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HSBC: What's next after TPP

Released at: 15:00, 06/02/2017

HSBC: What's next after TPP

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Can the TPP be revived even without US involvement?

by Duy Anh

While it can’t be ruled out that the Trans-Pacific Partnership (TPP) members might eventually revive the agreement in an alternative configuration, it doesn’t seem probable at this time. One is more likely to see the US shift to a more deal-based approach that’s supported by vectors of power (e.g., asymmetry in economic might in bilateral negotiations) rather than appeals to values, HSBC wrote in its latest report.

The situation

On January 23 2017, President Trump issued a memorandum with instructions for the United States Trade Representative “to withdraw the United States as a signatory to the TPP, to permanently withdraw the United States from TPP negotiations, and to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.

The TPP was negotiated as an ambitious, high-standard, regional free trade agreement among 12 partners representing a diverse mix of economies – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. It was structured to be open to new members, potentially including China. Although the US withdrawal was expected, it is still notable that the US had the lead in shaping the accord. Indeed, the TPP reflects key US priorities in liberalizing trade in the region while addressing issues such as labor standards, the environment, and regulatory transparency.

A study by the Peterson Institute for International Economics (Petri and Plummer, 2016) anticipated significant economic gains from the TPP, boosting GDP among its partners by some $465 billion or more by 2030. The TPP is unlikely to survive in its current form, but the substance could accelerate development of other bilateral or regional agreements as a second-best option. Accompanied by appropriate complementary policies, there are still gains to be had from further trade liberalization.

Regional trade agreements like the Trans-Pacific Partnership offer a good compromise between multilateral and bilateral accords. In cases where likeminded countries can come together to standardize and deeply liberalize their trade regimes, such accords can deliver significant results. The best regional accords permit producers to source inputs from the most competitive suppliers and sell their finished products across the region.

Some of the partnership’s potential benefits include economies of scale in production, new opportunities, and consolidation of markets for production that might not be feasible at the national level. There would also be improvements in competitiveness through access to inputs that are of higher quality or lower cost. The European Union’s single market and the North American Free Trade Agreement are two significant examples of regional accords that have delivered such results.

Reviving a zombie?

The TPP would also have addressed many concerns expressed by critics of globalization. It would have included environmental provisions to bolster the sustainability of trade (e.g., by requiring ratification of CITES, the international treaty regulating trade in endangered species). It would have required protection of internationally recognized labor standards and include an enforceable action agenda for countries that have known shortfalls. The agreement also would have included provisions for the free flow of information. It defined more clearly the fair use of copyright protected materials, ensuring access for research and educational purposes. Moreover, at various points, it specified ongoing requirements for transparency and consultative mechanisms for stakeholders.

The US and others could still draw on elements of the TPP to advance work on other trade deals, but it appears that the US withdrawal is a final blow for the TPP as now configured. In theory, the other 11 partners could proceed on their own once they duly amend the ratification requirements for the agreement (which anticipated US participation), but some partners have strong reservations to such an approach. After an initial suggestion from Australia to proceed without the United States, Japan made clear its initial opposition to the idea, calling such a limited TPP deal “meaningless.”

One reason that such a scenario seems unlikely is that the TPP members were willing to make substantial commitments to the TPP on the assumption that it would afford them access to a regional market of tremendous scale. Without the United States, the TPP regional market is roughly 60 per cent smaller and under such changed conditions it is likely that the remaining TPP countries would find it difficult to justify some of their negotiating concessions.

At the same time, it may be that some of the innovative elements of TPP could be used in new or ongoing regional or bilateral negotiations. For example, an agreement such as the Regional Comprehensive Economic Partnership (RCEP) that is now under negotiation in Asia might draw on TPP provisions to improve intellectual property protection (e.g. through use of a TPP-style menu approach for enhanced protection of trade secrets and business confidential information). Negotiators might also consider the TPP provisions for improved regulatory coherence, investor state dispute resolution, flexibility in the handling of intellectual property rights (e.g., fair use provisions), and leveling upwards of protection for labor standards or the environment, among other options.

Still, it is possible for trade liberalization to advance under the new US strategic approach anchored in bilateral trade agreements, according to HSBC. Accompanied by appropriate complementary policies for business and labor, and avoiding recourse to protectionist measures, such an approach can deliver economic gains. As the economist Mr. Thomas Piketty put it: “Protectionism does not produce wealth, and free trade and economic openness are ultimately in everyone’s interest”.

What’s next for Vietnam?

For Vietnam, even though Prime Minister Nguyen Xuan Phuc has reaffirmed that the country will continue to move forward with or without the deal, the TPP was to bring more than just an economic boost. It was also to act as a stimulus to reform the country’s economic policies, including those relating to State-owned enterprises (SOEs). Close relationships between political and business elites and a highly bureaucratic environment still prevail in Vietnam, hampering entrepreneurship. Reforms anticipated to stem from the TPP would have fostered a more conducive business environment. But the end of the deal would almost certainly see Vietnam’s private sector, especially its small and medium-sized enterprises, continue to struggle against State-run conglomerates with priority access to capital, land and investment information.

Currently, all unions are part of the Vietnam Confederation of Labor, which is older than the ruling communist party. The TPP contains a controversial investor-State dispute settlement mechanism that allows companies to take governments to court if they feel their rights are violated. But the deal has no equivalent enforcement mechanism to make sure member states live up to their commitments on labor or the environment. Furthermore, Oxfam’s Mr. Andrew Wells-Dang notes that Vietnam has signed up for numerous rights and labor agreements in the past but have failed to implement them.

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