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Trans-Pacific Trade in A Troubled World

01 Oct Trans-Pacific Trade in A Troubled World

When Japanese and American trade negotiators met in Washington DC last week, their bilateral discussions mattered to many other countries. The Trans Pacific Partnership (TPP) has grown to include twelve countries that represent some 40 per cent of global GDP and about one-third of all world trade. The lack of compromise between the USA and Japan – by far the largest economies in the negotiations — impacts the whole region.

This goes beyond specific sticking points on agriculture and automobiles. Strategy and credibility are at stake.

For the USA, President Barack Obama has made the TPP a major initiative in his “rebalance” or pivot to Asia.  Beyond military presence, this is meant to be America’s major economic initiative for Asia-Pacific engagement. In Japan, Abenomics is attempting its “third arrow” on structural reform but economic confidence over the past months has declined. Concluding the TPP would be a major signal of the Abe administration’s commitment to reform.

For these reasons, despite the impasse last week, the US and Japan must try again to settle their differences and lead the way to an agreement.

With the TPP now past four years of negotiation, time is not on their side.  Last week’s failure relates to the mid term elections in America, set for 4 November. Even if Japanese concessions were given, many believe the Obama administration would not be able to obtain Congressional “fast track” authorization and conclude the TPP. Another window may come after those mid-term elections.

But realism is also needed. The promise that the TPP should be a “gold standard” and “21st Century” agreement has haunted the negotiations. Some have taken this as an excuse to include every demand that American lobbyists have harbored.

In addition to the unresolved bilateral issues between the USA and Japan, the standards demanded on labor, environment, and intellectual property protection are exacting. There are also issues specific to different countries.

Vietnam’s state owned enterprises could be impacted. Malaysia is trying to retain preferences in government procurement to favor bumiputra, ethnic Malays. On the other side of the Pacific, Canada has an issue about diary products.

Yet despite this, there has been progress. While negotiations have been secretive, the majority of terms seem already agreed in principle, with only smaller issues outstanding – albeit sticky and championed by sectoral interests. Strategic intent and realism should mean the parties conclude a good agreement sooner, rather than to hold out for the best later, or perhaps never.

Look otherwise at the Doha Round in global trade negotiations — which candidly are among the walking dead. In our troubled world, as growth prospects have moderated, nationalistic concerns have re-emerged. Agreements that can bolster economic integration and growth are needed. But an agenda that is too heavy and ambitious will fail.

If the TPP fails to conclude as scheduled, there will be costs – chief of which would be the credibility of the USA and President Obama. Some will also blame Tokyo and, in toto, the US-Japan alliance.

Attention will then shift to alternative ways of moving ahead. The TPP, after all, is not the only effort in the region. Other proposals are at varying stages of discussion among different, partly overlapping, groups.

One is the Regional Comprehensive Economic Partnership (RCEP), which has already held five rounds of discussion. RCEP does not include the USA and instead centers around ASEAN to bring together all major Asian economies – including China and India, where RCEP governments will meet again in December.

China is also talking up the possibility of a free trade pact among all members of the Asia Pacific Economic Cooperation, which it will host in November. Additionally, Beijing has been busy offering economic integration initiatives that offer considerable upside and yet are light on legalities.

One is China’s pledge to help build and fund infrastructure, both bilaterally and through a new Asian Infrastructure Investment Bank, now being formed. Another is the expected upgrading of the ASEAN-China Free Trade Agreement. China is already the largest trade partner for ASEAN and expectations are that trade will grow further — to US$500 billion by 2015 and US$1 trillion by 2020. Projections also see two-way investment flows of $150 billion within the next eight years.

The failure of the Japanese and Americans to compromise last week is not irretrievable. TPP negotiations are advanced and, if concluded on schedule and realistically, could set the direction for others to come on board thereafter.

American and Japanese officials must return to the negotiating table in the months ahead. When they do so, they would do well to look out of the window and then at the clock. They may then be reminded that there are broader strategic imperatives at stake, and time will not stand still in a troubled world.


Simon Tay is chairman of the Singapore of International Affairs and Associate Professor at the National University of Singapore Faculty of Law. This article was first published in The Nation on 1 Oct 2014.