Now, deal with Trump

If the US President-elect keeps his word, the Trans-Pacific Partnership’s promise of the world’s biggest market will simply vanish.

By Author   |   Published: 2nd Dec 2016   5:11 pm

One of the first announcements of US President-elect Donald Trump was that he would withdraw from the Trans-Pacific Partnership (TPP) trade deal on the very first day of his office, calling it “a potential disaster for our country”. He instead would “negotiate fair bilateral trade deals that bring jobs and industry back”.

Reacting to the statement, Japan’s Prime Minister, Shinzo Abe, a vocal supporter of the 12-nation agreement, pointed out that “the TPP would be meaningless without the United States.”
The deal, which was seen as a big achievement given the different approaches, standards, regulations, protections and priorities in various member countries, envisages removal of tariffs on most goods traded between the member countries, apart from co-operation on issues such as employment practices, intellectual property and competition policies so as to create a new single market, like the European Union.

While Abe rules out renegotiating the pact since “this would disturb the fundamental balance of benefits,” Australian Prime Minister Malcolm Turnbull calls it a “strategic commitment” because it provides “greater access for Australian exports to those big markets”.

The Start
The TPP started taking shape with the P4 (Pacific Four) trade agreement between Brunei Darussalam, Chile, Singapore, and New Zealand that took effect in 2006.
The pact saw a growth in exports of these countries and thus set the base for a much more ambitious Pacific Rim agreement.

The Deal
On November 12, 2011, leaders of the nine Trans-Pacific Partnership countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States – announced the achievement of the broad outlines of an ambitious, 21st-century Trans-Pacific Partnership (TPP) agreement that will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs.

On 4 February 2016, after seven years of negotiations that concluded on October 4, 2015, the final proposal was signed by the 12 countries – US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru — in Auckland, New Zealand. It now has to be ratified by each country’s legislature to take effect.

The 30 chapters of the agreement aim to “promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories’ countries; and promote transparency, good governance, and enhanced labour and environmental protections.”

Size matters
These 12-nations account for around 40 per cent of the world’s economy, ie, $ 107.5 trillion, have a share of 26 per cent in trade with 793 million consumers. Together, their population – at about 800 million – is almost double of the European Union.

If ratified, it will beat the world’s largest North American Free Trade Agreement (Nafta).

Deal matters
According to the website of the US Trade Representative, the pact will boost exports and growth between the member countries. Exports are expected to rise by $305 billion per year by 2025. The US alone will see an increase by $123.5 billion as it removes 18,000 tariffs placed on its exports to different countries focusing on machinery, especially electrical, autos, plastics and agriculture industries.
The agreement adds $223 billion a year to incomes of workers in all the countries, with $77 billion of that going to US workers.

The Coverage
The deal covers a broad range of goods and services, including financial services, telecommunications, and even food safety standards. It intends to either eliminate or reduce tariffs and other restrictive policies from various goods and services, including agricultural products and industrial goods, thereby liberalising trade in a big way.

Exclusion of China
Experts say the move to keep China out was a deliberate one. “It’s meant to balance the trade dominance of both China and India in East Asia. It also provides a trade alliance that gives the United States an excuse to intervene in trade disputes in the oil-rich South China Sea,” they point out
However, the doors are open for others countries to join and the Philippines and China have already evinced interest.

Some criticisms
President Barack Obama favours the deal, but critics in the US claim the deal comes at the expense of jobs and national sovereignty. Many also claim it paves the way for companies to sue governments that change policies and would intensify competition between countries’ labour forces. The secretive manner of the negotiations too did not help and have added to the discomfort.

What next
The deal has to be signed and then ratified by all 12 signatories. To take effect, at least six countries that account for 85 per cent of the group’s economic output, have to ratify it by February 2018. This means that Japan and the US have to be on board.

But Trump’s comments suggest that the US is likely to reject it, and the deal may be dead before it is born.

Countries like New Zealand have suggested that some sort of a deal may be possible even without the US. There are also talks of changing some conditions to enable Trump approve it without losing face.