by Kavaljit Singh
December 07, 2016
On Monday, the US president-elect Donald Trump announced that
the US will pull out of the Trans-Pacific Partnership (TPP)
trade pact on his first day in office (January 20).
In a video message outlining his policy
plans for the first 100 days in the Oval Office, Trump stated:
"I am going to issue a notification
of intent to withdraw from TPP, a potential disaster for our
country. Instead, we will negotiate fair, bilateral trade deals
that bring jobs and industry back on to American shores."
administration was trying hard to seek US congressional
ratification this year but it abandoned efforts after the victory of
The TPP faced stiff political opposition
cutting across party lines and ideologies. Both the major
presidential candidates expressed their opposition to TPP and avowed
to reject it once elected.
Trump was very vocal in his opposition
to TPP as well as NAFTA throughout his campaign. Whereas Hillary
Clinton flip-flopped on the TPP pact.
While serving as Secretary of State, she
had praised TPP as setting the "gold standard in trade agreements"
but reversed her position during the presidential campaign due to
tough primary challenge from TPP critic Bernie Sanders.
Japan is the only member-country which voted to ratify the TPP deal
early this month.
As per the rules laid out in the TPP,
the agreement allows a two-year ratification period in which at
least six original member-countries, representing 85 percent of the
combined GDP of the grouping, should approve the text for the
agreement to be implemented.
The US accounts for nearly 60 percent of
the grouping's GDP. With the US announcing its withdrawal, the TPP
agreement simply cannot enter into force even if all the remaining
11 member-countries ratify it.
In simple terms, the TPP, in its present form, is effectively dead.
What is TPP?
Signed in February 2016, the TPP pact involves,
The idea of a Trans-Pacific Partnership
was initiated by four countries:
...way back in 2002.
Initially, the US was not interested in joining the negotiations but
President Obama in November 2009 decided to take part in
Later on, many other countries such as
Malaysia, Japan and Vietnam also joined negotiations. China did not
join the negotiations. Although China officially maintained that it
has an "open-minded attitude" towards TPP but it was not ready to
meet the higher standards (particularly on the operations of
state-owned enterprises) envisaged in the TPP.
The TPP agreement is a 4,500-page document which was prepared after
seven years of negotiations.
It is the world's most ambitious free
trade pact ever signed. It is much more than a typical free trade
agreement which aims for reducing import tariffs in agricultural and
The reason being that the average
applied tariff rates amongst most TPP member-countries are very low
so there is little scope for further reduction.
The TPP represents a new generation of 21st century trade agreements
creating new mechanisms to govern cross-border economic activities
with much higher standards than any existing bilateral, regional and
multilateral trade agreements.
As analysts have pointed out that the
TPP is a kind of "economic constitution" governing cross-border
trade and investment with greater emphasis on the removal of
The TPP is touted as the "gold standard" of trade and investment
agreements because it contains stringent rules on a wide range of
issues such as,
One of the most contentious issues is
the incorporation of Investor-State Dispute Settlement mechanism
which would allow foreign investors from TPP member-states to bypass
domestic courts of host states and sue a host state through
international arbitration proceedings.
With the US and Japan in driving seat, the negotiating agenda of TPP
was drastically reshaped to suit their core interests while other
negotiating countries (particularly the developing ones) did the
heavy lifting to meet the onerous demands put forward by these two
Concerned over the potential negative effects of TPP on jobs,
economy and regulatory space, civil society groups and labor unions
from both sides of the Pacific launched popular campaigns focused on
the secret nature of the negotiations and sought
greater public participation during the negotiation process.
TPP - Obama's
Pivot to Asia-Pacific
For the Obama administration, the TPP was not purely a trade and
It foresaw huge strategic value in
joining this pact. The TPP was a key component of Obama's policy of
"rebalance" toward Asia which rested on three pillars: economic,
political and security.
By 2011, the TPP had become the linchpin
of the administration's "pivot to Asia" strategy to contain the
China's economic and geopolitical influence in the Asia-Pacific
President Obama repeatedly emphasized the importance of maintaining
US leadership in crafting global trade rules and how TPP would
strengthen US's power to set rules of global trade.
In an opinion piece on TPP
in The Washington Post, Obama
"America should write the rules.
America should call the shots. Other
countries should play by the rules that America and our partners
set, and not the other way around. That's what the TPP gives us
the power to do…
The world has changed. The rules are
changing with it.
The United States, not countries
like China, should write them. Let's seize this opportunity,
pass the Trans-Pacific Partnership and make sure America isn't
holding the bag, but holding the pen."
Some trade experts argue that it may be too soon to bury the TPP.
Of course, the TPP agreement could
possibly survive provided the remaining 11 signatory countries
drastically modify the rules governing its entry of force. The
so-called TPP (minus one) pact is theoretically possible. It is also
conceivable that countries like Indonesia and Thailand may join TPP
in future thereby expanding its membership.
However, one is not sure whether all remaining member-countries of
TPP would agree to modify rules governing its entry of force since
only Japan has voted to ratify it.
With the lead country pulling out of the
pact before ratification process, the remaining member-countries
(particularly the traditional allies of US) may lack motivation in
ratifying and implementing the pact.
For instance, Vietnam has already
decided to shelve the ratification of TPP.
In a statement issued on November 17,
Vietnamese Prime Minister Nguyen Xuan Phuc said,
"Vietnam has prepared adequate
conditions to join the 12-nation TPP.
However, as the United States has
announced to stop the deal, so Vietnam has not had enough basis
to submit TPP participation to the National Assembly."
Moreover, many member-countries would
not be keen to pursue a TPP (minus one) pact due to lack of
exclusive access to US markets for which they accepted onerous
conditions to join it.
RCEP: The Next
In this fast emerging scenario, many TPP members (in particular
Japan, Australia and New Zealand) who are also members of the
proposed Regional Comprehensive Economic Partnership (RCEP)
will now shift their attention to this pact.
These countries may further push for TPP-like
provisions at RCEP to maximize the best possible outcome following
the imminent demise of TPP trade deal.
It is hard to deny that for many countries in Asia-Pacific region
with a small domestic market, the export economy remains very
important. Such countries would prefer a deal than no deal when it
comes to joining a regional economic bloc.
Of late, TPP member-countries like
Peru and Chile have also shown interest in joining the
RCEP is a proposed mega regional free trade agreement between
sixteen countries, 10 ASEAN countries and their six FTA partners,
If accomplished, RCEP would pave the way
to the creation of the largest free trade bloc in the world,
covering 45 percent of the world's population with a combined GDP of
US$22 trillion and accounting for 40 percent of global trade.
The legally binding RCEP covers a wide range of issues including,
The negotiations were officially
launched in November 2012 at the
ASEAN Summit in Cambodia and the 16th
round of negotiations will be held in Indonesia during December
China-led or ASEAN-centric?
Many commentators have described RCEP as a China-led trade pact.
There is no denying that China is an
export powerhouse in manufactured goods and has enormous economic
clout in this region but it would be erroneous to view RCEP as a
China-led trade pact for three important reasons.
Firstly, RCEP is ASEAN-centered
FTA as it seeks to harmonize and build on existing FTAs
between ASEAN and its six trading partners.
Secondly, having signed an FTA
with ASEAN is the precondition for joining the RCEP
negotiations. In other words, the US or any other country
can also join RCEP negotiations provided they first conclude
an FTA with ASEAN.
Thirdly, Japan has successfully
pushed strong rules in the areas of investment and
intellectual property rights into the RCEP negotiations
despite opposition from India and other members.
The leaked draft texts of RCEP reveal
that TPP disciplines in areas such as,
...are currently under discussion at
RCEP at the insistence of Japan and South Korea.
India's FTA Strategy
In many important ways, the imminent demise of TPP has eased
pressure on India which is not supportive of an ambitious agenda on
IPRs, investment and zero tariffs under the RCEP framework due to
potential negative impacts on local producers and businesses.
For India and many other developing countries, the pressure to sign
bilateral and regional FTAs in order to counter other mega regional
trade pacts (such as TPP) has subsided for the time being.
Also the demise of TPP deal has weakened
the negotiating position of countries like Japan and Australia at
At the forthcoming round of negotiations next month, India should
forcefully argue that the "gold standard" TPP framework has lost its
appeal and popular support and therefore a modest agenda based on
diverse circumstances of the negotiating countries should only be
pursued at RCEP negotiations.
In the present context, when the world trade is slowing and
protectionist tendencies are rising across the developed world,
India should rethink its FTA strategy in the short- and medium-term.
At the same time, it is equally important for lead countries like
Japan, South Korea, China and Australia to understand that only a
modest agenda would be politically feasible under RCEP as the
public opinion worldwide is turning against FTAs.
Any attempts to pursue an ambitious
agenda at RCEP may provoke a strong political backlash thereby
putting the future of entire agreement in jeopardy.
NAFTA, TTIP and FTAAP?
What will be the fate of America's other regional FTAs?
It remains to be seen whether Trump will
renegotiate or altogether withdraw
from NAFTA once he takes office.
Since 2013, the US is negotiating Transatlantic Trade and
Investment Partnership (TTIP)
- another ambitious free trade agreement with the European Union.
The future of TTIP has become highly uncertain in the wake
of BREXIT vote and Trump's election
To a large extent, the prospects of Free Trade Agreement of the
would depend on how the negotiations proceed on the RCEP and other
FTAs in the region.
The idea of FTAAP was proposed in 2006
by APEC as a long-term, comprehensive FTA covering the entire
Asia-Pacific region but no concrete steps were taken up by
APEC members to turn it into a
At the APEC summit held in Beijing in 2014, China revived the idea
of FTAAP by proposing a feasibility study but the US and other
members did not support it.
Given Trump's stated preference to
negotiate bilateral trade deals, attempts to launch
negotiations on giant regional FTAs like FTAAP are unlikely to
gather support during his presidency.