TPPing over?

Jayant Menon 01 July 2014

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Introduction

Why is the Trans-Pacific Partnership (TPP) taking so long to conclude? It has already missed three deadlines, the latest October 2013. And President Barrack Obama’s recent Asia visit did not produce the widely anticipated push towards the finish line. Delays aside, the other big question is what the TPP will look like when finally concluded (Winters 2014)? Despite Wikileaks’ best efforts, the negotiations are walled in secrecy. Will the TPP be the comprehensive 21st-century agreement proponents tout? Or will it wallow as a watered-down compromise, riddled with exemptions and carve-outs, as detractors predict?

Why so long?

A useful starting point in explaining the delay is to look at the countries involved. In 2005, four small open economies – New Zealand, Chile, Brunei Darussalam and Singapore – began talking about a free trade agreement (FTA). It only began to grab headlines when the US embraced the TPP in 2009 as part of its ‘pivot to Asia’. Four other nations joined discussions soon after – Australia, Peru, Vietnam and Malaysia – while Canada and Mexico joined in 2012, and Japan in 2013. These 12 countries are a highly diverse group by any measure.

  • First, unlike other plurilateral cooperation agreements, the TPP is widely dispersed geographically. There is nothing regional about it, nor is there a neighbourhood feel, with members from four of the world’s 7 continents.
  • Second, it is just as economically diverse. In 2012 dollars, Australia’s per capita income was almost 40 times that of Vietnam. The US economy is almost 1000 times the size of Brunei. They are equally diverse politically – freewheeling democracies to communist states and an all-powerful sultanate.

Not only is the TPP more diverse than its even larger transatlantic cousin – the Trans-Atlantic Trade and investment Partnership (TTIP) – it is likely the most diverse plurilateral trade agreement today. All this diversity suggests finding commonality when negotiating would not be easy.

Of course, the TPP delays are far overshadowed by another struggling proposed trade pact—the WTO’s Doha Round. Although there are fewer countries involved in the TPP compared to the WTO, diversity is not a linear function of the number of countries involved. Where a group includes countries as varied as Vietnam, Brunei, Peru, and the US, there is not only a lack of commonality in negotiating positions, but also negotiators may not subscribe to broadly similar principles.

Ambitious or just unjust?

Now, add to this diverse country mix a wide ranging, highly ambitious agenda – to be tackled as a single undertaking. The TPP agenda is significantly more demanding than Doha’s, as it seeks to address areas never successfully dealt with by any of the countries involved. Because of its high ambitions, negotiating diversity translates into staunch opposition, with some items falling into the non-negotiable or “too hard” category.

It is not that the TPP agenda is just highly ambitious – this would make negotiations difficult but worthwhile. But there is the sense of it being unfair, and unclear if it will benefit all. There has never been a plurilateral negotiation where the agenda appears so skewed in favour of one party, while ignoring the interests of most of the others, if not all of them. The carrot being dangled is, of course, improved access to the huge US market but with half the members with an FTA already in place and the rest trying to conclude one with the US, the incremental benefit is likely small. Add to this the 20 bilateral and two plurilateral FTAs that are already in effect between members (excluding the US) and the benefit is probably even smaller (Menon 2014b).

It is not uncommon for vested interest to parade as national interest. But to claim its pursuit is mutually beneficial or for the greater good – the ‘gold standard’ or a ‘21st Century agreement’ – when its impact on different members remains uncertain, is probably a bit too disingenuous. The same criticism, however, could be levelled against lobbies looking to preserve their privileged positions everywhere – from state-owned enterprises to agriculture. But at a time when globalisation is blamed for growing inequalities within and across countries, policies seen as transferring enormous resources from consumers in poor countries to a few pharmaceutical multinationals, for example, will certainly face opposition. For Stiglitz (2014), the fact that such a plan is under consideration at all is a testament to how deeply inequality reverberates through our economic policies.

Similar concerns arise from developing countries when dealing with labour or environmental standards, often seen as an instrument of protection that cuts into their ability to compete. Somewhat ironically, the so-called ‘fair trade’ agenda is viewed by these countries as anything but fair.

Everyone – except for the US – is concerned about the investor-state dispute resolution mechanism, which allows corporations to sue governments. The same is true for the currency manipulation clause, which could be subject to manipulation itself. Stiglitz (2013) lists more examples and objections.

What will the TPP look like?

Amid all this concern, the hoped for motivation for genuine reform – using legal commitments to an external agreement to overcome domestic lobbies, the so-called ‘hands are tied’ argument – seems nowhere to be found. More recently, one hears of compromise and flexibility, carve-outs and transition periods, terms unheard publically during the initial negotiations. There was one report (National News Agency of Malaysia 2014) making the seemingly absurd suggestion that the TPP had to move backward before it could move forward—implying the start of a “race to the bottom” to break deadlocks.

There are several examples of this, including reforming government procurement policies or state-owned enterprises in Vietnam or Malaysia. As both issues are embedded within Malaysia’s national affirmative action (or Bumiputera) policy, the Minister of Trade, Mustafa Mohamad, publically boasted how negotiators secured carve-outs to quell domestic concerns. Similarly, Hiroshi Oe, Japan's deputy chief negotiator made clear recently that Japan will not necessarily extend all members the same concessions made to the US in agricultural market access (World Trade Online 2014).

  • There is good reason to be concerned that the TPP is degenerating into a series of bilateral deals, with a US-Japan agreement at its core.

The seemingly insurmountable challenge is, when the time comes, to present a series of bilateral deals as if they were one comprehensive agreement. So, look out for a lot of ‘transition periods.’

But not only is the TPP unlikely to be concluded as originally intended. There is now growing concern whether it will be concluded at all. With renewed uncertainty whether the Obama Administration can secure Trade Promotion Authority (TPA) to ‘fast-track’ the process, other members may be reluctant to sign up when its key proponent may not be able to deliver.

President Obama's recent foreign policy speech at West Point did not mention the TPP. This is not only telling but suggests a possible change in priorities (Schake 2014). It seems few in Washington expect any trade bill to be voted on before the midterm elections, with many predicting the issue will be left until January 2015, when a new – and possibly more protectionist – Congress is sworn in.

Apparently, a final push is currently underway, however, and if successful, it will be announced just after the mid-term elections around 11 November 2014, when President Obama returns to Asia for the APEC Summit. Since this will require members to sing-out without US fast-track assurance, it is just as likely that the announcement will be about South Korea’s accession rather than the TPP’s completion, which would also conveniently justify another long delay.

What is next?

If the TPP is deferred indefinitely, or if concluded with a multitude of exemptions, an alternative approach would need to be pursued to serve the interests of its members. Even in the best case scenario – the TPP is concluded as originally intended – it cannot be the end-all as commercial relations of its members extend far beyond the confines of the group. In fact, successful negotiations could set off a domino effect, where other mega-regionals are pressured to conclude negotiations to avoid falling behind. And if it falters, other groups may seize the opportunity to move ahead to dominate the rule-setting game.

But should the TPP succeed, could it do what the WTO could not? Could it trigger movement on a global deal? With Doha sliced up into sectoral agreements, could the TPP, armed with an open accession clause, play the role of dominant bloc, setting the standard to which others converge? This is indeed as unlikely as it sounds. It is doubtful third parties would accept a ‘take it or leave it’ proposition, which is what open accession really boils down to. So, the best tip is that the TPP, like the TTIP (see Winters 2014) has either tipped or is tipping over!

Then, how do we move forward? In the absence of a remarkable transformation of global trade governance (Baldwin 2012), the only real option is a return to the most widely used modality of trade liberalisation – unilateral action – only this time with a multilateralisation of preferences rather than tariff reductions (Menon 2014a). With two-thirds of TPP member imports (80% if the US is excluded, see Menon 2014b) already covered or about to be covered by FTAs, expanding preferences to remaining countries should not encounter much resistance from FTA partners, not only because volumes are small, but also due to preference erosion.

Conclusion

The long delay in concluding the TTP should not come as a surprise. Like Doha, there is significant diversity in negotiating positions across its membership, despite the fewer countries involved. Unlike Doha, the agenda is not only more ambitious, but also controversial, if not unjust. Many see it as terribly skewed in favour of one country, the US. In fact, several issues face such stiff opposition from some members that they may never be overcome. In this quagmire, the TPP could easily degenerate into a series of bilateral deals. And if all this was not bad enough, there are fears that even US interest may be put on hold without the fast-track authority given by the current Congress.

So where does this leave us? TPP’d over, at least for now. Short of resurrecting the WTO, the only useful way forward is for countries to take matters into their own hands – as they always have. Unilaterally multilateralising preferences is the way to go.

References

Baldwin, R (2012), “WTO 2.0: Thinking ahead on global trade governance”, VoxEU.org, 22 December.

Menon, J (2014a), “Mega-regional trade deals and the global mega-mess”, VoxEU.org, 9 June.

Menon, J (2014b), “Why is the TPP taking so long?”, ADB Working Paper Series on Regional Economic Integration, Manila: ADB, forthcoming.

National News Agency of Malaysia (2014), “Japan, US compromise to provide motivation for other TPP members to move forward”, 20 May.

Schake, K. (2014), “A Disparity Impossible to Ignore”, Foreign Policy, May 28.

Siglitz, J (2013), “An open letter to Trans Pacific Pact negotiators”, The Malaysian Insider, 10 December.

Siglitz, J (2014), “On the Wrong Side of Globalization”, The New York Times, 15 March.

Winters, A L (2014), “The Problem with TTIP”, VoxEU.org, 22 May.

World Trade Online (2014), Japanese Official Gives No Guarantee Of Same Ag Market Access For All TPP Nations, 4 June.

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Topics:  International trade

Tags:  US, trade agreements, TPP