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Trade in Asia After TPP

August 18, 2017
As one of his first acts as president, Donald Trump withdrew the United States from the Trans Pacific Partnership.[1] The cohort of twelves nations negotiating the agreement constituted 40% of the world’s economic output.[2] Trump’s decision to pull out to focus on bilateral trade agreements<[3] understandably reshuffled the order of trade in Asia for the coming year.

What is TPP?

The partnership itself was very ambitious for a trade agreement. It would have established cross-border rules on key emerging sectors such as e-commerce and financial services and reduced tariffs on sensitive industries such as American sugar and Japanese beef. Importantly, it would have also strengthened labor, environmental, and intellectual property standards and reigned in favoritism granted to the bloc’s state owned enterprises.[4]

Because of its ambition, the agreement also had several detractors. Canadian groups criticized the agreement’s information sharing measures which some feared would infringe on domestic privacy laws.[5] Others were concerned that its intellectual property rules would increase drug prices [6] and that it would damage manufacturing sectors in developed nations.[7] Trump himself called the agreement a “disaster.”[8]

TPP Replacements

Now that the United States has withdrawn from the agreement, there are several ways Asian countries are trying to fill the void, each with important distributional effects.

In the immediate aftermath of Trump’s election, many commentators pointed to the Regional Comprehensive Economic Partnership (RCEP) as the natural platform to replace TPP and govern free trade in Asia.[9] The deal, which has been in negotiations since 2012, excludes the United States, but includes China, India, and the members of ASEAN. Because China has the largest economy amongst RCEP nations, some analysts have concluded that its adoption would be a win for the Middle Kingdom. [10] The reality, however, is more nuanced. Though China would be the largest economy in the deal, the ASEAN nations would form its true “center of gravity.” [11] Even if RCEP comes into force, it would not be nearly as substantive as TPP was. While it would reduce tariffs within the free trade zone, it would not require the same level of environmental and labor standards that would have been demanded by the TPP. [12]

Further, it is not certain that RCEP countries will even come to an eventual agreement. Recent talks in Hanoi laid bare disagreements amongst the negotiators. India has been reluctant to provide a competitive opening to China, refusing to budge from its position of lowering tariffs to zero on only 80% of traded goods, compared to the 92% other trade ministers are demanding.[13] Another important stumbling block has been freedom of movement within the bloc. The nations in the agreement comprise 45% of the world’s population, [14] so negotiating the circumstances of movement within the bloc are sure to be contentious. 

Perhaps the most aspirational trade framework under consideration is the Free Trade Area of the Asia-Pacific (FTAAP). Initially proposed by the United States over a decade ago, FTAAP is the largest of the deals under consideration, encompassing twenty-one Asia-Pacific economies. [15] Though leaders committed “to the eventual realization of the FTAAP” after their summit in November, [16] negotiations are still early and are less developed than those of TPP and RCEP. 

Finally, the remaining members of the TPP itself, known as the TPP 11, have been negotiating an amended version of the agreement that would not include the United States. America alone accounted for 60% of the bloc’s GDP, [17]and recent rounds of talks have revealed differences in how the remaining members would approach a new agreement. Japan, Australia, and New Zealand, who stood to gain substantially from TPP, want a new deal that keeps as much of the original as possible. [18] Fearing protracted negotiations and less favorable terms, they are wary of renegotiating tariff schedules [19] and would like to see the high labor, environmental, and intellectual property standards remain.[20] However, Vietnam and Malaysia, who agreed to high standards largely to gain access to U.S. markets, would like to see a more robust renegotiation that puts child labor laws, state owned enterprise transparency, and drug patent protection back on the table.[21] With Japan in part banking their negotiations on the prospect of the United States rejoining the deal, [22] whether the TPP 11 will ever come to a deal remains uncertain.

Image: An anti-TPP rally in Washington D.C., April 2015. Source: Wiki CommonsImage: An anti-TPP rally in Washington D.C., April 2015. Source: Wiki Commons Credit: Wiki Commons

Bilateral Approaches

Though multilateral negotiations remain sluggish, President Trump’s withdrawal from the TPP has breathed new life into bilateral trade deals.

At the G20 in July, Japan announced a new free trade agreement with the European Union, the largest agreement ever struck by the EU.[23] The deal would reduce tariffs on Japanese car exports to Europe and European food exports to Japan,[24] but its most important significance is likely geopolitical. The United States had been in free trade negotiations with both Japan and the European Union before Trump took office and the deal is best understood as an attempt by both parties to push Trump towards multilateral negotiations. That is why Abe is trying to negotiate a new TPP 11 deal that the United States could easily rejoin and why he has been tepid to engage in a bilateral deal directly with the U.S.

However, Trump has shown no interest in multilateral negotiations. After a recent meeting with President Moon of South Korea, he called for the renegotiation of the U.S.-Korea Free Trade Agreement (KORUS), even though America has a services surplus in its trade with South Korea.[25] Further, even though Trump has not withdrawn from NAFTA, his administration sees its renegotiation efforts as a fundamentally bilateral endeavor. [26]

Conclusion

With the United States taking a zero-sum, bilateral approach to international trade, the dynamic in Asia has fundamentally changed. Though the three main multilateral trade frameworks under consideration face obstacles towards adoption, each would reshape the region in important ways. If in the end RCEP is adopted over the TPP, important labor and environmental standards would slide, allowing key developing economies to put off reform and damaging the U.S.’ regional influence in the future.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1]“APEC 2016 Leader’s Declaration.” Asia-Pacific Economic Cooperation, November 20, 2016. https://www.apec.org/Meeting-Papers/Leaders-Declarations/2016/2016_aelm.aspx.

  [2]Granville, Kevin. “What Is TPP? Behind the Trade Deal That Died.” The New York Times, January 23, 2017. https://www.nytimes.com/interactive/2016/business/tpp-explained-what-is-trans-pacific-partnership.html.

  [3]Higgott, Richard, and Richard Stubbs. “The Trans-Pacific Partnership: For, Against and Prospects.” E-International Relations, April 13, 2016. http://www.e-ir.info/2016/04/13/the-trans-pacific-partnership-for-against-and-prospects/.

  [4]Kanter, James. “The E.U.-Japan Trade Deal: What’s in It and Why It Matters.” The New York Times, July 6, 2017. https://www.nytimes.com/2017/07/06/business/economy/japan-eu-trade-agreement.html.

  [5]Lima, Cristiano. “Trump Calls Trade Deal ‘a Rape of Our Country.’” Politico, June 28, 2016. http://www.politico.com/story/2016/06/donald-trump-trans-pacific-partnership-224916.

  [6]Mishra, Asit Ranjan. “RCEP Agrees to Work on Modalities for Movement of Skilled Workers.” Live Mint, November 9, 2016. http://www.livemint.com/Politics/oYhlhzbUGxd382lGt3OvUN/RCEP-agrees-to-work-on-modalities-for-movement-of-skilled-wo.html.

  [7]Murray, Lisa. “TPP, RCEP, FTAAP: Trade Deals Explained.” The Australian Financial Review, November 14, 2016. http://www.afr.com/news/world/tpp-rcep-ftaap-trade-deals-explained-20161114-gsp4cq.

  [8]Obourn, Erin. “Critics Cry Foul as New Trans-Pacific Partnership Details Emerge.” CBC News, November 6, 2015. http://www.cbc.ca/news/business/trans-pacific-partnership-details-1.3308248.

  [9]Panda, Ankit. “Trump Killed TPP. What’s Next For Trade in Asia?” The Diplomat, January 24, 2017. http://thediplomat.com/2017/01/trump-killed-tpp-whats-next-for-trade-in-asia/.

  [10]“RCEP and TPP Compared.” Asian Trade Centre, November 30, 2016. http://www.asiantradecentre.org/talkingtrade//myvwg5yr21a93pkjc45bwzx3wtbc3z.

  [11]Rich, Motoko. “TPP, the Trade Deal Trump Killed, Is Back in Talks Without U.S.” The New York Times, July 14, 2017. https://www.nytimes.com/2017/07/14/business/trans-pacific-partnership-trade-japan-china-globalization.html?smid=tw-share&_r=0.

  [12]Sen, Amiti. “RCEP Hanoi Talks: India Not Willing to Go beyond 80% Tariff Elimination in Goods.” The Hindu Business Line, May 23, 2017. http://www.thehindubusinessline.com/economy/rcep-hanoi-talks-india-not-willing-to-go-beyond-80-tariff-elimination-in-goods/article9710892.ece.

  [13]Swanson, Ana. “Trump Administration Formally Launches NAFTA Renegotiation.” The Washington Post, May 18, 2017. https://www.washingtonpost.com/news/wonk/wp/2017/05/18/trump-administration-formally-launches-nafta-renegotiation/?utm_term=.1375df99da6a.

  [14]Tan, Huileng. “A Likely Beneficiary of Trump’s Tough Talk on Trade: China.” CNBC, November 16, 2016. http://www.cnbc.com/2016/11/16/president-elect-donald-trumps-trade-stance-could-nix-tpp-boost-chinas-rcep.html.

  [15]“TPP 11 to Discuss Writing US out of Trade Pact.” Nikkei Asian Review, July 8, 2017. http://asia.nikkei.com/Politics-Economy/International-Relations/TPP-11-to-discuss-writing-US-out-of-trade-pact.

  [16]“TPP Public Health Letter to Congress,” April 15, 2016. https://www.doctorswithoutborders.org/sites/usa/files/us_tpp_public_health_letter_12_april_2016_updated_18_april.pdf.

  [17]“TPP: What Is It and Why Does It Matter?” The BBC, January 23, 2017. http://www.bbc.com/news/business-32498715.

  [18]Trump, Donald J. “Presidential Memorandum Regarding Withdrawal of the United States from the Trans-Pacific Partnership Negotiations and Agreement.” The White House, January 23, 2017. https://www.whitehouse.gov/the-press-office/2017/01/23/presidential-memorandum-regarding-withdrawal-united-states-trans-pacific.

  [19]“US Seeks to Renegotiate South Korea Trade Deal.” The BBC, July 13, 2017. http://www.bbc.com/news/business-40589145.

  [20] Rich, “TPP, the Trade Deal Trump Killed, Is Back in Talks Without U.S.”

  [21] Ibid.

  [22] Ibid.

  [23] Kanter, “The E.U.-Japan Trade Deal: What’s in It and Why It Matters.”

  [24] Ibid.

  [25] “US Seeks to Renegotiate South Korea Trade Deal.”

  [26] Swanson, “Trump Administration Formally Launches NAFTA Renegotiation.”

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