TPP-11 Proceeds Without the US
When President Donald Trump pulled the United States out of the Trans-Pacific Partnership as one of his first acts as president, many, including this writer, assumed the deal was dead. But that has not proven to be the case—not exactly.
Last week, trade ministers from the remaining eleven TPP nations— New Zealand, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore, and Vietnam —signed a deal that will eliminate 98 percent of tariffs and otherwise streamline economic policies for those countries. Needless to say, the new deal, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) doesn’t have the same juice absent the US, but it’s still a significant free-trade development. CPTPP was spearheaded by Japan and Australia, allowing those two countries to take their place as Asia-Pacific leaders and as bulwarks against the domination of the region by China. The deal also demonstrates resilience on the part of the Japanese, who regarded the original TPP as a US-Japan partnership and who felt spurned when Trump dumped the accord.
TPP would have been the world’s largest free trade zone, covering 800 million people and 40 percent of the world’s economic output. But CPTPP is nothing to sneeze at. It’s going to be the world’s third largest trading area behind NAFTA and the European Union, with a population of 500 million people and over 13 percent of global trade.
CPTPP incorporates many of the provisions of TPP. The key exceptions are 22 measures which were urged on the agreement by the United States and accepted only reluctantly by its interlocutors. These provisions have been suspended, “suspended” being a key word.
The suspended provisions include the intellectual property chapter, which provided stringent requirements for technological protection measures (TPMs) and longer periods for medical patents and copyright protection. Even without those, the CPTPP’s IP chapter represents the world’s most advanced standards on intellectual property in a trade agreement; the chapter provides substantial protection to companies from having their innovations stolen when operating in other countries.
The notion of suspending these provisions and not eliminating them is a signal that the CPTPP nations are open to negotiating with the US to join the agreement. And the president and his Treasury secretary have signaled that they could consider such an eventuality, although it is not clear whether they were serious about it.
Australian Trade Minister Steven Ciobo expressed the spirit of CPTPP when he said in a statement last Thursday that the signing of the trade accord represents “a significant moment for open markets, free trade and the rules-based international system. It sends an important message to the world that prosperity is achieved through breaking down trade barriers, not building them.”
Meanwhile, on that very same day, Trump signed a proclamation imposing new tariffs on steel and aluminum imports. That aside, everything about Trump’s rhetoric indicates strong disagreement with Ciobo’s sentiments, so the idea that the US will join CPTPP under a Trump administration is a long shot.
Besides which, Trump has emphasized his preference for bilateral trade agreements and has made reduction of trade deficits the cornerstone of his trade policy. If Trump tries to negotiate an entry into CPTPP on the basis of reducing deficits, he’s going to be stopped in his tracks by the eleven.
But if Trump experiences a turnabout and can somehow develop a rational trade policy, he may find some advantages to pursuing membership in CPTPP, according to Jeffrey Schott of the Peterson Institute for International Economics.
If larger benefits to the US economy is what Trump seeks, the CPTPP could fit the bill, as its membership is likely to expand after its ratification by the initial eleven. Hong Kong, Taiwan, South Korea, Thailand, Indonesia, and Colombia are considering joining the agreement and there is even some discussion in the United Kingdom to that effect.
It would be next to impossible to cut a new trade deal with Taiwan because China would object. But joining a regional agreement might circumvent that problem. When comes to the UK, “why start from scratch on a post-Brexit US-UK deal, as Trump has suggested,” wrote Schott, “when joining the CPTPP could achieve the result more efficiently?”
Likewise, if Trump is seeking a more comprehensive trade pact, one that would address ecommerce, currency, and cybersecurity, then tackling those issues through CPTPP “would be a more productive channel for advancing US interests,” according to Schott, than negotiating bilaterally or through the World Trade Organization. Such an approach would also advance one of the original purposes of the TPP: to advance a trade system based on US standards and practices and to constrain China’s initiatives in the Asia-Pacific.
But until such a day comes, the concluding of CPTPP means that US manufacturing, agricultural, and services exporters will be at a disadvantage in the eleven Asian-Pacific markets. Exporters of beef, pork, and dairy products from Australia, New Zealand, and Canada will soon benefit from tariff cuts made by Japan that US exporters will not enjoy.
On the brighter side, CPTPP is not all bad for the United States. As Wendy Cutler, a former negotiator in the Office of the US Trade Representative, points out, “Many of the provisions included in TPP-11—in such areas as state-owned enterprises, digital trade and labor—were based on US proposals. These rules provide an important alternative to the state capitalism model offered by China.”