US president-elect Donald Trump’s opposition to the Trans-Pacific Partnership (TPP) is well-known and the future of the trade deal is now on tenterhooks. For the supporters of the TPP, Trump’s victory has meant that their worst fears are now going to unfold. Opponents of the trade deal are rejoicing at their expectation that Trump will now move quickly to fulfill one of his most controversial campaign promises – to abandon the TPP. Any prospects of the US renegotiating the TPP are not only bleak but also impractical – the trade deal was seven years in the making, meticulously negotiated and involved compromises from several countries on both sides of the Pacific.
Implications for ASEAN
So now if the US does ultimately withdraw from the TPP, what implications will this have for free trade in the ASEAN region? Before analyzing this, it should be kept in mind that TPP’s potential failure is unlikely to have any significant immediate economic impact on the region. It was not a trade deal in force, but only offered prospects of newer free trade rules coming into effect in the near future. Instead of being a step backwards, it is more a lack of further progress as far as development of free trade in the region is concerned.
Brunei, Malaysia, Singapore and Vietnam are the four ASEAN member states who are parties to the TPP, and of them, only Singapore has a separate FTA with the US. While some of them – especially Singapore and Vietnam- acknowledge that the TPP is now in jeopardy, they have made it clear that they will move forward in negotiating their own FTAs with other countries in the Asia-Pacific region.
Among the ASEAN members, Vietnam was widely considered as the country most likely to get an immediate economic boost from the TPP. According to Vietnam’s Minister of Trade and Industry Tran Tuan Anh, the country will continue reforms to improve its business and investment environment and negotiate other agreements whether US president-elect Donald Trump thwarts the TPP or not. Deputy Prime Minister and Foreign Minister Phạm Binh Minh stated that if the TPP is not ratified, it will be considered a setback, as countries spent much time and effort on the negotiation process. However, he noted that besides the TPP, Vietnam has concluded FTAs with many other partners, including the European Union (EU). Deputy Minister of Industry and Trade Do Thang Hai said that with or without the TPP, Vietnam’s policy towards international economic integration will remain unchanged.
An ardent supporter of the TPP, Singaporean Prime Minister Lee Hsien Loong has stated that he feels “disappointed that the TPP looks very unlikely, or will not be passed, or ratified now” as reported by The Straits Times. The newspaper quoted him referring to Trump: “He had no sympathy for the TPP at all and I think that’s a disappointment to all of us who worked so hard to negotiate the TPP”. In reply to queries if the TPP could be salvaged if its terms are renegotiated or possibly changed to include countries like China, Lee said, “It’s not so easy to say we change the terms, what are you going to change?… And if you bring in a new country, it would be a completely new deal altogether because a new country, particularly if it’s a big one, is not going to sign on to everything which has already been agreed before they were participants”.
The Road Ahead
China is likely to gain from potential US abdication of the TPP. China is the key driver behind the Regional Comprehensive Economic Partnership (RCEP), a trade agreement between the 10 members of ASEAN, as well as Australia, China, India, Japan, New Zealand and South Korea. In the event that the TPP fails, the momentum towards the RCEP is likely to gain strength as China is likely to push for a successful conclusion.
Japan, a key US ally who viewed the TPP as an effective mechanism to contain China’s growing economic clout in the region, has indicated willingness to turn towards the RCEP. Japanese Prime Minister Shinzo Abe has recently stated that there is now “no doubt there would be a pivot to the RCEP if the TPP doesn’t go forward”. He added that Japan “will shift focus to RCEP should the TPP not go ahead”. Leaders of Asia-Pacific countries, including the US, Japan, Australia and China, are scheduled to meet during the upcoming Asia-Pacific Economic Cooperation (APEC) annual summit in Lima, Peru on November 19-20. China’s President Xi Jinping is expected to garner support for the RCEP from Asia-Pacific countries during the summit.
Unlike most other free trade agreements, the TPP included some special provisions on areas such as labor standards, governance and transparency standards, and environmental and intellectual property protection. RCEP, on the other hand, does not include provisions that emphasize protection of intellectual property, free flow of information or the leveling the field between private businesses and state-owned enterprises.
With the dimmed prospects of the TPP, it is now possible that countries, such as Vietnam and Malaysia, which had made substantial compromises on issues such as labor rights, will now have to move on to other deals. The RCEP, for instance, could be a viable alternative for Vietnam in the event that the TPP fails to go ahead. Vietnam stands to gain from increased sourcing of production from such RCEP member countries as Japan, South Korea and China.
While the RCEP will remain an alternative, a more likely outcome is that the TPP’s place may well be taken by the Free Trade Area of the Asia-Pacific (FTAAP), a proposed larger trade-pact for the Asia-Pacific region, also promoted by Beijing.
In the final analysis, like Vietnam, countries involved in the TPP will have Plan B’s. However, as New Zealand’s ambassador to the US remarked recently, “The tragedy would be that the Plan B’s we have would not include the United States”.
For a detailed analysis of how the FTAAP may well replace the TPP, please see the Op-Ed Commentary by Chris Devonshire-Ellis, Founder and Chairman of Dezan Shira & Associates.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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