, Washington, stymied by its inability to conclude separate FTAs with member countries would likely be disadvantaged in negotiations, The CPTPP grouping has suspended many of the provisions that the US had worked hard to include in the 2016 agreement. The US might not be able to impose its will upon them to get those provisions back.

This is particularly so given that the suspension and removal of controversial provisions from the old agreement was something that, in the first place, had made many countries join the new CPTPP regime.

Therefore, if the US presses for the inclusion of those provisions, not only would it jeopardize the interests of many countries that are now part of the agreement but weren’t when the US was, but it also impinge badly upon CPTPP’s recent resolve (announced in January in Tokyo) to be "open to all economies" that meet its standards.

This is besides the fact that many CPTPP countries see a US absence as potentially beneficial. Canada, for instance, believes that it will benefit considerably more from CPTPP relative to TPP, in part due to the absence of US competition.

Given these developments, it is evident that the US departure, instead of causing the TPP to die, has many in many ways proved beneficial, paving the way for CPTPP itself and its continued economic and geographical expansion thereafter. The US still has enormous economic firepower as the world’s biggest economy. It will need to use it if it wants to rejoin.

Salman Rafi Sheikh is a Pakistan-based academic and a regular contributor to Asia Sentinel.