What happens when, as expected, President Donald Trump announces that the United States will withdraw from the Trans-Pacific Partnership (TPP) trade agreement next week? Does the agreement simply die? Or get stuck in a glass case somewhere as a monument to trade agreements that failed?
No.
Past trade agreements that fell over weren’t beyond the finish line. The TPP has already been ratified in some countries like Japan and is moving ahead in others. The deal is done and it does not make sense to consign it to history because one man happens to dislike it.
The TPP was negotiated with 12 members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam. While the United States was the driving force behind the agreement and the largest market, it was certainly not the only player.
Many have assumed that the TPP absent American participation is no longer worthwhile. From the perspective of the remaining parties in the agreement, this is a flawed assessment. A careful review of the TPP shows that the benefits of the TPP remain—whether or not the United States ever joins the deal.
Why? Because the United States is already a relatively open market, most of the other 11 TPP parties already have decent access to the American market whether or not the TPP includes the United States. There is not a great deal of need for new preferential access to the US market, outside of a few sectors (like textiles, footwear and some agricultural products).
Second, other than some market access issues where the United States continues to apply tariffs at relatively high levels or maintains complicated market restrictions like tariff rate quotas, the American market is even more open to all—especially in areas like services and investment. The United States already protects intellectual property rights and facilitates trade at customs.
Third, in areas where the TPP might have brought about changes, because the United States wanted to make limited domestic changes in Congress, the extent of American commitments required by the TPP were quite modest. The US therefore is already in alignment with most of the TPP rules—whether or not it signs the agreement—in areas like standards or e-commerce.
As a result, for most firms trying to access American markets from TPP member countries, whether the United States in included or not in the deal is not especially critical. TPP11 firms already have access to the United States quite easily and this remains. (Or may remain, depending on what Trump and Company do in 2017 and beyond.)
Thus, from the point of view of the TPP11, moving ahead with the agreement makes a great deal of sense. Little is actually lost. It will be deeply damaging to American companies and US interests, but this is, frankly, America’s problem.
The TPP can now come into force with a modest adjustment to one clause (Article 30.5).[1] Officials had always included an option to trigger the agreement with as few as six members.
So why push ahead with the TPP at all?
While the TPP didn’t require many changes from the United States, which is already relatively open, and then structured the overall agreement largely to match its own domestic procedures, the same cannot be said for the remaining TPP members.
For the other 11 participants, the agreement lowers barriers between members and requires transformation in procedures. In some countries, the changes are modest and in others, the changes will be substantial.
But in all—the final result will be a much more dynamic, integrated and competitive region with benefits that are limited to only TPP member firms. Non-TPP member firms (including, now, American companies)[2] will not have access to these preferential benefits.
The TPP has always been touted as a “21st century, gold standard” agreement. This assessment may have been overblown, but compared to other trade agreements, it certainly offers better, deeper and broader commitments. The high quality nature of the TPP remains, even if not all 12 original parties are included on the very first day of the deal.
The benefits for firms in the TPP11 are real, concrete and measurable. Companies need to examine the texts and schedules (or come see us at ATC) to appreciate what the agreement offers, even compared to existing free trade agreements that may tie some parties together.
For companies trying to operate in a highly uncertain environment in 2017 and beyond, the TPP provides refreshing certainty and clarity. When some countries are drawing up the gates and threatening to unleash all manner of trade distorting tools, implementation of the TPP reduces risk in key member states.
In fact, precisely in a world of growing trade uncertainty and economic slowdown, the implementation of the TPP offers an opportunity to show how open markets matter in countries that remain committed to the idea. Now powered by Japan, the TPP11 can illustrate the importance of building institutions as a bulwark against a retreat from globalization.
There is no need for delay. The TPP texts and schedules are already approved with a provisional entry into force date of April 2018. It is time to stop waiting for someone in Washington to change his mind and move on with TPP11 implementation.
***Talking Trade is written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***
[1] An adjustment is needed absent the Americans because the TPP as originally written requires participation from at least six countries representing 85% of the GDP of the signatories from 2013. While the TPP Article 30.5 does not explicitly name any country, the size of the US economy relative to the rest means the Americans need to be among the six unless the clause is modified. We will need to see exactly how Trump phrases his “withdrawal” to know how to structure the amendment. It should be “provisional” entry into force in any case to let the US back in at a later date.
[2] With some caveats—some provisions will “spill over” to non-members. For example, better protections for intellectual property are likely to benefit all firms and not just TPP firms. Non-member firms may be able to take advantage of some provisions, if they are clever, careful and have good specialist help.