In a constant quest to keep trade interesting, US President Donald Trump announced today that he would ask his USTR Robert Lighthizer and new National Economic Council Advisor Larry Kudlow to investigate having the United States rejoin the Trans-Pacific Partnership (TPP) trade agreement.
Trump famously pulled the United States out of the TPP on his first full day in office in January last year.
It was the completion of his campaign pledge. Trump had called the agreement with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam, a “rape of our country.” He repeatedly railed against trade deals in general and argued against the TPP in particular as being biased against the United States.
Trump’s abrupt about-face in a meeting with American farm state governors and lawmakers left many in the room apparently wondering whether he was serious.
The reason for Trump’s change of heart appears to have been driven by the increasingly loud complaints emanating from agricultural states that are at risk in the broader trade fall out from his policies on steel, aluminum and China. The retaliation against these moves is starting to bite in farm country.
Chinese tariffs on $3 billion in retaliation for US steel and aluminum moves are already in place on a wide range of US high value agricultural items including pork, cherries, and nuts. More damage is in store for American farmers once the Section 301 tariffs hit.
In addition, the withdrawal from the TPP itself will impact farmers in the United States. While many American companies may still be able to use the agreement to sell goods and services into TPP countries, depending on the products and how these items are produced, it will not be possible to raise cattle in Iowa and ship them to Japan under the TPP.
As the agreement goes ahead under the CPTPP label, other farmers in TPP countries will continue to receive the benefits contained in the deal. Especially for agriculture, the advantages of being in the CPTPP can be substantial. Most agricultural products currently face large tariffs. These will be cut in the CPTPP to become mostly duty-free. This gives a significant cost advantage to CPTPP products in member markets over non-CPTPP products.
American farmers will be facing increasing competition in CPTPP markets by the end of this year as the agreement comes into force. Once CPTPP growers seize opportunities unleashed in new markets, it will be harder for US producers to dislodge relationships with wholesalers, grocers and the like in the future.
Hence the growing concern among the US farm community about the current and future direction of US trade policy.
While Trump has spoken about cushioning the blow for growers, there does not seem to be much appetite for dramatically increasing farm subsidies to compensate for potential trade losses. Nor is there an obvious mechanism to do so, leading officials to consider dusting off yet more ancient trade tools in the kit.
Getting the US back into the CPTPP might therefore provide part of a solution to the farm problem.
So how easy might it be to get the United States back into the CPTPP?
That depends on how the United States chooses to behave. If the US were to come to the current 11 parties and ask to reenter on the same terms it had prior to exit, it would be considerably easier.
After all, the current 11 locked down the agreement as it stood at the time of US exit, minus 20 provisions that were suspended. The entire text was otherwise unchanged. All market access commitments between members were untouched.
These were painful concessions by the 11 to the United States. Many of the 11 members wanted to make changes in the wake of US withdrawal to better match their domestic audience demands for adjustment. This was largely not done.
Instead, as our previous Policy Brief noted, just 20 elements of the legal text were suspended. These provisions were not removed entirely, but merely set aside for later consideration.
If the US comes back in the near term, the CPTPP could take effect exactly as originally negotiated with all the existing market access commitments for the US still intact and the rulebook as agreed upon under the CPTPP.
The 20 provisions (plus two that clarify specific commitments for Brunei and Malaysia) need to be taken up again by the member states. They may—or may not—be reactivated in whole or in part by the members. In other words, the CPTPP text says that member states get to decide which of the provisions will be “unsuspended” in the future.
The CPTPP is better with more members. Member states will be enthusiastically welcoming any country serious about keeping trade lanes open for business.
If the United States, however, opts to rejoin the CPTPP and wants additional adjustments to the agreement beyond what was originally negotiated, this is a much tougher proposition.
The original members just spent 5 long and painful years negotiating the deal only to be “left at the alter” by the Americans. They then spent another long year working through modifications to the text to make it palatable for everyone. No one is likely to be in any mood to consider new demands by the United States.
Timing matters, of course. There needs to “be” a CPTPP in place for the US to rejoin. Japan, Australia and Mexico have already submitted the agreement to their parliaments for ratification. This process should continue without delay. Whatever may--or may not--happen with the United States is likely to take time.
We will be watching and waiting for new developments to unfold. In the meantime, our own ABTA members will be working with CPTPP countries to help support implementation. Come join us now.
***Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre and Vice Chair, Asia Business Trade Association (ABTA), Singapore***