The United States’ exit from the Trans-Pacific Partnership (TPP) supposedly killed the trade deal. Not quite.
The epic trade agreement is far from dead, our analysis shows. And Canada stands to come out as a big winner in a reborn TPP. The United States, meanwhile, could wind up one of the biggest losers. If the remaining 11 TPP countries strike a new deal without the U.S., Canadian companies will have preferential access to the giant trade bloc. American firms will not. It’s a powerful incentive for business relocation to Canada.
The U.S. was always considered one of the biggest “prizes” in the Pacific rim deal. The sudden, unimagined prospect of a protectionist President Donald Trump changes everything. Today, countries are scrambling to reconfigure trade policy. Trump across the negotiating table makes bilateral talks unappealing. Meanwhile, the remaining TPP countries still have much to gain through a “TPP 11” in new opportunities to each other’s markets.
What makes or breaks a new TPP? Where do bilateral talks with the U.S factor in? And, what about powerhouse China? These are the stakes as countries gather in Chile on March 14-15 to look at the future of the TPP.
In the lead up to the March summit, Carlo Dade, Deborah Elms and Christopher Rastrick take a close look at each country’s points of interest on a new TPP without the U.S. The analysis then looks at the country’s likelihood in moving ahead on TPP11, and assigns a power ranking – a number on a scale between 10 (Forget the U.S. – let’s look out for our own interests) and 1 (Put our tail between our legs and go home) – on the interests of the country in forging ahead on a new deal.
This is an open source project (with some obvious humour) and we welcome (really!) corrections, additions and counterpoints to our power ranking. Help us build this project. You can, leave a comment on the post, email us here, or comment on Twitter: @CanadaWestFdn @DadeCWF #TPP11, and we will add comments to the discussion.*
Introduction
To skip to a specific country, select it below:
Canada
Mexico
Peru and Chile
Australia and New Zealand
Japan
Singapore and Malaysia
Vietnam
Brunei
United States
If the TPP is indeed dead after President Donald Trump’s executive order for the U.S. to abandon the ratification process and walk away, then why are the remaining signatories – plus China and South Korea – travelling to Viña del Mar, Chile on March 14-15?
Our analysis shows the massive Pacific deal still has some life in it, even without the “prize” of the United States’ involvement.
The mid-March summit in Chile is a special meeting of the Pacific Alliance trade bloc to debate the future of the TPP without the U.S.
As it is currently written, the Trans-Pacific Partnership is, technically, dead. The formula for implementation of the TPP found in Chapter 30, Article 30.5, sub-section 2, reads:
“In the event that not all original signatories have notified the Depositary in writing of the completion of their applicable legal procedures within a period of two years of the date of signature of this Agreement, it shall enter into force 60 days after the expiry of this period if at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013 have notified the Depositary in writing of the completion of their applicable legal procedures within this period.”[1]
This formula is problematic given Trump’s rejection of TPP; if the U.S. does not ratify the agreement, the TPP as it is written cannot enter into force because the United States and Japan together produce the greatest share of the 85% of GDP, from 2013. Note, however, that the TPP was always designed to have fewer than all 12 members join, as long as at least six were present. Any country-specific commitments for non-active members remain dormant.
So while the TPP is technically dead, there are options to get around the U.S. withdrawal. The most straightforward would be to amend the language of the 85% GDP rule in chapter 30. This could be done either permanently or on a provisional basis for a set period of time (say 5 years). A provisional entry into force change would allow members the opportunity to move ahead with the agreement now, and decide whether more permanent adjustments need to be made later. Another option would be to adopt a separate agreement to implement the existing TPP terms on a provisional basis with U.S. specific provisions put into abeyance pending possible future action by the United States.[2]
Given that TPP signatories are at different points in their ratification processes, going ahead on the deal with 11 members – TPP11 – is sure to be complicated, especially when it comes to the legal parameters of each country’s ratification processes. Any changes to the agreement, even simply changing a few words in chapter 30, may open a Pandora’s box – allowing every special interest in every TPP signatory country to see it as an opportunity to push for “just one more small change.” If this happens, then the pact would unravel, or, it could force a drawn out, multi-year renegotiation.
All this to say that while moving ahead with a TPP11 is possible and even feasible, it likely will not be easy. But it will be worth it.
Benefits of TPP, minus 1 (the U.S.)
Even with the Americans out, there are still benefits to going ahead with the TPP. This may seem surprising, since many of the members argued that the U.S. market was the real “prize” in the agreement. But a careful review of the texts and commitments shows that the United States did not, in the end, offer up very much new access or agree to alter many existing regulations or rules for the TPP. In fact, other than some new market access for a limited number of agricultural products, textiles and footwear and some auto products, the United States made relatively modest concessions in the TPP.
At least for the moment, the American market remains quite open, particularly for services and investment. Tariffs have been low for most products. The United States protects intellectual property rights, facilitates trade at the borders, and most U.S. legislation matches TPP rules in areas such as product standards as enshrined in the TPP. Hence, U.S. withdrawal does not reduce access to the American market for TPP countries by very much.
Meanwhile, TPP members would still get significant benefits through the agreement in new opportunities to each other’s markets – advantages that will no longer be available to American companies.
Beyond the specific economic value of the agreement, TPP countries gathering in Chile have to consider the radically changed global trade environment. Moving ahead with the TPP absent the United States would have been inconceivable throughout the long negotiation process that started in 2010. Even a year ago, such an idea would have been met with bewilderment if not derision. But the Trump presidency has, to put it mildly, dramatically changed the political reality and strategic calculations around the Pacific.
@CanadaWestFdn Gr8 analysis & comment on non-US #TPP prospects. Agree having a #TPP11 deal wld be help defend vs divisive bilateral efforts https://t.co/pYTIyqGUZv
— Wallace Oyama (@wallylms) March 10, 2017
TPP countries had always been preoccupied with anchoring the U.S. more firmly in the economic sphere in the Pacific. No one conceived of it simply disengaging entirely. But this is the new situation under President Trump.
The U.S. has moved to a hyper-aggressive nationalist trade agenda that replaces pursuit of mutual benefits with, simply, a U.S.-First benefit achieved by using its dominant economic leverage in one-on-one negotiations. The U.S. calculus is simple. If favourable agreements can be reached with a few key Asian markets, then other countries will be forced to come to terms, especially if their competitors gain relative advantage through having an agreement (even a bad one) with the U.S.
This threat is compounded by the real possibility that the Trump administration will raise tariffs and other barriers to trade in a targeted manner against specific countries. These changes would turn the U.S. from one of the world’s more open markets to one of the more closed for countries targeted by the administration.
Countries that have existing trade agreements with the U.S., such as NAFTA but also the Pacific Alliance, also face a real and potential threat of renegotiation.
These scenarios were not only unthought-of during the TPP negotiations – they were unimaginable.
What’s at stake in Viña del Mar
The meeting in Chile, therefore, is in the context of a massive scramble by countries to recalibrate trade policy in the Trump era. The exact questions differ from country to country and trade bloc to trade bloc.
Some countries have agreements with the U.S., others are part of the ASEAN-led Regional Comprehensive Economic Partnership (RCEP) that includes China. Some countries are now more worried about dealing with the U.S. Others are more concerned about dealing with China. Some countries are more committed to open trade and globalization in face of, or in response to, the Trump administration. Others appear to be recalculating and withdrawing. China appears to be poised to step into the vacuum created by the U.S. withdrawal from the multilateral and open trade agenda. But will it step through the door of that opening or continue to comment from the doorway?
All of this comes to a head in Viña del Mar, Chile next week.
Much of the observations of this meeting and indeed the potential TPP minus the U.S. has not factored all, or even most, of the complex web of interests into analysis. What follows is an attempt to provide a structure to analysis of the Viña del Mar meeting and what comes next. This is an open source project and we invite corrections, additions and counterpoints.
What we have done is lay out the points of calculation of interest by each TPP signatory and then quantify their interest in moving ahead with an agreement without the U.S.
Canada 9/10
Canada became an observer party in the TPP negotiations in 2010, and joined discussions in 2012. Then-International Trade Minister Chrystia Freeland signed the agreement in early 2016.
Canada was among the half of TPP participants whose goal was to gain better access to Asian markets. Defensively, Canada also had to guard against other countries getting access to the U.S. market on better terms than what exist under NAFTA. Canada currently has only one trade agreement with an Asian economy (South Korea). Not being a full member of the Pacific Alliance trade bloc, Canada cannot take advantage of agreements with Asian economies as can countries such as Mexico, which can use its membership in the Pacific Alliance to leverage Chile’s nine agreements in Asia.
Without the TPP, Canada does better defensively in not having to worry about competitors gaining access to the U.S. market. But it does worse offensively in having the poorest access to Asian markets of any country on the Americas’ Pacific coast. This makes Canadian attempts to diversify away from its dependence on the U.S. market more difficult.
Canada also appears to stand to gain the most from the TPP going ahead without the U.S. as its companies, but not American firms across the border, will have preferential access to the new bloc. This could create a powerful incentive for firm relocation. Mexico will receive a similar but potentially smaller boost as it lacks Canada’s English language operating environment for service firms.
All of this could be viewed offensively, in both senses of the word, by the Trump administration. Canada has recourse on two fronts. First, Canada is not acting alone. If the U.S. is going to take retaliatory measures, Canada may be at the top of the list – but it’s a long list. Second, Canada is not taking new measures specifically targeted at the U.S. It is simply continuing existing policy. If the parameters around those policies have changed, it is not Canada’s doing – it is solely the Americans.
Finally, Canada is not a member of the ongoing RCEP negotiations in Asia and has no path to entry to that agreement. Without a path to enter the RCEP, Canada becomes completely shut out of regional negotiations in Asia.
On the whole, Canada stands to gain much from a TPP11 agreement and has little downside in pushing for going ahead without the U.S. Yet, there appears to still be some hesitation and perhaps reluctance on the part of the government. As a result, we argue that Canada’s odds at the mid-March meeting are 9/10.
Pros
• Access to Asia
• Catch up with Australian trade developments
• Steal business from US
• Hedge against NAFTA “tweaks”
• Free up trade negotiation resources
• Not part of RCEP
Cons
• U.S. ire
Mexico 9/10
Mexico stands to make significant gains along with those for Canada from a TPP11 agreement, especially given the American ill-treatment of Mexico under U.S. President Trump. Further, Mexico has a domestic political motivation to join that is missing in Canada.
While President Trump suggested that changes to NAFTA affecting Canada would be “tweaks,” he has been steadfast in his desire to fundamentally transform the terms of U.S.-Mexico trade through the NAFTA renegotiations. Given the importance of the U.S. market for Mexican exports (to the tune of some $300 billion in goods), Mexico must diversity on trade, and soon.
Mexico has four principal reasons to enthusiastically pursue TPP11. First, engaging in TPP11 would offer Mexico some small but important leverage against what, by most predictions, is going to be a period of trade overhaul with the U.S. By redirecting its trade ambitions to the Pacific Rim, Mexico will be presented with an opportunity to diversify its trade relations, and wean its dependence on the U.S. as its dominant export market. This is not to say that the U.S. will cease to become the major export market for Mexico overnight, but rather that this dependence can be reduced.
A second pull factor for Mexico in a TPP11 is the opportunity to symbolically push back against the U.S. With the election of President Trump, Mexico-U.S. relations have soured. By pursuing new trade (and possibly diplomatic) opportunities, Mexico will be able to be part of one of the most promising and mutually-beneficial trade agreements for all parties involved. This would also enhance Mexico’s bargaining position in negotiations on a reconfigured NAFTA. Back home, it’s a good move – a demonstration of concrete action by the Mexican government to respond to Trump’s aggression.
The final incentive for Mexico’s engagement with TPP11 comes in that it is not involved in the RCEP negotiations. If the TPP11 negotiations do not amount to an agreement, Mexico faces the possibility of being left behind in major regional trade opportunities. Despite its involvement in the PA and NAFTA, opportunities for Mexico’s trade expansion are increasingly relocating to the Pacific Rim. Failing to be a part of TPP11 will challenge Mexico’s trade competitiveness compared to members of RCEP and ASEAN.
One potential downside to pursuing a TPP agreement is that Mexico already has a trade agreement with Japan, the one market that is a partial substitute for the U.S. Other TPP markets are competitors for low-cost labour and the manufactured goods that Mexico exports to the U.S. But this challenge has already been factored into Mexican calculations on the TPP and may not outweigh the need for symbolic, public declaration of trade independence from the U.S.
Overall, Mexico stands to gain from a TPP11, especially in light of the current political reality Mexico faces in its relations with the U.S. Accordingly, we believe that Mexico’s score on a TPP11 is 9/10.
Pros
• Leverage with U.S.
• Symbolically (and materially) shun the U.S.
• Not part of RCEP
Cons
• Competition with lower cost labour
Peru 10/10 and Chile 10/10
Peru and Chile would extract many of the same benefits as Mexico, and we expect it would therefore be supportive of a TPP11 agreement. This is not surprising, given that Chile is serving as the host country for the upcoming discussions and was one of the founders of the TPSEP (also known as the P3 and P4 groups) – the original precursor to the TPP that included Chile, New Zealand, Singapore and Brunei – in 2006. Peru and Chile are also not parties to the RCEP negotiations and, like Mexico and Canada, do not have a path to join.
Peru and Chile, along with Mexico, are founders of the Pacific Alliance (PA) trade integration group, whose principal aim is to advance trade with Asia. A TPP without the U.S. may be more beneficial to these countries as they already have trade agreements with the U.S. so its absence from the TPP would not be a detriment. The Pacific Alliance and the Association of Southeast Asian Nations (ASEAN) have reportedly discussed exploring talks for a trade pact and Indonesia has called for ASEAN to study the idea. But given the burden of existing negotiations that some members of the bloc have with the EU and the RCEP, it is difficult to see ASEAN-Pacific Alliance talks in the near term. To advance its agenda for increasing trade ties with Asia, the TPP11 is the best and perhaps the only short-term opportunity for the Pacific Alliance members.
Therefore, we believe that Peru and Chile score a 10/10 on their preference for a TPP11.
Pros
• Leverage against U.S.
• Not part of RCEP
• Original negotiators
Cons
• Low cost labour competition
Australia 9/10 and New Zealand 10/10
At first glance, it might seem as though Australia and New Zealand would not be particularly enthusiastic about the possibility of a TPP11: they are engaged with RCEP negotiations, and have trade agreements with both ASEAN and observer status with the PA. With or without the TPP11, Australia and New Zealand have fomented a strong trade relationship with many Pacific partners, bilaterally and multilaterally.
However, both countries (and Australia in particular) have been the strongest advocates of a TPP11, and are optimistic about the Chile meeting.
Why? In a word, China.
With the withdrawal of the U.S. from the TPP, there is wide speculation that this will bolster China’s position as a regional political and economic hegemon. Often, international relations theory is best kept to textbooks and lecture halls, but in this instance we are seeing a growing international concern that, with the Americans’ ostensible “exit” from Asia, China will be shooting fish in a barrel, trade-wise. China has made no secret its desire to engage more broadly with Eurasia – such as through the “One Belt, One Road” framework – and the U.S. withdrawal provides such an opportunity for China to fill the void.
Many of the TPP signatories saw the inclusion of the U.S. as an important counterweight against a potentially hegemonic Beijing. To be sure, most of these countries have active trade relationships with China (if not formalized), and integrating in a bloc with the U.S. was seen as a way to have strong trade relationships with both Washington and Beijing.
With the U.S. out of the agreement, however, such protections are not in place (even with an active Japanese membership). The concern, now, is that these countries will lose out on preferable trade terms with both China and the U.S.
Yet, for the purposes of trade negotiations, a bloc of 11 is better than a delegation of one. Even without the U.S. on board, the clout of a TPP11 could provide some backbone with which to negotiate more preferred terms with Washington and Beijing than might have be reached bilaterally.
So, Australia and New Zealand are in an interesting position: they are actively involved in burgeoning multilateral trade platforms, yet there is the concern that China’s bilateral bargaining position will be too strong. Without the U.S. counterweight, the risk is that the RCEP will effectively become a dictate by China.
On the balance of the above concerns, Australia and New Zealand are still in a good position to benefit from a TPP11. As such, we assign a 9/10 to Australia. Because New Zealand was an original signatory (and with the concomitant sunk cost), we believe their incentive is even stronger, at a full 10/10.
Pros
• This Chile meeting is, to a large extent, their idea
• Counter-weight to China
Cons
• Involved in RCEP
• Strong trade relations with Japan
• Strong trade relations with ASEAN
• Strong trade relations with PA
Japan 5/10
Japan was one of the “prizes” of the original TPP. Its involvement in a TPP11 arrangement would continue to bring many of the negotiating parties to the table. If Japan were to withdraw, it is unlikely that the meeting in Chile would be taking place. So, what is luring Japan to the table, especially given Prime Minister Abe’s recent (and, by most accounts, positive) meeting with President Trump?
Japan can take the lead in the TPP and continue to promote open trade in Asia. It could pick up the mantle of setting the rules of the game for trade in the region. The economic benefits for Japan from a TPP11 are important, as it would receive new access to partners and limit the extent to which other members receive reciprocal access in sensitive sectors, particularly in the near term.
Being part of a TPP11 without the U.S. could actually strengthen the negotiating position of Japan on a bilateral deal with the Americans. By enshrining its role in more regional and multilateral trade venues, Japan is sending a clear signal that its economic prosperity does not rest solely on the American market.
However, this incentive might not be compelling enough for Japan.
Japan’s most pressing priority is ensuring stable relations with the U.S. on trade, military protection and security. Moving ahead with the TPP11 could put this in jeopardy. This was made clear when Prime Minister Abe became the first foreign head of state to meet with Trump after his electoral victory and was the second official visitor to the White House in February 2017.
Japan also has substantial engagement with other regional blocs. Japan is part of the RCEP negotiations, already has strong trade relations with Australia and New Zealand (two of the “runner-up” prizes, aside from the U.S. and Japan itself), and has a trade foothold in the PA countries. Japan also has a long-standing trade agreement with Mexico, giving it some entrée into NAFTA.
But it appears after Prime Minister Abe’s visit to Washington that there may be greater confidence in Japan in its ability to successfully negotiate a bilateral deal with the Trump administration. If that is the case, then Japan’s willingness, let alone need, to see the TPP go ahead may wither.
In light of Japan’s clear interest in pursuing relations with the U.S., we believe Japan’s handicap for the upcoming meeting in Chile stands at a 5/10.
Pros
• Can lead trade in Asia
• Bargaining chip in bilateral negotiations with U.S.
• Economic benefits from the TPP11 for Japanese firms
Cons
• Risk of incurring wrath of U.S.
• Really wanted U.S. market access
• Involved in RCEP
• Strong trade relations with Australia and New Zealand already
• Strong trade relations with PA already
Singapore 7/10 and Malaysia 6/10
Both Singapore and Malaysia have moderate incentives to usher in a TPP11.
Both countries are actively involved in multilateral trade initiatives in the Pacific region, including engagement with RCEP and membership in ASEAN. With or without the TPP11, then, both countries are not at risk of losing out on access to Pacific markets. There is little incentive for either Singapore or Malaysia to adopt an aggressively pro-TPP11 stance like that of Mexico or Chile.
Yet, this is not to say a TPP11 would be without benefit to either country.
For Malaysia, access to the U.S. market has been a strategic objective for some time. The TPP was a mechanism for ensuring preferential access to the U.S. import market. Malaysia is a member of ASEAN, and would be well-served by the eventual adoption of the RCEP. The Malaysia-Japan Economic Partnership Agreement (MJEPA) ensures market access in Japan. But neither agreement gives the same type of benefits that TPP11 delivers. Particularly for domestic level reforms, the TPP provides the best platform for pushing ahead.
With the U.S. withdrawal, then, Malaysia’s cost-benefit analysis for a TPP11 errs on the side of non-engagement. In effect, the only pull-factor that Malaysia faces in a TPP11 is that it is on track for a one-time ratification (for the 2018 deadline), and the government has expressed it will continue the ratification process despite the U.S. withdrawal.
With all these factors considered, Malaysia scores a 6/10 from our vantage point.
For Singapore, a similar calculus prevails: there is no shortage of bilateral (including Japan) and multilateral arrangements in the Pacific for ensuring market access. Further, Singapore has a trade agreement with the U.S. Where Singapore differs, however, is that it was party to the negotiations from the very beginning, with the TPSEP. Thus, like Chile, there is a sunk-cost investment that Singapore does not want to see end up being in vain. However, with a robust trade network in the Pacific region, and a coveted trade agreement with the U.S., Singapore might be willing to absorb the sunk-cost and instead turn its attention to more promising agreements (i.e. RCEP). But, again, the TPP11 delivers significantly better economic benefits than any of the existing trade agreements for Singapore-based companies.
With these pros and cons, Singapore’s stakes for a TPP11 stand at a 7/10.
Pros
• Already undergoing ratification (Malaysia)
• Original signatory (Singapore)
• Want U.S. market access (Malaysia)
Cons
• Engaged with RCEP
• Already engaged with U.S. (Singapore)
• Already a member of ASEAN
• Already engaged with PA
• Already engaged with Japan
Vietnam 6/10
The incentive for Vietnam’s engagement with a TPP11 is more modest.
In particular, Vietnam’s satisfaction with the RCEP negotiations and its possibilities are sufficient to challenge the desire to put further time and resources into a TPP11. With the U.S. withdrawal, Vietnam’s major “prize” in the agreement vanished. Vietnam always took a narrow view of the economic impact of the deal – it was about receiving access to U.S. textile and footwear markets. Hence, with the United States, out, the benefits are gone. But there are other considerations. First, other markets in the TPP also granted Vietnam significant concessions even in these two sectors. Second, the TPP provides Vietnam with much more than just textiles, including new market access for electronics, food, services and investment. It also paves the way for domestic level reforms that are critical to Vietnam’s restructuring efforts.
The RCEP covers many of the TPP signatories and may include some textile and footwear benefits, since these sectors can be less sensitive in Asian markets. As a result, the impetus for Vietnam’s cheerleading of a TPP11 is limited.
Furthermore, Vietnam is far from staid in the bilateral trade realm. Vietnam currently has several bilateral trade negotiations that are ongoing or being implemented. It is uncertain whether it is interested in adding a considerably bigger and far-reaching agreement into its current trade mix.
For these reasons, Vietnam’s enthusiasm for a TPP11 hovers around a 6/10.
Pros
• Market access gains in TPP11 countries, including for textiles and footwear
• Domestic level reform momentum
Cons
• Already engaged with RCEP
• U.S. was sine qua non for Vietnam
• Already has several bilateral agreements negotiated or being implemented; burnout
Brunei 6/10
Brunei, a small sovereign state on the island of Borneo with a population of some 417,000 people, has always been a nominal player in the TPP negotiations.
Given its size, Brunei is a relatively wealthy economy, bolstered by rich crude oil and natural gas production. With its isolated location and small geographical size, however, Brunei depends heavily on imports, particularly in agricultural products. The vast majority of these imports already come from ASEAN trading partners, though. What this means is that, with or without TPP11, it is unlikely that the composition of Brunei’s import and export markets will be significantly altered, for better or worse.
Where Brunei could be said to have interest in TPP11, however, is similar to the stakes of countries such as Singapore and Chile: they were part of the TPP negotiations from the beginning. For a small government with limited diplomatic resources around the world, the notion of scrapping years of negotiations and concessions would be a difficult pill to swallow. Yet, given the absence of a transformative component of the TPP for Brunei’s economy, it is some wonder why they were deeply involved in the negotiations in the first place.
Because Brunei was not viewed as a threat by other TPP countries, the market access concessions granted to Brunei are significant and substantial. If Brunei-based companies seized the opportunities presented by the TPP11, the economic gains could be considerable.
In light of the marginal potential role of Brunei in TPP11, and notwithstanding the early involvement of the country in the TPP negotiations, we see Brunei as being handicapped at 6/10.
Pros
• Original negotiators
• Substantial market access concessions granted to Brunei
• Modest potential gains
• Limited negotiating clout
United States 1/10
The U.S. is sending a representative to the meeting in Chile. But there are currently no top level officials confirmed in the US Trade Representatives (USTR) office. The Trump administration will likely be paying close attention to the developments coming out of this meeting.
With its future in the TPP scrubbed, it is still worthwhile to examine where the U.S. stands to win or lose on a TPP11 arrangement.
The U.S. clearly stands to lose from a reformulated TPP. First, the U.S. has lost the sunk costs in negotiating the agreement. While it may gain some benefit in using TPP concessions as a starting point for bilateral negotiations, this is speculative and given how the new administration has disparaged the agreement, unlikely. After years of technical and laborious negotiations, the U.S. effectively leaves with nothing.
If the U.S. does, in fact, choose to replace the TPP with bilateral trade agreements, TPP11 signatories would have leverage in negotiating bilateral deals with the U.S. While TPP11 signatories would have to negotiate with the U.S. on their own, their membership in a larger trade bloc would indicate (correctly, or otherwise) that a bilateral deal with the U.S. would not be a “make-or-break” agreement for their respective economies. This weakens U.S. bilateral negotiating clout for TPP11 members.
Finally, by walking away from the TPP, the U.S. risks ceding leadership to shape the Asian and pan-Pacific trade agenda to China. The U.S. risks that TPP11 members will shift their allegiance from one hegemon (U.S.) to another (China). This further erodes its bilateral bargaining power. If TPP11 members can develop stronger trade ties with China (including through the RCEP), the U.S. may no longer be the most sought-after trade partner for these countries. Especially with China’s ambition to expand its trade network, this could spell trouble for the ostensible gold-standard status of the U.S. as a trading partner.
It is hard to imagine any benefit to the U.S. from its withdrawal from the TPP. Claims that the agreement is not in America’s interest seem dubious on face value given the capacity of U.S. trade negotiators and the concessions made, and complained about, by other participants.
One possible benefit for the Trump administration is to be able to portray a TPP11 as further evidence of a global trade order that has been stacked against the U.S., effectively pitting American companies and exporters against the rest of the world. During the campaign and into his presidency so far, Trump has roused his base by suggesting that current trade relations (and potential relations, as in the TPP) were fundamentally against the American national interest. Of course, trade experts and pundits can – and have – debated this extensively. However, whether or not the U.S. would have benefited from the TPP is secondary to Trump’s conviction that a new era of “America First” trade relations is necessary – a message that resonates with his base.
While history books will likely interpret the U.S. withdrawal from the TPP as a missed opportunity, there are short-term political gains that the Trump administration can extract from a TPP11 moving forward. With these considerations, we assign a score of, at most, 1/10 for American enthusiasm for a TPP11.
Conclusion
It is evident that if a TPP11 were to proceed, there would be winners and losers. We have demonstrated that it is possible for the current TPP agreement to be amended and reformulated to reflect the formal withdrawal of the U.S.
Whether there is political will for TPP11 to come to life is a different matter.
The original TPP negotiations were long, complicated and a product of concession and compromise. Reopening the negotiations could be just as difficult.
So what makes or breaks these discussions?
It could all come down to Japan, the other big TPP player. If Japan views the TPP11 as a bargaining chip to extract better terms from a Japan-U.S. trade agreement, then TPP11 would clearly be in its interest. However, if Japan sees a TPP11 as a complicated, time-consuming, and ultimately, ill-fated process that would distract from its pursuit of the U.S., then such an agreement may be over before it’s even begun.
For countries with a great deal to gain from a TPP11 – namely Mexico, Canada, Peru, Chile, Australia and New Zealand – the best way to secure such an agreement would be to convince the Japanese delegation that TPP11 largely stands as-is, without the U.S.
If these countries are not able to convince Japan that these new rounds of negotiations will be largely painless, Japan would likely have no qualms following the U.S. and walking away. Only then would the TPP be well and truly dead.
– Carlo Dade is Director of the Trade & Investment Centre and Christopher Rastrick is a policy analyst at the Canada West Foundation. Deborah Elms is Executive Director of the Asian Trade Centre in Singapore
[1] https://ustr.gov/sites/default/files/TPP-Final-Text-Final-Provisions.pdf
[2] See for example, TPP Could Go Forward without the United States, Jeffrey J. Schott (PIIE), November 15, 2016.
https://piie.com/blogs/trade-investment-policy-watch/tpp-could-go-forward-without-united-states
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