ASEAN worries over getting into bed with America: is the new trade deal worth it?

Photo: Gobierno de Chile

A number of ASEAN countries have already signed up to join the Trans-Pacific Partnership trade pact which offers hope for growth and new investment. Some countries in the region are likely to do well out of new export markets while others would painfully miss out. But with waning support from some of the big players will the deal even happen? 

By Claire Heffron

Asia is holding on tight while U.S President Obama makes a final push for Congress to approve the Trans-Pacific Partnership (TPP) trade deal. When Obama visits Asia next week, he will assure leaders he still has the strength to deliver US consent for the package which seeks to bring new life to trading partnerships across the world.

Why are they nervous? Representatives of 12 member nations already signed the agreement. However, the deal can’t go into effect until at least six of them individually approve it — and this must include the U.S. and Japan. If officials in either of these countries fail to support it, the TPP is over. And a look at this year’s U.S. presidential campaign suggests the next president will not sign the TPP if passed by the next Congress. It is almost certainly now or never for the controversial arrangement.

Casting an eye back to Asia, ASEAN’s economy is expected to do well whether the 12-nation Trans-Pacific Partnership succeeds or fails. Four countries in the ASEAN region are among the participants of the agreement; Brunei, Malaysia, Singapore and Vietnam. Additional member countries are interested in joining the free trade area in the future.

Critics highlight the nations left out of the deal; saying free trade agreements are used more as political tools for geopolitical control than any real attempt to loosen global trade. Most obviously absent from the the discussions is China which has free trade agreements with many of the TPP countries. As a result, observers cynically suggest the arrangement is simply a strategic move to counter Beijing’s rising economic influence in the Pacific Rim region.

So what’s the benefit for ASEAN? Many experts claim free trade only works when all countries trade freely, with no regional restrictions or barriers. However, economists believe it is still a significant step in international trading for Vietnam, Malaysia, Singapore because they will be able to easily export a variety of key products.

Is it worth it?

By establishing free (or near free) trade between the participants, the agreement supports relations between the countries and ensures their economies are more involved with each other.  Vietnam is among the “winners” of the TPP deal; the opening of U.S and Japanese markets presents vast opportunities for the country’s booming garment and clothing industry. This, in turn, should attract significant foreign direct investment into the economy. Most of this investment would be diverted from other nations, such as China and Cambodia.

Other winners are the fishing industry, which will benefit from the elimination of import taxes. As a result, exports are expected to increase by 38% within a decade. In this regard, ratification of the agreement is vital – not only will it bring an upsurge in exports, but it will also relax the country’s need to trade with China at a time of slowing growth and brewing political tensions.

Elsewhere in the region, Malaysia has cautiously received the TPP, expecting both some gains and some losses. Worries are that it may upset state-owned enterprises which benefit from weak competition for government contracts. If this happens it is likely to create opposition to the agreement both within the business community and from interest groups within the government – a tension which the country cannot afford in an atmosphere of political protests.

The other side of the fence

Feeling left out, the Philippines is eager to join and has already held informal talks about membership. Manila’s Trade Secretary Ramon Lopez explained, “If you don’t take part in it, you might lose some opportunities while other countries are enjoying them. We’d like to be part of that.”

Meanwhile, Thailand has little choice but sign up as it could see its exports impacted if it remains outside the TPP group. A new study by the Trade Negotiations Department within the Commerce Ministry strongly recommends that Bangkok joins the deal, though it notes it will need to carefully consider the areas in which the country needs to improve its business assets.

One of the biggest losers from the TPP is likely to be Cambodia. Economists say the deal could mean more businesses will choose to invest in Vietnam over Cambodia when one is a member of the deal and the other is not. The country’s Minister of Public Works and Transport asked the audience at an ASEAN meeting why TPP excluded some nations when, “trade spurs economic growth and reduces poverty for the citizens of the world.”

Looking ahead, the challenges ahead for countries either in the TPP negotiations, or looking on from the outside, are major and direct. However, if they can overcome these hurdles, there are clear economic and strategic benefits. Foreign companies were already enthusiastic about finding investment opportunities in Asia, even before the TPP, and every nation can see that the new arrangements would create economic advantages.

Governments now need to make important decisions. Members should take the initiative and fully prepare for further integration.