The uneasy resurrection of the TPP

The 11 remaining members of the TPP agreement showed the world what the deal will look like without the US.

By Oliver Ward

The Asia-Pacific Economic Cooperation (APEC) 2017 meeting ended on 11 November. Who were the real winners from the summit? What does it mean for ASEAN nations moving forward?

The summit was an opportunity to showcase Da Nang

Nguyen Ngoc Tuan is the vice-chairman of Da Nang’s governing people’s committee. He called the APEC summit “the biggest international event ever organised in Da Nang.” The city opened a new airport terminal to ease traffic congestion in preparation.

Da Nang was the real winner from the APEC summit. The heads of Facebook, Pfizer, and Airbnb were in attendance. It was an important opportunity for Da Nang to draw more international investment.

Source: Vietnam Net, Da Nang Portal, ID (I), (II)

The city has enjoyed a steady annual growth in foreign investment. In total, Da Nang now has more than 400 foreign investment projects worth more than US$3.5 billion. Coca-Cola has been the only international goliath to invest in the city. After the APEC summit, more international investors may invest in Da Nang.

Da Nang was the backdrop to resurrected TPP talks

When Donald Trump pulled the US out of the TPP in January 2017, the agreement looked dead. But in the margins of the APEC summit in Da Nang, the 11 members resurrected the deal. They rename the alliance as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The countries involved had tense negotiations. They  announced they had agreed on the core elements of the CPTPP deal.

Progress is still a long way off

The announcement may sound like progress. The reality is that the deal is a long way from completion. Canada’s main trading partner, the US, is out of the deal. There is much less on the table to entice Canada into signing.

There are still sticking points which need solving before the agreement can proceed. The Canadian government wants to regulate and financially assist cultural industries within Canada. The New Zealand government concerned individual corporations cannot sue governments for anti-competitive practices.

But there is no guarantee the agreement will come into effect. Each country then has to earn its individual parliamentary approval. Despite the cheering and backslapping in Da Nang, we are no closer to seeing the CPTPP come into effect.

Is the deal still attractive to ASEAN nations in its current form?

The major draw to the agreement for ASEAN nations was access to the US markets. The US accounted for 69% of the combined GDP of the 12-member states in the original deal. The Vietnamese fishing and garment industries would have benefitted from 18,000 fewer tariffs on exported products. This would have boosted Vietnamese exports by 11%.

The initial deal encompassed 40% of global GDP. Now the deal has a 13.5% share of global GDP. The deal still boasts of a total trade worth more than US$5 trillion. But ASEAN nations can no longer use the US to offset trade with China.

Singapore already has free-trade agreements (FTAs) with the US and Japan. It would have gained much less than Malaysia and Vietnam from the original agreement.

Source: WTE

The TPP agreement only includes Malaysia’s top trading partners; Japan and Singapore. But Malaysia already enjoys tariff-free trade with both countries.

Source: World Bank

The only significant Vietnamese trading partner included in the deal is Japan. The two countries already signed an economic agreement in 2009.

The departure of the US has removed many of the benefits of the agreement for ASEAN. It makes the concessions more difficult to accept. For example, when Vietnam stood to gain access to the US market, reforming labour laws in line with the agreement was acceptable. Now Vietnamese negotiators would like to remove clauses which demand liberalising labour reforms.

Malaysian Prime Minister Najib Razak has also indicated he wants to change the terms of the TPP. He said, “Malaysia is still committed to the TPP, but we want a deal on our terms.”

What would make the deal more beneficial to ASEAN nations?

For Malaysia and Vietnam, they need to regulate and manage the state-owned enterprises. For example, Petronas is Malaysia’s state-owned energy firm. 45% of the Malaysian government’s budget depends on the success of Petronas. Najib’s government could not enter an agreement that would threaten Petronas’ ability to compete.

To protect domestic agricultural industries, ASEAN nations should also insist on the suspension of the clause which requires nations to join the International Union for the Protection of New Varieties of Plants (UPOV-1991). UPOV-1991 hampers farmers to plant seeds left over from planting seasons. This would harm the competitiveness of ASEAN’s domestic agriculture industries.

In its new form, the TPP is underwhelming. It offers few extra benefits to ASEAN nations but demands significant compromises. The Regional Comprehensive Economic Partnership (RCEP) is already expanding on FTAs between ASEAN nations and China, India, Japan, South Korea, Australia and New Zealand.

The whole of ASEAN is also involved in the RCEP. This means more balanced development across all ASEAN nations. ASEAN also has a central role in RCEP negotiations; it carries more negotiating power. ASEAN would benefit from pushing on with RCEP negotiations.

The APEC summit gave a valuable insight into what the TPP would look like without the US. But for ASEAN, it might be best to lay the deal to rest and explore other avenues of growth. Other opportunities that do not require so much compromise will arise.