TPP sans US: Viable or no? Trade analyst weighs in

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UNITED States President Donald Trump’s move to withdraw his country from the Trans-Pacific Partnership (TPP) has left some of the remaining 11-member states scrambling to push on with the deal, despite America’s absence.

But as these 11 signatories work on possibly salvaging the agreement – they’ve given themselves until November to decide – questions have been raised on the viability of keeping the deal alive.

Among others, some have asked why the TPP remains a talking point when the world’s biggest economy has pulled out and why the world has heard so much more about the TPP than any other trade agreement.

Stephen Olson, a Research Fellow at the Hong Kong-based Hinrich Foundation, an organisation that focuses on research on international trade, said there were two reasons for this.

Firstly, he said, the TPP was widely seen as the “gold standard” of trade agreements, being the first such deal in the 21st century that addresses new economy issues missing from previous agreements, such as the digital economy, state-owned enterprises, and the environment, among others.

“I would quibble with that and say the agreement that was exactly reached fell far short of those goals, but it was at least positioned as the first 21st century trade agreement.”

SEE ALSO: Asian nations try to save TPP trade deal after US pulls out

Next, Olson said the TPP received wide coverage because of its strong geostrategic overtones – it was clearly intended as the economic component of the Obama Administration’s “Pivot to Asia”.

He said it was also meant to signal to allies that after a decade of wars and misadventures in the Middle East, the US was turning its attention back to East Asia. In addition to that, the US was using the TPP to flex its muscles at Beijing, sending a “not-so-subtle” signal to the rising Asian powerhouse that it would not likely be ceding its influence in the region.

However, Olson said, that the accord in its original form would stumble the way it has was inevitable.

“Although it was President Trump who pulled the US out of the TPP, let’s keep in mind the political context. Trump was really just firing a couple of bullets into a corpse,” Olsen told a group of foreign journalists, including this writer, last week.

He pointed out that even Trump’s presidential opponent Hilary Clinton had indicated her opposition to the deal, which was nowhere near achieving the congressional support it needed to take off.

The trade analyst was speaking at the KPMG conference room in Hong Kong, one of five scheduled city stops made by the delegation participating in the East-West Center’s Jefferson Fellowship 2017 programme. The three-week course to study Trump-era trade, security and strategic relationships in the Asia Pacific also took the journalists to Honolulu, Tokyo, Beijing, Shenzen, and Manila.

Potential paths forward

On the sidelines of the Asia-Pacific Economic Cooperation (APEC) meetings in Hanoi, Vietnam, last month, the TPP’s original members looked bullish on proceeding with the deal sans US.

The hope was, more or less, to proceed with the TPP as it is, with as minimal as possible modification to the original agreement.

However, Olsen said the way it is currently constituted, the TPP cannot go into effect with the US.

In its current form, the deal requires ratification by countries accounting for at least 85 percent of the 12 members’ combined Gross Domestic Product (GDP). And because the US had accounted for at least 60 percent of the combined GDP, its withdrawal effectively prevented the deal from going into effect, at least, as is.

“It’s not a matter of keeping the agreement as is by scratching the name of the US out of it and passing the agreement – it requires at least that minor modification so it can go into effect,” Olsen said.

“If that holds together and that proves to be viable, that would be the quickest, simplest and easiest to get the agreement through.”

Stephen Olson, a Research Fellow at the Hong Kong-based Hinrich Foundation, speaks to reporters on the Jefferson Fellowship 2017 programme on May 24.

Chief negotiators of the 11 remaining TPP members are expected to meet in Japan next month to discuss the future of the trade deal without the US. The Tokyo-hosted talks will be followed by the November APEC forum gathering in Vietnam, when the deal may, or may not, be put into force.

If everything falls into place perfectly, Olsen said, TPP “minus one” should be ready to go by the end of the year.

“But then again, how many things in life often go off perfectly?” he asked. “But that’s at least the hope.”

What are the challenges?

Without the US, emerging markets like Malaysia and Vietnam, who could have been major beneficiaries under the TPP as low-cost production hubs, are said to be hesitant to proceed with the deal.

Vietnam, for example, had made some very difficult and painful concessions within the TPP, Olsen said, because it viewed that as the price necessary to get access to the US market.

“But if you pull the US out of the TPP, does it still make sense for Vietnam to stay in? Maybe it does but maybe it requires a more substantial renegotiation.

“Or maybe it would make more sense for Vietnam to walk away from the TPP and focus on a bilateral Free Trade Agreement with the US if the key objective was, all along, to gain access to the US market,” he said.

Malaysia, meanwhile, has said it wants a total renegotiation of the deal, given Trump’s decision to revoke US involvement due to a perceived threat to American jobs.

“One of the reasons we decided to be part of the TPP was the potential access to the American market,” Malaysian trade minister Mustapa Mohamed said in a recent interview. “And if that does not happen one of the major motivations to be part of the TPP will be removed.”

The sentiment isn’t shared by other TPP members like Japan, New Zealand and Australia, for example, who have been pushing for the deal to continue.

“Malaysia will speak for themselves,” New Zealand’s trade minister  Todd McClay said last week. “Some may want to make changes, others less so. We have time and the desire to work in detail to see what it should look like. I am quite optimistic.”

Indeed these issues must be worked out come November and Olsen said member nations have the difficult task of keeping in mind the complex web of concessions and benefits made by some among them prior to the US pullout.

“When you drop the US out, for at least some countries, you’re going to have to recalculate those benefits and those concessions.”

Other scenarios

If “TPP minus one” proves too complicated, Olsen said some countries simply are not going to want to go along with it.

Rising from the ashes could be the “TPP 5”, the idea that the deal proceeds among the five nations the most enthusiastic about moving forward – Japan, New Zealand, Australia, Singapore and Brunei. These countries would hope to bring the other countries in to the agreement at some point.

Olsen said the viewpoints of various countries are fluid and evolving – Japan is now a strong advocate of moving forward but in the immediate aftermath of the US dropping out, Prime Minister Shinzo Abe said a TPP without the US has no meaning.

“So obviously he (Abe) had a real conversion experience and all the positions of the countries involved are emerging and evolving over time, but the five said countries appear to be the most enthuastic (in moving forward with the TPP).”

Canada and Mexico, Olsen said, both appear inclined but may be looking more towards prioritising renegotiations on the North American Free Trade Agreement (NAFTA) with the US. Chile and Peru, he said, appear ambivalent at this stage.

By far the most complicated scenario would be to proceed with the “TPP minus one, plus whoever”, Olsen said, referring to discussions on potentially including more countries into the deal, including China, Korea, Philippines, Thailand, Taiwan and Indonesia.

“If you do that, I would not say that you are starting from scratch, but it would require a very substantial reconfiguration of the agreement and there is no way that you’re getting that agreement done by the end of the year.”

SEE ALSO: Vietnam: TPP members vow to try and push on with deal sans Trump

There’s also the possibility of “organ harvesting from the corpse of the TPP”, Olsen said, with countries picking chapters from the deal and incorporating them into different trade agreements.

For example, both Robert E. Lighthizer, the US Trade Representative, and Wilbur Ross, the US Secretary of commerce, they may use TPP provisions in the renegotiated NAFTA.

Therefore, even if the TPP fails to take off, its provisions may be resurrected in other agreements, Olsen said.

Could the US rejoin the TPP?

Despite Trump’s mercurial presidency, Olsen is of the belief this isn’t likely.

Lighthizer at the Hanoi meetings recently went so far as to say the US was “done with the TPP” and that it was not moving forward on the matter. Vice President Mike Pence during his visit to Tokyo similarlt said the “TPP is a thing of the past”.

However, Olsen said this could change if the Trump government continues down the track of bilateralism, and finds it difficult to gain terms as favourable as what the US received in the TPP.

“Then that would cast the TPP in a different light.”

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