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President Trump reopens door to Pacific trade pact

Released at: 14:21, 29/01/2018

President Trump reopens door to Pacific trade pact

At a meeting of CPTTP members in Tokyo on Jan.22-23 (Photo from moit.gov.vn)

US may consider negotiations to join new version of TPP, President Donald Trump said in Davos.

by Quang Huy

US President Donald Trump said on January 26 that his administration was open to joining the new version of the TPP, the predecessor of which he long derided as being unfair to the US.

“We would consider negotiating” with the eleven remaining members of the TPP “either individually or perhaps as a group, if it is in the interests of all,” the President said in a speech to the World Economic Forum in Davos.

Even with conditions and hedges, the statement marks a major change for the President. During the 2016 US election campaign and throughout the first year of his presidency he regularly blasted the TPP and the concept of multilateral trade deals in general.

He said his administration would instead focus on bilateral agreements, which he argued could be better adjusted to US interests. On his first working day in office a year ago, he signed an order withdrawing from the TPP, which was negotiated under the Obama administration.

Mr. Trump’s comments came three days after the remaining TPP countries reached an agreement in Tokyo to refashion and relaunch the trade pact without the US. Renamed the Comprehensive and Progressive Agreement for TPP (CPTPP), the pact includes some of the US’s largest trading partners, such as Japan, Canada, and Mexico, and some of the world’s fastest-growing economies, such as Vietnam and Malaysia.

Mr. Toshimitsu Motegi, the Japanese minister handling the pact, said on January 26 that Japan’s first priority was to get the CPTPP up and running and that Mr. Trump’s comments shouldn’t be allowed to disrupt the careful negotiations that went into launching the new accord.

It isn’t clear how serious the US is about re-entering negotiations, whether it would be willing to do so with all eleven members of the pact or some different coalition, and what demands it might make over joining.

But for a country with the most to lose from the US dropping out of the TPP, Prime Minister Nguyen Xuan Phuc last November unsurprisingly called on the remaining members to leave the door open for a US return.

For Vietnam, the Trump administration’s withdrawal from the TPP removed the most readily apparent benefit: preferential access for garments and textiles to the US market. This would have made Vietnam one of the TPP’s biggest winners. An estimate of its gains from prospective tariff elimination was 6.8 per cent of real GDP, versus 1.1 per cent under the new deal.

Without the US, Vietnam’s exports seem likely to grow less rapidly. Under one estimate, exports to TPP members would have grown 12 per cent by 2035 versus 6.8 per cent under the CPTPP.

Real GDP will still increase but at a far more muted 0.5 per cent by 2035, versus 1.9 per cent. Selling the CPTPP domestically may become more difficult.

Another potential benefit for Vietnam were the TPP’s proposed rules of origin. The rules would have provided preferential treatment for goods with inputs sourced from TPP countries (or within Vietnam). This would have helped bring in high levels of investment from suppliers seeking to take advantage of the new rules. Efforts to limit structural supply chain breaks would help boost Vietnam’s domestic value added.

During 2014-2016, an estimated $5 billion of foreign direct investment (FDI) from China flowed into Vietnam’s garment and textiles sector as suppliers positioned themselves to leverage gains from the TPP. The TPP would also require Vietnam to reduce its support to State-owned enterprises (SOEs) and introduce new public procurement practices. Other changes, including those relating to intellectual property, were slated to be accompanied by US technical assistance for Vietnam.

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