TPP

The Final ATC Talking Trade

The Final ATC Talking Trade

It was an exciting time to be in the region.  Governments were enthusiastically signing up to a wide variety of trade agreements.  For example, Laos completed accession procedures to become the 158th member of the World Trade Organization (WTO).  We were in Bhutan for two workshops to support a renewed consideration of joining the WTO.  We also had several training activities in Timor Leste with members of Parliament and across the government to support accession to the WTO in conjunction with plans to become part of ASEAN.  Mongolia, the last WTO member to not have a free trade agreement (FTA), asked for training to complete an FTA with Japan. ASEAN itself was rapidly pursuing greater internal integration, with plans for the ASEAN Economic Community (AEC) pushed forward from 2020 to 2015.  It was also working on a range of agreements called ASEAN+1s with major powers in the region including Australia, China, India, Japan, New Zealand, and South Korea.  There was also a lot of activity to integrate Asia more closely to the rest of the world.  The first meeting in what would become the Trans-Pacific Partnership (TPP) took place in Singapore on the sidelines of APEC.  The TPP, as regular Talking Trade readers will recall, rapidly expanded and finally concluded in 2014.  The European Union was actively involved in working with members of ASEAN to create an eventual bloc-to-bloc agreement, starting with a bilateral FTA with Singapore.

Time to Upgrade the CPTPP

Time to Upgrade the CPTPP

Since all CPTPP member countries will gather together various working groups to discuss UK accession, it makes sense for these working parties to also reflect on what aspects of the agreement may need a bit of a refresh. There are lots of new ideas that have been built into other agreements that might be usefully imported in the CPTPP. One area, in particular, that is due for an upgrade is the e-commerce chapter. For example, it currently carves out in the opening chapter paragraphs, via the definitions of “covered persons,” the cross-border transfer of financial services data. This exception has not been replicated in other trade arrangements by the current CPTPP members. The existence of this definition is problematic because it seems to conflict with pledges elsewhere in the agreement, including the financial services chapter, to provide such services. It could be time to remove this exception or, at a minimum, relook at the language to determine whether it needs to remain exactly as it was originally written. The rest of the chapter was pathbreaking for its time. But the digital economy, in particular, does not stand still and many innovations in technology, the extent to which digital increasingly underpins nearly every other aspect of the economy, and changes in rules outside the CPTPP suggest that it is due for a closer look and review. Many members will balk or hesitate at the idea of adjusting the agreement now, and especially as part of an accession process. Thus far, every new member joining the deal has had to commit to taking the rule book “as it stands.” Bringing changes or a review into the accession proceedings sets a new precedent to allow future members to expect similar treatment. While a legitimate and valid concern, it raises the issue of when such reviews might take place. If not now, then when? Preparing teams to handle the CPTPP is not simple. Absent a Secretariat with full-time officials that have made CPTPP a daily priority, every government manages the CPTPP on the side or as part of their overall job addressing a range of trade commitments and new negotiations elsewhere. Staffing up at the level of detail and knowledge necessary to carefully review provisions is likely to be a major undertaking. It won’t happen again easily.

How to Join the CPTPP

How to Join the CPTPP

Assuming the current members have no objection, the applicant country can proceed to file a formal request to join. This letter, as the UK has demonstrated, gets sent to New Zealand, as Wellington serves as the official repository location for the CPTPP. In the absence of a Secretariat, the CPTPP is managed through a rotating appointment of Commission Chairs. Japan is currently holding the post. (Mexico held it last year and Singapore is up for 2022. Both are serving as vice chairs of the Commission for 2021 to support Japan. The rotation is dictated by the order in which members joined the agreement.) A CPTPP Secretariat would make accession talks significantly easier. It would come with a built-in group of officials well versed in CPTPP rules and regulations, familiar with the existing membership and important sensitivities, as well as the current individuals for each member that are actively involved in various chapter activities. Secretariat staff could serve as neutral parties, shepherding new members through accession. Without a Secretariat, CPTPP accession will be started by the current chair. The chair will help members decide on the composition of a “working group” to manage the process. It may be that all aspiring members are grouped together into one working group or that members opt to hold separate working groups for each potential member. The chair of the working group(s) will be decided by members and the group(s) will include representatives from all active members. Accession to the CPTPP is not like launching FTA negotiations. The process is closer to that of joining the World Trade Organization (WTO). It will likely take some time to organize, as there is no sitting working group for members. New members are not negotiating over changes to existing rules. The nearly 600 pages of text need not be adjusted in accession. Instead, work will get underway on crafting new member’s specific schedules which include:

US President Joseph Biden: Time for a “Reset” on Trade?

US President Joseph Biden: Time for a “Reset” on Trade?

If this disruption at the top were not impediment enough to pushing for new policies, it remains unclear exactly what both parties will want to accomplish, particularly on trade issues. Traditionally, Democrats have been more skeptical of trade. This stance has changed in line with American public opinion to be more receptive to trade as a potential force for good. But it remains unclear how the Democratic party will respond to specific trade initiatives. It is also uncertain how Republicans will approach trade. In the past, free trade was a key plank in the party platform. Donald Trump scrambled this approach and it is not obvious how the Republican party will choose to address trade in the coming few years. Getting clarity inside both parties will take time. Trade, in general, is not going to be the key priority. Instead, expect Biden and the incoming Congress to focus significant time and attention on a host of domestic policy items including handling the escalating pandemic and economic fallout from disruption. There are two specific trade issues that will likely come up first: China and the CPTPP.

Evaluating Trade Deals Like NAFTA 2.0

Evaluating Trade Deals Like NAFTA 2.0

Since NAFTA 2.0 builds on the base of the original NAFTA, the new deal had some advantages over the TPP.  For example, tariffs between the parties are already set at zero.  This remains, although do note that there are very complicated tariff rate quotas in place in NAFTA 2.0 that were not scrapped.  Indeed, the level of genuinely new market access granted to partners that have known and worked with one another for decades is vanishingly small.  While much focus, as an example, has been on Canada’s new market access for dairy, the total amount given amounts to barely 0.4%.  And the United States, in return, has an equally complex system of barriers in place to protect its own dairy industry from competition (as well as sugar, oranges, and others). The deeply problematic bits of the agreement can be found buried in the texts.  For instance, the rules of origin (ROO) are incredibly complicated.  Given that tariffs are zero, the only way to keep out goods is to craft ROOs that are impossible to follow. Clearly, for many products, this objective has been met. The level of NAFTA content required in fairly large swaths of products is extremely high.  Commentators keep focusing on the insane requirements for auto production, but note that for a wide range of goods, new NAFTA content rules require 50% or more content.  To make matters worse, in many products, these rules tighten after 3 years, rising to as much as 70% local (ie NAFTA) content.