Divesh Kaul | 6 MARCH, 2017
President Trump formally signed-off America’s goodbye to the ambitious Trans-Pacific Partnership (TPP) as he directed the withdrawal from its negotiating process on January 23, 2017, his first full weekday in office. This step brought an end to America’s association with the “mega-regional” trade agreement, which sought a deep integration partnership with other eleven countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) of the Asia-Pacific region to attain extensive liberalization in goods and services while entailing comprehensive coverage of trade in services, investment, government procurement, non-tariff measures and various regulatory expenses.
Representing approximately 40 percent of the world’s economic output and a collective population of roughly 800 million, these twelve “TPP” countries aspired to deepen economic and political ties, slash trade barriers and foster trade to boost growth. The transformation from the “Pacific 4” agreement signed in 2005 (original State parties being Brunei, Chile, New Zealand and Singapore) to the emergence of the “mega-regional” TPP agreement was characterized arguably as the most significant trade policy matter in the Pacific Rim region. Although the United States under the erstwhile Obama Administration officially made the announcement way back in November 2009 to join the TPP talks with a view to establishing the free trade agreement (FTA) with “like-minded” trading partners, the political and public rhetoric engirdled it with mixed emotions and the recent culmination of the bitterly long presidential campaign have led to the scale-up thereof.
Comprising 30 chapters and an array of annexes and side letters, TPP is the largest free trade agreement (FTA) negotiated in human history. The United States Trade Representative (USTR) portal defined TPP as “a comprehensive agreement that will open markets, set high-standard trade rules, and address 21st-century issues in the global economy.” The former Obama Administration pursued TPP as a tool to promote jobs and increase economic growth in the U.S. Exceeding 6000 pages, TPP agreement, specifically, is a comprehensive text detailing provisions related to new and meaningful market access for goods and services; strong and enforceable labor standards and environmental commitments; groundbreaking rules to ensure fair competition between State-owned enterprises and private companies; commitments that will improve transparency and make it easier for small and medium sized business to export; a robust intellectual property rights framework to promote innovation, while supporting access to innovative and generic medicines, and; obligations that will promote an open Internet and a thriving digital economy.
Trade scholars find consensus on a variety of characteristic hallmarks promised by TPP. First, TPP afforded comprehensive market access covering all trade sectors (including financial services), unless specifically exempted. Second, unlike small bilateral agreements, TPP had comprehensive and cross-cutting regional mechanisms including regulatory requirements concerning the non-tariff barriers and transparency; business facilitation to enhance competitiveness; small or medium sized enterprises, and; customs, trade facilitation, and capacity building. It even touched upon the emerging trade subjects with regard to e-commerce and the digital economy, environmentally-friendly growth, and public health. Third, it is a living and dynamic agreement as it embraces the contemporary phenomenon in trade, FDI, and technology, and therefore, has a longer shelf-life. Its dynamism reflects by its design to allow broadening of coverage and being open for revision on an ongoing and regular basis.
International financial institutions and trade scholars exhibited a mixed response and even questioned its aggrandized economic benefits, particularly for the U.S. The World Bank’s 2016 Global Economic Prospects Report predicted that, by 2030, TPP would (overall) raise member country Gross Domestic Product (GDP) by 0.4-10 percent, and by 1.1 percent, on a GDP-weighted average basis. Also, the largest gains in GDP were not to be reflected in the U.S., but in the smaller ones, such as Vietnam (10%) and Malaysia (8%). Concerning the effect on employment, the Report indicated that TPP was unlikely to affect overall employment in the long run. However, it could induce sectoral shift between industries and the nature of jobs. As perceived generally, advanced economies would side traded services and advanced manufacturing, whereas resource-rich countries may further attract investments and primary products. Developing countries, such as Vietnam would gain more wages of unskilled workers (more than 14%) by 2030. The U.S. was likely to see a small increase in unskilled (0.4%) and skilled (0.6%) wages.
A study conducted at the Peterson Institute for International Economics estimated that in terms of incomes, exports, and foreign investment, TPP promised $131 billion (or 0.5% of GDP) as annual gains for the United States and $492 for the world by 2030. Although, TPP was not likely to affect the overall employment in the U.S., the “churning” needed to be looked into and dealt with the help of appropriate policy mechanisms, such as adjustment costs and substitution by alternative employment.
Incidentally, TPP served some interests other than the economic ones. In view of the geostrategic considerations – the “rebalancing” of Asia with a reinforced position of the U.S. in Asia and countering China’s regional hegemony. The rebalancing encompassed political, security and economic pillars. Indeed, the U.S. was not even a party to the initial Pacific 4 Agreement. Many allies of the U.S. in Asia favored its greater engagement in the region. It is argued that the progress on the economic component has rather been limited, whereas there have been tangible achievements on the political and security grounds.
Despite being a major trading country in Asia, China remained away from TPP. About China not being included in the deal, even former Obama administration was explicit that this was no accident. Anyway, China has been negotiating the Regional Comprehensive Economic Partnership [RCEP] with 15 other Asia-Pacific Rim countries since 2012, and more recently, the One Belt One Road and the Asian Infrastructure Investment Bank. Noted Economists and trade scholars including Professor Jagdish Bhagwati and Professor Raj Bhala endorsed that TPP, more than trade, was about America’s geo-strategic partnership with its allies in the Asia-Pacific region.
Additionally, TPP provided a “backdoor” way of creating a bilateral free trade agreement between the U.S. and Japan, which might have been politically difficult otherwise. Despite being a conglomerate of twelve countries (as of 2016), TPP was largely a free trade agreement between the United States and Japan and these two countries together accounted for approximately 60 percent of its economic benefits.
Nonetheless, TPP attracted a lot of adverse publicity even before the recently culminated U.S. presidential campaign began generating heat, particularly from the sections of civil society. Some of the primary contentions were the amount of secrecy through which its negotiations were carried and the claims that it mostly served the interests of pharmaceutical and other industries eyeing a bigger international market and higher profits, so much so that free trade agreement rather became a “managed” trade agreement.
The neo-liberal critique formed against TPP inter alia stemmed from its adverse effects on furthering the imbalance in (increasing financial and weakening labor) power; severe constrains on environmental, health and safety regulations; paying a mere lip-service to poverty alleviation; failure in addressing issues such as currency manipulation; inadequate provisions on human rights, and; undermining the public function of dispute settlement process by allowing corporations to sue government instead of the conventional WTO standard of government-to-government suits.
This step also undercuts a country’s basic right to pass regulations for health, safety, the environment or managing the safety, which for some foreign corporations may not be investment favorable measures. Not to mention, TPP could raise the price of medicines by making the introduction of generic drugs more difficult and poorer member countries would face more consequences and unnecessary deaths.
Nobel Laureate and economist, Joseph E. Stiglitz observed that although TPP would enrich corporations, it “will not necessarily help those in the middle, let alone those at the bottom.” Another steadfast critic of TPP, Noam Chomsky designated it a “neoliberal assault” on working people intended to further corporate domination and to set the working people in the world in competition with one another to lower wages and to increase insecurity. Chomsky called TPP a “half-secret,” since it was not secret from the hundreds of corporate lawyers and industrial lobbyists, but at the same time, it was kept secret from the public. Along the same lines, Professor Bhala described TPP as an acronym for “Trade Policy for Plutocracy.”
Preferential trade agreements (PTAs) have emerged as an important mean to further regional and collective progress, and strengthen the intra-regional association. PTAs serve as an important link in the three-tier process for “competitive liberalization” or “parallel liberalization” toward the end of global free trade, whereby trade liberalization at regional level runs simultaneously with multilateral and bilateral levels. Mega-regional trade agreements (MRTAs) go a step further than a traditional smaller FTA in terms of scope. Being sufficiently large and ambitious to influence trade rules beyond their areas of application, MRTAs have a systemic and global impact. MRTAs such as TPP are the means to enable a higher benchmark for future reforms for global trade regime by allowing the percolation of regulatory and other sectoral reforms. MRTAs may help streamline the Spaghetti Bowl effect at the regional level. However, Professor Bhagwati has suggested a careful approach of open regionalism by not compartmentalizing a regional trade agreement.
Whereas the long-term implications of President Trump’s executive order to withdraw from TPP will be studied in the times to come, the off-hand action, however, invokes a scrutiny of the end of a yet-to-begin chapter of United States’ international trade framework. Certainly, there is a consensus among economists about the overselling of TPP’s economic benefits without addressing other issues such as transparency and securing or addressing the interests of the constituencies getting adversely affected (no wonder Professor Bhala awarded TPP a “B” grade, reflecting an average mean of “C” on economics and an “A” on national security).
Although trade and human rights have been viewed as antagonistic, but for a 21st-century trade agreement termed as “gold-standard,” the provisions on labor standards and human rights were feeble, particularly with the given realities of some TPP member parties with a contentious human rights track record.
Whether or not America’s withdrawal from TPP was appropriate, the question certainly will have different responses from different scholars and constituencies. Was the unceremonious withdrawal by the new President on his first day at the office from an agreement (negotiated by the previous regime for more than six years) a policy-backed or thoroughly researched action to secure domestic jobs or promote protectionism? Evidently, international trade became a critical domain in the bi-partisan discourse, whether it was the rhetoric of writing the next generation trade rules or else going the bilateral way.
Could wisdom prevail if, after winning the election, another claim of revisiting TPP and its contentious provisions was made? Would it be like opening Pandora’s box? Preferential trade agreements have become inevitable in today’s times. Pursuant to the Doha setback, regional and mega-regional trade agreements could further the cause of elimination of tariff and non-tariff trade barriers. Rule-making in the universal trading system has expanded from global to bilateral, regional, and sectoral agreements covering not only trade in goods and services but also agriculture, intellectual property, regulatory barriers, cross-border investments, and many other complex modern trade and non-trade aspects.
With America dashing the TPP, the fate of other trade agreements, such as North American Free Trade Agreement (NAFTA) remains undetermined, given the campaign rhetoric of President Trump. In the years to come, perhaps the counsel that an across the board domestic welfare policies balanced with a comprehensive and transparent international trade policy may dawn upon as a better campaign rhetoric than merely favoring policy-lacking protectionist agendas. As for now, TPP perhaps could characterize as an acronym in America’s trade terminology for “Trump’s Political Preeminence.”
(Divesh Kaul is currently working on his doctoral research at Tulane University, USA, with a focus on international economic law. He has previously taught at the Royal University of Bhutan and University of Delhi and worked at the grassroots development organizations in India. )