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Trans-Pacific Partnership (TPP)

By Ichiro Suzuki The United Kingdom has expressed an interest in joining the Trans-Pacific Partnership (TPP), a comprehensive trade agreement among Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Being officially outside of the European Union, the U.K. is looking for a membership in a trade pact. The TPP began as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) signed by Brunei, Chile, New Zealand and Singapore in 2005. Then, it took a step to broaden its member countries to eight others including the United States. President Barack Obama launched a vision of a trade pact among countries that encircle the Pacific from the Americas, East Asia and Oceania. It was meant to contain China with high standards of trade practices that embrace 99.9 % elimination of tariffs, competition policy, government and public sector procurement, intellectual property protection, etc. The standards were to be set so high that China wouldn’t think of being a part of the pact. Some in the media dubbed the TPP ‘anybody but China (ABC)’. Secretary of State Hilary Clinton led an early stage of TPP expansion talks. After marathon negotiations, an agreement was reached in November 2015 and was signed three months later. During her 2016 bid for the President of the United States, Ms. Clinton called the TPP gold standard. However, she was forced to take back that remark amid an intensified battle for Democratic nomination against Senator Bernie Sanders who ha protectionist instincts. The man who won the 2016 election was openly a protectionist. Upon winning the election, Mr. Donald Trump had declared that he would pull the U.S. out of the TPP on his day 1 in the White House, and he did it.

Without the United States, the TPP still pressed on. Eleven countries went through a new round of negotiations and then reached an agreement at the end of 2018. The TPP11 hopes that the U.S. would come back to it sometime in the future. In the meantime, China went ahead with its own trade agreement in Asia. The Regional Comprehensive Economic Partnership (RCEP) was reached an agreement near the end of 2020. The RCEP negotiations have been going on since 2012 among ten ASEAN (The Association of South-East Asian Nations) that include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, and their five FTA partners that are Australia, India, China, Japan, New Zealand, and South Korea. While Ms. Hilary Clinton called the TPP gold standard, the RCEP may be considered less than gold. It is expected to eliminate 91.5% of the tariffs on imports between its signatories within 20 years coming into force, and establish common rules on e-commerce, trade and intellectual property. However, the RCEP does not enforce as stringent standards on labor and environment as the TPP does. It spells out softly on state-owned enterprises, government procurement or intellectual property protection. The RCEP is more about efficient supply chain management within Asia through lower tariffs and elimination of paper works. The Wall Street Journal reported that the tariff-related liberalizations from the agreement is modest, calling it a ‘paper tiger’.

Worse, India has chosen not to be a part of the RCEP, citing the trade agreement’s negative effect on its national industries, potential flood of cheap Chinese imports, to be specific. Prime minister Narrenda Modi as a Trump ally, is not a free trader, either. A comprehensive study shows the RCEP would add just 0.08% to China’s 2030 GDP without India’s participation. India has a strong tradition of protectionism. Until India made a policy shift of opening up the economy to the rest of the world, the country shut itself with a policy of import substitution, which was a popular policy choice in the developed world in the 1960s and the 1970s. Import substitution made India self-sufficient, making it capable of producing a variety of industrial goods. However, the country’s industries were found to be utterly uncompetitive in the global market when the age of globalization began in the 1990s. Shielding industries through protectionism has its price.

In the mean time, President Xi Jinping has expressed an interest in joining the TPP in November 2020 during an online APEC (The Asia-Pacific Economic Cooperation) meeting. Seriousness of China’s interest is not certain. The TPP is an FTA that has already reached an agreement whose terms and conditions are not negotiable. A new applicant to the TPP has to be admitted by the existing member countries by agreeing to observe the conditions that are already in place. Is China really prepared to stop giving favorable treatment to SOEs, opening up government procurement to foreign competitors, or enforcing stringent labor standards and intellectual property protection?

It has been hoped that the United States would return to the TPP once Mr. Trump leaves the White House. Shortly after inauguration, however, President Joe Biden has signed an executive order that mandates to ‘buy American’ on public sector procurement. As it turned out, it was too much for the new president to advocate free trade in the current political climate and the state of the economy. Returning to the Paris Agreement on climate change was all his political capital allowed him to do.

About the author: Mr. Suzuki is a retired banking executive based in Tokyo, Japan.


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