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A TPP without America: A viable idea, if political will exists

True to his electoral pledge, United States President Donald Trump withdrew America from the Trans-Pacific Partnership (TPP) within days of assuming office. Mr Trump’s action was hardly surprising considering his long-standing opposition to the free trade agreement, which he once described as a “disaster” and the “worst trade deal ever”.

Officials from the 12 signatory countries after signing the Trans-Pacific Partnership (TPP) agreement in Auckland last year. The US represents nearly 62 per cent of the TPP’s gross domestic product. Photo: AFP

Officials from the 12 signatory countries after signing the Trans-Pacific Partnership (TPP) agreement in Auckland last year. The US represents nearly 62 per cent of the TPP’s gross domestic product. Photo: AFP

True to his electoral pledge, United States President Donald Trump withdrew America from the Trans-Pacific Partnership (TPP) within days of assuming office. Mr Trump’s action was hardly surprising considering his long-standing opposition to the free trade agreement, which he once described as a “disaster” and the “worst trade deal ever”.

The TPP as originally planned had 12 members that make up 40 per cent of the global gross domestic product (GDP) and one-third of world trade.

For the TPP to come into force, at least six original signatories have to have successfully ratified the agreement. In addition, these six signatories, must together represent 85 per cent of the total GDP of the 12 original signatories.

As the US represents nearly 62 per cent of the TPP’s GDP, Mr Trump’s disavowal of the TPP essentially means that the agreement as it currently stands would die.

Going forward, what are the implications of the US’ withdrawal on the Asia-Pacific region?

TODAY’s digital correspondent Ben Ho (ben.ho [at] mediacorp.com.sg) speaks to three experts on international affairs: Assistant Professor Chong Ja Ian, who is with the National University of Singapore’s Political Science Department; Dr Deborah Elms, the executive director of the Singapore-based Asian Trade Centre; and Mr Aedan Mordecai, a senior analyst at the S Rajaratnam School of International Studies.

Political leaders in TPP signatories such as Australia, Japan and Vietnam have invested a significant amount of political capital in the trade pact. Would the US withdrawal bring about any political fallout for these leaders?

Assistant Professor Chong Ja Ian (CJI): There may be greater domestic political cost for some of these leaders, but a TPP-like arrangement without the US that still provides the high-quality, rule-making interactions integral to the original TPP can mitigate the loss.

Dr Deborah Elms (DE): I doubt that leaders of TPP signatories will be held accountable for the US withdrawal from the trade pact. It seems fairly clear that Mr Trump is so unpredictable that it would be hard for anyone to pin the blame for the US’ withdrawal on others at this juncture. However, I do think that these leaders will be judged on how well they manage the fallout from the US withdrawal; this is especially so if the economic landscape changes dramatically against the TPP members.

Mr Aedan Mordecai (AM): It certainly won’t help these leaders’ reputations in their own countries, as they will be seen as having misjudged the domestic situation in the US. The recent reaction from the other members of the TPP to explore a pact sans the US shows the reluctance for political leaders to be seen as having failed in their pursuit of bringing the pact into fruition. Whether the TPP goes ahead or not, the ability of governments to ensure satisfactory economic growth will determine the potential fallout from the demise of the original TPP. This is because the trade pact per se was not overwhelmingly popular within most countries, so its end alone will not be fatal for political leaders.

How would the US’ withdrawal shape countries’ calculations in dealing with Mr Trump, especially with regard to trade deals?

CJI: I think there will be more caution now in working with the US, including over bilateral arrangements. There will also be far more attention to not just inking an agreement, but making sure it is ratified in the US Congress. Ratification signifies much greater support across the political spectrum, but is a much higher bar to reach.

DE: While Mr Trump portrays his decision to withdraw from TPP as a sensible decision to seek better outcomes bilaterally, I think anyone intending to start negotiations with the US should carefully weigh any potential risks. The withdrawal has badly affected US credibility and its ability to deliver on trade promises. It is also not clear what sort of agreement would be more favourable to the US than the TPP.

AM: Any country dealing with the US under the Trump administration can expect little access to specific markets, such as automobiles and steel. There will also be unlikely much leeway when it comes to loosening visa arrangements to enter the US, particularly work-related visas. Overall, countries can probably expect a more private sector-like experience with regard to negotiations, especially since many of Mr Trump’s senior staff come from a private sector background and lack the political and diplomatic experience of previous administrations.

While the US has always taken a leadership role in regional security, it seems to be disengaging in terms of trade as seen in the TPP decision. So, would the US still be able to maintain its security leadership in the region without helping to promote economic ties?

CJI: Trade and security are mutually supporting. There would be little trade if there is significant turmoil. The US has a very significant security presence in the Asia-Pacific and its military forces in the region seem likely to grow. However, presence and numbers do not translate automatically to leadership. Policy is also important. Where the Trump administration policy goes in terms of implementing its security policy in Asia remains to be seen. Secretary of Defence James Mattis seems eager to assure allies and partners in Asia-Pacific of America’s commitment to them with his planned trip to the region soon after taking office.

DE: I suspect that while Mr Trump may be able to alter US trade policy in the near term, traditional security interests will continue to drive US engagement in the region. However, it’s uncertain how this will all work out and Mr Trump’s government is nowhere near complete enough to have any sense of the answers either. Most members of his team have no government experience and it is likely that the military voices in the Cabinet would dominate.

AM: Countries in the region are generally aware of the need of a US security presence to balance against a rising China. China could use the potential partial vacuum left by the US to forge closer security ties with Asean nations, but there is unlikely to be an outright rejection of US security leadership in the region, with South Korea and Japan particularly keen for US forces to stay put.

Mr Trump says he wants to move away from multilateral trade arrangements towards bilateral ones. Will Asian countries want to work with the US on this basis? Would small countries benefit from negotiating bilateral ties?

CJI: Trade is better than no trade — provided that the distributional inequities are dealt with effectively. In that respect, there will continue to be incentives to cooperate with the US, especially given the fact that it remains the market of last resort, a source of capital and a driver of innovation. Bilateral negotiations tend to put smaller countries at more of a disadvantage, especially if their interlocutor is a major economy like the United States. Bilateral negotiations also mean that there is likely to be significant variation among agreements that countries may need to de-conflict when dealing with each other after completing negotiations with America.

DE: Small countries certainly will not benefit from bilateral negotiations with a US officially and explicitly bent on preserving the largest benefits for American workers and American industries.

AM: Ideally, Asian countries would prefer multilateral trade deals. As the US has a much larger economy, dealing bilaterally with Washington would result in the latter demanding greater concessions in turn. Small economies would likely miss out all together on benefiting from a deal with the US, as they would be low down on the list of priority economic partners. Despite these downsides, most Asian economies, particularly in Asean, do not possess enough leverage to completely turn down a deal with the US if one were to be available. There is at least the benefit that a bilateral deal is relatively simple to negotiate compared to the arduous multilateral route that has many more parties to satisfy.

Other members of the TPP are exploring whether to create a “TPP, minus one”, without the US. How likely would this come to pass? How viable would such an entity be?

CJI: This outcome is possible and viable, although the benefits of such an agreement are likely to be less pronounced without the US. This option may also be possible given that the TPP partners are already aligned on many issues given their prior rounds of negotiations. The revised TPP market would be a large one, even if significantly smaller without America’s participation in it. The “high-quality” labour, environmental and intellectual protection, as well as the various dispute resolution mechanisms would still be in place, but their force may be felt less obviously outside the partner countries without American backing.

DE: I think a “TTP11” (consisting of the remaining 11 signatories) is very viable and, assuming the political will exists to make it happen, surprisingly easy. The key requirement is an adjustment to one sentence (most likely, although we have to wait to see exactly how the US withdraws from TPP). The benefits are very strong. In fact, I would argue that when the architecture that has kept the system together and has provided opportunities for growth and economic development in Asia is under such unique threats that it is precisely the time to do whatever it takes to keep markets open in places that rely on supply chains for jobs. Now is not the time to fall back to “second- or third-best” options.

AM: The TPP deal would have to be renegotiated for this to happen, as US ratification of the TPP was part of the original criteria for the pact going ahead. Nevertheless, it is not impossible for a revised TPP to be negotiated — if the political will exists among all states. One must also question how much resources TPP members will allocate to a revised deal, particularly as a TPP without the US is of significantly less value to members. The remaining members of the pact certainly won’t be putting all their eggs in the TPP basket a second time round and will be preparing bilateral deals in the meantime.

Will there be a pivot towards the Regional Comprehensive Economic Partnership (RCEP) should the TPP not come to pass? How would this state of affairs be advantageous to China?

CJI: The RCEP is different from the TPP and in some respects even complementary. It deals with additional steps in terms of trade liberalisation, on areas such as tariff and non-tariff barriers. This is a more evolutionary trade arrangement and does not have the same rule-setting ambitions of the TPP. As the largest economy in the RCEP, China would likely be highly influential in negotiations and the implementation of the pact. Insofar as this includes many Asia-Pacific economies, China could be in a position to take charge.

DE: If TPP11 does not come to pass, then the RCEP becomes the key vehicle for trade in Asia. This is less desirable overall, as it won’t have the same deep and broad structure of the TPP nor does it have the same instructional weight to withstand buckling by key players elsewhere in the system. It is a worthwhile agreement to have, of course, and we have been working very hard to make it as ambitious as possible, but an agreement with 16 extremely diverse members that were “drafted” by way of an existing Asean agreement is never going to have the same overall quality as one with a smaller number of members.

AM: Japan’s Prime Minister Shinzo Abe has gone on record to say that his country will pivot to the RCEP, and it makes logical sense for TPP members to go in that direction. While RCEP might not be as comprehensive as the TPP, it potentially contains China and India, two of the largest and fastest growing world economies, making the arrangement extremely attractive to members. China, though not inherently opposed to the TPP, will be astutely aware that the US withdrawal from the TPP is a prime opportunity to increase their economic presence in the region and firmly establish themselves as the driving force of the Asian regional economy.

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