With TPP floundering, the 10 nations of Asean are hoping that another trade agreement will help it continue its remarkable rise. Finbarr Bermingham reports.
A year ago, the trade world was talking about a new era of agreements following the perennial failure of the WTO to finalise the Doha Round, which would have established a free trade area the world over. Instead, regional and trans-regional blocs were expected to execute deals of their own. Globalisation was dead. Regionalism was king. Or so we thought.
With the exceptional political circumstances in the US, it seems now that even regionalism is under threat. President Obama had made the securing of two massive trade deals the cornerstone of his second term in office’s foreign policy. The Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) would be the two largest agreements the world has known, but now it looks increasingly likely that neither will see the light of day.
The TPP was agreed by the 12 member states this year, but finds itself in the unfathomable position of being opposed by both US presidential candidates – despite one of them (Hillary Clinton) being one of the early architects of US participation in her previous life as Secretary of State. Unless the eventual victor has a sudden change of heart (and some think that once she’s secured her path to the White House, Clinton will do just that), TPP is reliant upon Barack Obama pushing it over the line during his “lame duck” phase in office.
“I’d like to see the agreement done and ratified before the next administration takes over. I still think there’s a chance it can be done in the lame duck session, that’s the main hope,” says Joshua Meltzer, senior fellow of the Brookings Institute, who closely follows trade policy in Asia Pacific.
Most agree that it will be impossible to reopen the agreement, given the fraught nature of negotiations and the amount governments such as Japan have staked on securing a deal (Shinzo Abe has pursued TPP with zeal, despite widespread opposition at home). Given the fractured nature of the Republican Party, the likelihood of a Democrat majority in both the US Congress and Senate is high. Democrats are traditionally more opposed to such deals. It’s lame duck or nothing.
Four of the 12 states of TPP are also members of Asean: Brunei, Malaysia, Singapore and Vietnam. Of these, Malaysia and Vietnam are expected to gain the most from a ratified TPP, given their lower GDP relative to the other states and the nature of their exports base and markets. Across the region, then, reaction to the US potentially taking TPP off the rails has been surprisingly muted.
“Through the whole thing they’ve been remarkably calm: assuming the US will get it done. But a dawning sense of horror: what happens if it doesn’t get done, especially in places like Japan where they have staked a lot. In the wake of the Brexit vote I think it’s more salient for people to ask: ‘What do we do if this doesn’t work?’” Deborah Elms, executive director of the Asian Trade Centre tells GTR.
In Manila, Jayant Menon, a lead economist of the Asian Development Bank, says that most Asean countries have taken recent developments in their stride. After all, he says, most of them were surprised when an agreement was reached in the first place.
“With the TPP there’s not that much anxiety over its prospects. People were surprised it got concluded when it did because it looked as though it was going to collapse at so many points, and it was always going to be a challenge to get passed the ratification process anyway,” he says.
And Down Under, they’ve had a federal election to focus on. Influential trading figures, however, are concerned about the damage a US failure to ratify the TPP would have on intercontinental relations.
Speaking to GTR from Sydney, former Australian trade minister Craig Emerson spells out the US quandary: “The [US] administration had identified the TPP as giving practical effect to its pivot into Asia. If it wasn’t able to get the TPP ratified by Congress, unavoidably that would send a message that the pivot has not been fully successful. Probably not a great one; it wouldn’t be the end of the world, it wouldn’t be the end of the region, but it wouldn’t be good all the same.”
Enter the tiger cubs
There’s an argument being made by some, however, that the TPP spluttering towards the finish line may act as a boon for the Regional Comprehensive Economic Partnership (RCEP) – an agreement which includes all Asean countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) plus Australia, China, India, Japan, New Zealand and South Korea.
RCEP has often been billed as a rival trade agreement to the TPP in the media and, with China’s inclusion, it is an easy conclusion to leap to. Experts in the region, however, are keen to impress the leadership of Asean, which incepted the agreement, and which potentially stands to benefit most from a successful RCEP. While Asean itself can be occasionally rudderless, Indonesia seems to have taken the lead in negotiations, but even that hasn’t been as smooth as it could be.
“The Indonesian chief negotiator has been out with malaria for months. He was in Geneva as chief ambassador to the WTO. Then they recalled him to focus on RCEP, then he came down with malaria: so he’s not had a very good run,” says Elms.
Despite this, and with TPP on the rocks, RCEP is approaching conclusion and, in a situation that seemed extremely unlikely just months ago, is flying the flag for regionalism in Southeast Asia.
Certainly, the TPP had the potential to create further divisions among an economic grouping in which there are already large disparities in equality and trade development: from the advanced hub status of Singapore, to the tax-free absolutism of Brunei and the widespread poverty of Cambodia and Laos. RCEP, on the other hand, could be a unifying deal.
“From the point of view of producing more coherence in regional integration rules – for example in rules of origin for trade in goods – Asean would stand to gain from a successful conclusion of the RCEP.
“More streamlined regional rules will facilitate understanding for businesses, given that the existing FTAs produce a jumble of rules that can be hard for businesses to navigate – the so-called ‘noodle bowl’ of rules. The TPP, on the other hand, is not an Asean-wide agreement,” Locknie Hsu, the co-ordinator of the trade investment group at the Asean Law Association, tells GTR.
RCEP was due to be completed last year and experts are divided on whether it will achieve the new deadline of the end of 2016. A recent meeting in Laos was viewed as positive. Menon at the ADB says that “geopolitical tensions among Japan, Korea and China have not helped but it looks like things are moving forward and it seems likely to conclude this year”.
On the other hand, Elms says that anyone expecting an agreement this year is “naïve”.
The likelihood is that whenever the agreement is concluded it won’t be as comprehensive as many hope. As the WTO learned to its misfortune, in trade negotiations, too many cooks more than often spoil the broth. When those cooks have the levels of self-interest that countries such as China, Japan and India do, the broth will inevitably be watered down. But most agree that any agreement is better than nothing and that a framework can be built upon, towards a greater end goal.
“I’ve always been a fan of having a living, breathing agreement,” says Emerson, who was Australian trade minister from 2010 to 2013. “A solid foundation is well worth having in its own right even if nothing else came from it. Then you build on the foundation in terms of width and height over time. I can envisage a future regional agreement which isn’t everything to everyone, but which is well worth having and contains mechanisms to build on.”
A confessed idealist, Emerson’s utopian end game is shared by many and it is the Free Trade Area of Asia Pacific (FTAAP), which would combine TPP and RCEP, possibly drawing in Russia and other Asia Pacific nations. The Asia Pacific Economic Co-operation forum (APEC – a 21-member grouping that promotes regional free trade) started discussing such an agreement in Hanoi in 2006. Right now, however, discussion of it seems fanciful and almost delusional.
By the time such an agreement is realised, Asean will be stronger and more influential – and hopefully better organised. If it were a single country, it would have the seventh-largest economy in the world and all the signs are that it will continue to move up the ladder.
With Asean billed as the next economic powerhouse of the world, soon enough, other members of TPP are likely to need it more than it needs them.
The Trump stump
We asked Asia Pacific trade experts what a Donald Trump presidency would mean for Asia Pacific. Here’s what they said…
Craig Emerson, former Australian trade minister
“We’re pretty fearful! He doesn’t seem to be a big fan of engagement in the Asian region, of an open trading system. So it would certainly change the whole environment in the region, but the American people have to decide.”
Jayant Menon, ADB lead economist
“Everyone’s hoping and believing he’ll never get elected so they’re not too worried about that. But it would be a disaster if he was. I think people are beginning to see that now. The poll numbers are always difficult – they always underestimate the candidate whom you don’t want to be publicly seen to support. We had it with Brexit, this is why the polls were so far off. But I think the momentum after his latest series of gaffes… hopefully that will ensure he doesn’t get in.”
Deborah Elms, executive director, Asian Trade Centre
“He is a lunatic so who knows what he would actually do in office or who he would offend and how would he do it. So even if you can’t find whatever country on the map, you have no idea about history and sensitivities, you’re surrounded by people who will keep you from doing anything monumentally stupid. I’m not sure that holds. US policy towards Asia in particular could change radically. But I hope we don’t ever find out. He’s talking about tariff barriers with China which could lead to lots of other things. If I was to do scenario planning for companies, I don’t know what I would do.”
Joshua Meltzer, senior fellow, Brookings Institute
“I don’t know where Trump is or where he would go. If you take what he said at face value, there will be no TPP, an escalation in protectionism and possibly a trade war. People are troubled by the direction it has taken in the US. I think there’s broader concern about what a Trump presidency would mean for a whole range of issues that are important for Asia. A lot of countries, such as Japan, have made significant commitments. They’ve made politically challenged calls on the TPP and feel exposed by the direction things have taken in the US.”