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The new Trans-Pacific Partnership hunkers down against Trump

On his third day in office, US President Donald Trump honoured his election campaign promise to take the United States out of the Trans-Pacific Partnership (TPP). The move left allies and partners across the Pacific in Asia shell-shocked and may well come to be seen as the turning point in US global leadership.

After the confusion and uncertainty that Trump’s move generated, the remaining 11 TPP members spent most of 2017 salvaging the agreement. These countries are set to conclude a TPP-11 or a rebranded Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on 8 March in Chile.

The new agreement is the TPP in name only. The withdrawal of the United States, which accounted for 60 per cent of the TPP’s collective GDP and around 40 per cent of the trade within the grouping, changes the character of the TPP.

The TPP meant different things to different members. For most it was an opportunity to keep the United States firmly locked into the Asia Pacific region. It was seen by the Obama administration as the economic arm of America’s ‘rebalance towards Asia’. It was also an opportunity for further liberalisation and reform, with access to US and Japanese markets the main prize.

The agreement aimed to set new standards and rules for commerce in the 21st century — an elusive aim at the global level because of the failure of the World Trade Organization’s diverse membership to settle on common goals.

Conclusion of the CPTPP does not deliver the big strategic goal of keeping the United States entrenched in Asia. Instead, it sends to Mr Trump a strong message of the region’s commitment to openness. Holding the line and pushing back against growing protectionist sentiment keeps pressure with market opening and reform on which US businesses and consumers miss out, and it keeps open the option of US re-entry down the track. It could add momentum for broader liberalisation in Asia by facilitating expansion of membership and by lifting the ambition in the Regional Comprehensive Economic Partnership (RCEP) — an agreement being negotiated by the 10 ASEAN members as well as Australia, China, India, Japan, New Zealand and South Korea.

TPP-11 is less important because of the American-sized hole in the middle, but is a better agreement given some of the changes that have been made to it. The CPTPP has more chance of expanding membership since it froze some of the more egregious provisions of TPP — especially the US-pushed intellectual property protections that were likely to benefit big business in the United States at the expense of consumers in the region. The scope of the investor–state dispute settlement provisions will be narrowed, but still give foreign investors access to an international tribunal to resolve disputes with host governments.

The agreement still gives those inside the tent veto power over new members, since accession requires agreement from all parties. Inclusion of larger countries like China, India and Indonesia will not be easy even if they meet membership criteria.

The United States will not be party to the TPP for the foreseeable future as it deals with the domestic structural problems that were the political genesis of the Trump administration.

Most of the 11 CPTPP members are also actively engaged in negotiating RCEP. The RCEP agreement will be important to locking China and India into opening markets and pursuing reform on a parallel track to the CPTPP, especially in a period of global uncertainty when protectionism is on the rise. That will not be easy until India comprehends its strategic interest in economic integration with East Asia and until it ceases playing spoiler in international forums.

Chinese President Xi Jinping championed globalisation and openness in Davos in 2017, while Trump has retreated from multilateral commitments and to ‘America First’. Xi will need to demonstrate leadership beyond rhetoric by making tough reform commitments in RCEP on issues such as state-owned enterprise reform. The economic cooperation agenda is central to RCEP’s delivering on politically challenging behind-the-border reforms.

The RCEP group includes some of the largest and most dynamic economies in the world and is important enough to make a difference globally. An Australian Productivity Commission study estimates that even if tariffs were raised 15 percentage points globally (similar to what happened in the Great Depression), RCEP countries could all continue economic expansion if they abolished tariffs as a group. The gains for RCEP countries would be even larger with behind-the-border reforms.

In forging agreement on the CPTPP, Japan — the Partnership’s largest economy absent the United States — has found itself in an unusual leadership position. Japan has often relied on external pressure, usually from the United States, to advance its diplomatic goals and even to push domestic reforms.

Japan has led the push for the CPTPP, deftly hedging against the uncertainties that Trump has generated in regional and global trade policy, strengthening ties with other partners like Australia and India and laying the groundwork for improving relations with China.

Canadian Prime Minister Justin Trudeau has fared less well. Distracted by the renegotiation of the North American Free Trade Agreement, Canada sabotaged the early conclusion of a CPTPP deal and what would have been a strong announcement to the world by its 11 leaders at the November 2017 APEC meeting in Vietnam.

China, Asia and the world have survived Trump’s first year in office without a trade war. But he has just announced 25 per cent tariffs on all steel imports and 10 per cent tariffs on all aluminium imports, and more could be on the way as the November 2018 midterm elections draw nearer. It’s a dangerous time. Agreements in Asia that promote openness and encourage countries not to retaliate may dissuade Mr Trump from further harming America’s trading partners and contain the damage to confidence in the global trading system.

Source: East Asia Forum

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