The Trans-PacificPartnership (TPP):future prospects

Anna Hopper

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The Trans-Pacific Partnership: future prospects

A policy briefing by Anna Hopper (FPO Researcher)

The themes outlined in this policy briefing will be further developed in future FPO documents.

For these and other publications keep checking the FPO website at: https://www.fpoglobal.com

Summary

The Trans-Pacific Partnership (TPP) faces an existential challenge following

the Trump administration’s decision to withdraw the USA from the trade

pact on January 23, 2017. As well as having to push on without the world’s

largest economy, the TPP is confronted with China’s growing economic

dominance in the Asia-Pacific. In addition, the TPP is a complex, multilateral

free trade deal in an era of growing protectionist sentiment and bilateralism.

While the remaining members of the TPP – the so-called TPP11 – have

expressed a desire to persist with the project, at this juncture its future

prospects do not look promising. Indeed, some TPP member states are now

actively looking to China for trade deals.

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Acronyms and abbreviations

APEC: Asia-Pacific Economic Cooperation

ChAFTA: China-Australia Free Trade Agreement

EU: European Union

FTAs: free trade agreements

ISDS: investor-state dispute settlement

LEDCs: less economically developed countries

MEDCs: more economically developed countries

MNCs: multinational corporations

NZ: New Zealand

NZFAT: New Zealand Foreign Affairs and Trade

P4: Pacific Four (Brunei, Chile, New Zealand and

Singapore)

RCEP: Regional Comprehensive Economic

Partnership

TPP: Trans-Pacific Partnership

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The Trans-Pacific Partnership

On 4 February 2016, after seven years of negotiations, the Trans-Pacific Partnership (TPP) was

signed in Auckland by twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia,

Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. These states constitute

approximately 40 per cent of the world’s economic output and have a collective population of

around 800 million. For advocates of the TPP, if ratified, the trade pact will build closer regional

economic integration by, among other things, removing barriers to trade and investment and

opening markets for services.

For the Obama administration, the TPP essentially constituted the economic dimension of its

Asia pivot policy. More specifically, it viewed the TPP as a way of strengthening US economic

and political influence in the Asia-Pacific, as well as contributing regional stability and growth.

Most importantly, by excluding China, the TPP served to counter Beijing’s regional economic

dominance (Albert, 2016). However, this policy approach was scuppered on 23 January 2017,

with President Trump’s decision to withdraw from the TPP.

For Donald Trump, trade agreements like the TPP have ushered in unfair competition that harms

US companies, and led to more foreign imports and the loss of American jobs (Bradshaw, 2016).

In contrast, the Trump Administration will prioritise bilateral free trade agreements (FTAs),

which will allow the USA to use the vast size of its internal market to extract favourable

arrangements from trading partners. However, many commentators on the US economy

consider recent US job losses stem from technological change, and specifically automation,

rather than multilateral trade deals.

As for the TPP itself, the consequences of US withdrawal for the future of the trade pact remains

a source of much debate, and will be addressed later in this policy briefing.

The nature of the trade deal

The origins of the TPP can be traced to the Pacific Four (P4) trade agreement between Brunei,

Chile, New Zealand and Singapore, that came into force in 2006. Known as the Trans-Pacific

Strategic Economic Partnership, it is the first free trade agreement to link Asia, the Americas

and the Pacific, removing tariffs on most traded goods, but also addressing issues such as

employment practices and intellectual property. The P4 trade agreement is also notable for

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encouraging speculation about the possibility of a larger and more enterprising agreement for

the Pacific Rim, namely the Trans-Pacific Partnership.

The Trans-Pacific Partnership seeks to deepen the economic ties between member-states and

in particular to increase their level of intra-trade. The nature of the trade pact is complex,

detailed and wide-ranging covering areas such as intellectual property rules, procedures for

resolving trade disputes, and the enforcement of environmental protection and labour

conditions. However, the most significant aspect of the TPP is the reduction and phasing out of

thousands of import tariffs. Under the deal, 98 per cent of tariffs will be eliminated on a range

of products, including foodstuffs (beef, dairy, rice, sugar, seafood), but also manufactured

products, resources and energy. At the time that the agreement was signed, it was warmly

welcomed by the participating governments because it was seen as way of boosting domestic

economic growth.

Why has the Trans-Pacific Partnership attracted so much opposition?

From the outset the closed and secretive nature of the negotiations leading up to the signing of

the TPP attracted criticism. Of course, this type of negotiation process is not unusual with

complicated and strategically sensitive trade deals. More broadly, the TPP has attracted

opposition from different sources, ranging from business to anti-free trade groups. In the case

of the former, while the trade deal relaxes trade barriers between member states, concern has

been expressed that not all countries, industries and sectors will benefit from these

arrangements. For example, in the US, critics viewed its tariff changes as allowing China to

supply parts to producers of TPP countries, who then are then able to export final goods to the

US. In other words, China would be a beneficiary of the TPP without being part of it, and hence

without providing any new access to Chinese markets (Schott, 2017).

The incorporation of the investor-state dispute settlement (ISDS) into the Trans-Pacific

Partnership also generates criticism. ISDS is a legal process embedded within trade agreements

that protects foreign companies and investors against unfair or arbitrary treatment in the

countries in which they are operating by allowing them access to an international tribunal. It

has seen multinational corporations (MNCs) and foreign investors suing governments, with

some receiving substantial amounts in compensation. In turn, within some countries, it has led

to claims that foreign companies and investors are being privileged at the expense of domestic

business (Miller and Hicks, 2015).

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For trade unions, the trade liberalisation that underpins the TPP generates unnecessary

competition between national workforces that can lead to lower wages and job losses. Indeed,

in the US, labour groups have expressed concern that the TPP will see more US jobs moving to

less economically developed countries (LEDCs) offering lower wages. In addition, it is claimed

that MNCs exploited the secrecy surrounding the TPP negotiations to insert policies favourable

to their interests, especially in relation to wages and labour standards, constraining health and

safety regulation, for example. Advocates of the TPP respond that the agreement contains

measures to improve labour practices and union rights, particularly in countries in south-east

Asia with a poor track record in this area.

The impact of US withdrawal from the Trans-Pacific Partnership

In theory, the withdrawal of the US from the TPP means that the trade pact cannot come into

force. This is because under the terms of the original agreement, the trade deal can only be

implemented when at least six of its 12 original members ratify the agreement and, more

significantly, those six countries constitute 85 per cent of the combined GDP of all 12 countries.

In other words, given the size of the US economy, the remaining signatories will not be able

collectively to meet the 85 per cent stipulation.

Trump’s decision to withdraw the US from the TPP has also generated concern among some

countries in the Asia-Pacific. In particular, questions have been raised about the future

diplomatic and political support they can expect from Washington, as well as the nature of their

respective economic relationships with the USA going forward.

In contrast, from China’s perspective, US withdrawal from the TPP is beneficial in a number of

respects. Firstly, it undermines a powerful regional trade pact from which it was excluded.

Secondly, the move by Trump’s administration will potentially reduce US economic involvement

in the Asia-Pacific, allowing China to continue to develop its own economic ties and influence in

the region. In this regard, China has pursued two trade pacts in the recent period: the APEC-

wide Free Trade Area of the Asia-Pacific and the Regional Comprehensive Economic Partnership

(RCEP). The latter trade pact, for example, involves sixteen countries but does not include the

United States. Thirdly, with the USA appearing at this juncture to be less outward-looking, it

will reinforce China’s repositioning of itself as the champion of globalisation, evident in Chinese-

sponsored schemes like the Belt and Road initiative, which has been called the most ambitious

development plan in history.

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However, a caveat needs to be attached to this analysis of China’s perspective on US withdrawal

from the TPP. This is because some policymakers in Beijing are concerned that if the US turns

to economic nationalism it will hold back globalisation, a phenomenon from which China has

greatly benefited in the recent period.

The Trans-Pacific Partnership: future prospects

Following Trump’s decision to pull the USA out of the TPP, Australia, Japan and New Zealand

have been at the forefront of the attempt to maintain the trade pact. Furthermore, at talks held

in Hanoi in May 2017, the remaining members of the pact – the so-called TPP 11 – expressed a

desire to keep the deal alive. They intend to keep the trade pact open so that the US can rejoin

in the future should its domestic political situation change. It is also the view of some TPP11

governments that even without US involvement, such a trade pact still constitutes a way of

resisting China’s growing regional influence. Moreover, while the lack of US participation

diminishes the economic significance of the TPP, reopening trade negotiations will potentially

allow the addition of new participants from both within and outside of the Asia-Pacific region

(Schott, 2017).

However, at this juncture the future of the TPP remains uncertain. From the perspective of

advocates of the TPP, there are a number of developments and trends that are running counter

to the successful implementation of the trade pact. Firstly, even countries that are leading

advocates of the TPP, such as Australia and Japan, are exploring alternative trade options,

including notably with China. Indeed, in November 2016, the Australian government indicated

that in future it would be willing to support Beijing-led trade deals. China is Australia’s largest

trading partner, and a trade agreement between the two countries already exists, namely the

China-Australia Free Trade Agreement (ChAFTA), which came into force on 20 December, 2015.

Secondly, the US is continuing to develop its own trade arrangements with China. In May 2017,

a 10-part trade agreement between China and the USA was announced. Under the agreement,

China will allow imports of US beef; in return, the US will permit the import of cooked poultry

from China. Other aspects of the agreement include Beijing authorizing foreign financial

services companies to provide credit-rating services in China (something that US companies

have been pushing for), while Washington committed to acknowledging the importance of the

Belt and Road initiative. A deepening economic alliance between the world’s two superpowers

challenges the economic significance of the TPP in the Asia-Pacific, but also makes it even less

likely that the US – at least under the Trump administration – will return to the fold.

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Thirdly, in evaluating the prospects for the TPP, the wider global context needs be taken into

account. In this regard, some national governments are increasingly prioritising the pursuit of

national self-interest and articulating protectionist sentiments, which increases the potential for

trade disputes. This new global policy environment may encourage more and more states to

avoid complex multilateral trade deals like the TPP and to pursue bilateral arrangements

instead. Such a shift is of particular concern to poorer states as bilateralism traditionally favours

more economically developed countries (MEDCs) with their greater productive capacity and

economies of scale. In this vein, it is notable that when Trump ordered US withdrawal from the

TPP, he raised the possibility of future trade deals with individual member states.

Finally, in addition to the aforementioned economic and geopolitical considerations, another

major obstacle facing the TPP is that it lacks broad political and popular support. Indeed, as we

have seen, this particular trade pact has generated considerable opposition. Moreover, with

many states confronting rising populism, in which global trade deals are attacked by both the

political Left and Right, the process of actually ratifying the TPP is likely to be difficult.

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