TPP, without US, is back in talks

When President Donald Trump pulled out of his predecessor’s signature trade deal on his first full weekday in office, the 11 other countries that had negotiated the pact were left wondering if years of work had just gone down the drain.

Last week, those countries indicated they wanted to press ahead with the Trans-Pacific Partnership, or TPP, a sweeping multinational trade agreement that had been sold as a way to tether the US more closely to East Asia and to create an economic bloc capable of standing against an increasingly muscular China.

At a meeting in Hakone, a resort town south of Tokyo, Japan led the trade negotiators from the 11 countries — including Australia, Canada, Malaysia and Vietnam — in discussions about reviving the complex web of trade rules that would improve labour conditions and increase protection for intellectual property in some countries while opening more markets to free trade in agricultural products and digital services around the region.

Japan’s effort to salvage the deal reflects a growing recognition that countries that have previously counted on US leadership will have to forge ahead on their own. In Japan, officials are particularly eager to pre-empt China’s attempt to forge a rival trade pact, the Regional Comprehensive Economic Partnership. That deal would bring together 16 countries, including the ones in the TPP, albeit under considerably less stringent rules.

Kazuyoshi Umemoto, Japan’s chief negotiator, told reporters that the group of 11 “achieved mutual understanding on a path forward” without the US. “We need a new international agreement,” Umemoto said. “I think we have reached a rough picture of what it will be like.” Momentum for such deals has built in recent weeks, as big US allies have pledged their commitment to globalisation.

On the eve of the Group of 20 summit meeting in Hamburg, Japan and the European Union announced the outline of a broad agreement that would create a trading bloc encompassing $20 trillion in combined economic output. The deal was announced as the US appeared increasingly isolated on issues like free trade and the environment.

Trump has repeatedly made clear his antipathy toward free trade, vowing to protect American workers and rebalance trade deficits with other countries. Last week, US Trade Representative Robert Lighthizer sent a letter to the South Korean government saying that the administration was eager to revise a trade agreement between the two countries that has been in force for five years.

If Japan and the 10 other signatories are to keep the TPP alive, they would need, at the very least, to revise a clause that says the deal will come into effect only when ratified by six countries representing 85% of the combined economic value of the 12 original members. Without the US, that threshold cannot be reached.

Japan, which has the largest economy among the remaining trade partners, is pushing to preserve most of the ambitious rules that negotiators originally hammered out, as are Australia and New Zealand. “The hope, of course of Japan, is to maintain the status quo of the already agreed framework, including the details,” said Tomohiko Taniguchi, a foreign policy adviser to Prime Minister Shinzo Abe.

While optimistic that Japan could lead the group toward consensus, Taniguchi, who referred to the remaining TPP countries as the “Ocean’s 11,” acknowledged that the discussions would be challenging. “Negotiations, once started, could turn in all sorts of different directions,” he said. “It’s a gathering of 11, after all, self-centred, even selfish countries. All sorts of negotiations are likely happening.”

Developing countries such as Vietnam and Malaysia may want to renegotiate some of the tougher requirements that they accepted in exchange for the promise of access to US markets.

The agreement, for example, requires developing nations to reform child labour laws as well as improve the transparency of state-owned companies, and it permits drugmakers in the large economies to extend patent protection on many pharmaceuticals that the smaller countries want to manufacture.

Some of the developing countries may protest that such requirements are too onerous without the incentive of being able to export to American consumers.

“The problem is, when you take the US out, it is two-thirds of the TPP,” said Jeffrey Wilson, a research fellow at the Perth US-Asia Centre at the University of Western Australia. For developing countries being asked to make expensive overhauls, Wilson said, “What is the point of the deal anymore?”

Japan’s goal is to preserve as much of the original deal as possible in the hope that the US will eventually rejoin. “We should welcome Washington when it decides to come back at some time in the future,” said Ichiro Fujisaki, a former Japanese ambassador to Washington.

Wishful thinking

Some observers see those hopes as naive. “I think it’s simply wishful thinking that the Trump administration will change its mind about the TPP,” said Takuji Okubo, managing director and chief economist at Japan Macro Advisors. “So long as he remains the president, I don’t think he will actually make that turnaround.”

Others suggested that advisers to Trump might try to change his mind once he sees how difficult it can be to negotiate bilateral trade agreements. But in that case, they say, the 11 remaining countries should not alter the TPP.
“If they try to renegotiate the rules or lower the standards, it will make it harder for the US to rejoin the agreement down the road,” said Bruce Andrews, deputy secretary of the Commerce Department in the Obama administration and now a managing director at Rock Creek Global Advisors, a consulting firm. 

In Japan, Abe has his own political reasons for wanting to push ahead with the TPP. Abe expended considerable political capital for the deal, going up against farmers who have traditionally supported his Liberal Democratic Party. The agreement would require Japan’s closed agricultural sector to accept imports of rice, pork and other products.

Abe has also recently been dogged by influence-peddling scandals, and his party suffered a resounding defeat in a recent local election in Tokyo. By agreeing to the trade deal with the EU last week, he was able to score a quick victory. “I think it’s important to keep that momentum,” said Jun Saito, a senior research fellow at the Japan Centre for Economic Research.

Japan has indicated that it wants to secure an agreement between the remaining 11 countries in the Trans-Pacific Partnership by November, when many of them will gather at a summit meeting in Vietnam.

Most analysts say any agreement is unlikely to be completed that quickly. Still, said Shumpei Takemori, a professor of economics at Keio University, the reopening of negotiations allows Japan and its allies to “show the US administration that we have alternatives.”