By Sardar Aminullah Khan
The Trans-Pacific Partnership (TPP) was signed in February 2016 between the United States of America (USA) and 11 countries of the Asia-Pacific region. Before ratification President-Elect Trump had a head-on collision with it. TPP would provide substantial strategic and economic benefits for the USA, liberalize the entry of foreign companies and protection of the foreign investors’ rights, enhance its overall influence and advance its leadership in modernizing the rules of commerce for benefit of multilateral trading system under WTO. The agreement is aimed at reducing trade and investment barriers and establishing new rules and disciplines to govern trade and investment. In case it is not ratified, alternatives will be hard to come by soon as TPP took more than five years to conclude. It will also impact the hardly growing green shoots of the US economy. International trade will also have a negative impact including shift of economic leadership.
The geo-politico-economic implications of TPP are widely dilated upon including veracity of potential economic impact, it becoming a litmus test of U.S. credibility in the Asia-Pacific region and abroad, “strategic rebalancing/alliances” and expansion of U.S. soft power to assert global economic leadership. TPP involves new grounds on various trade and economic issues hitherto ignored by previous trade agreements. Tariff-free imports from other TPP countries may lead to loss of market share or even closure of some sectors as has happened in some one-sided FTAs in Asia also. Huge impact is expected due to provisions like investment, services, impact on domestic economic environment, and trade distorting practices such as agriculture (kept out like WTO). Such provisions could fare TPP close to UNCTAD & WTO negotiations that desired free trade but shackled many economies.
Some provisions on investment etc. seemed an extreme way far beyond what is rarely recognized in national administrative and judicial systems, thus making it hard to swallow in terms of reduced sovereignty that might lead to protectionism. Particularly, congruence of domestic law with the TPP when under the TPP a company would have the right under international law to sue the federal government for having overriding effect on domestic laws of member countries. Equal treatment is a serious issue in bilateral tax conventions also.
Strategic implications too have a significant weight. Crafting new rules through “mega-regional” agreements for a large region like TPP rather than the WTO is unfair for others and may undermine state of multilateral trading system; may create competing trading blocs in various continents, cause trade diversion, and may marginalize those falling in the non-integrated blocs. USA itself is already negotiating a bilateral investment treaty (BIT) with China that could boost bilateral investment flows and facilitate its future participation in TPP, while Latin American countries will be impacted by trade and investment provisions.
It is difficult at this time to assess the exact impact of TPP as it needs detailed research. Still, President-Elect Trump’s threat needs to be taken seriously for being a critical part of his core commitments. The world is already far too reliant on bilateral trade agreements and the USA will make it more difficult and costly to export its goods and may not have a primary role and influence in shaping 21st century global trade architecture through such fourth generation trade agreements.
Asia Pacific, marred by few hot-spots, numerous disputes and rising nationalism, is important for US Presidency and policy. TPP members may not like inward-looking and ‘America first’ like rhetoric, USA being a super power engaged at global level in economic and diplomatic realms. They may also not like isolationism in the current state of Chinese rise and shift of world’s economic and political focus towards Asia, possible tilt towards Chinese predominance through trade routes towards an end of any trade rule-based balance of power, Regional Comprehensive Economic Partnership and boost to “divide and trade’ type feeders.
Treaty & Trade Agreement politics is above the basic economic realities of the USA. Despite numerous economic and strategic benefits of trade and agreements, but being predominantly a services economy with lion’s share (80%) of GDP coming from services, it is rather more interested in services. The USA runs a large surplus in trade in services ($ 262(B) in 2015) but hardly finds any place in discussion on export of goods that causes trade deficit. Therefore, one could not underestimate the TPP rejection boggy.
Given the present state of affairs, any substantial threat to TPP could provided China an opportunity to fill the void created by USA leading to its additional space for maneuvering international economic relations. The Chinese block believes that TPP serves as a counter to growing Chinese economic and political influence. China is not oblivious of this reality and its leadership is seemingly devising ways and means to assume the new possible role in case of US withdrawal from TPP. If so, China could shape regional rules of commerce and economic diplomacy through its own trade and investment initiatives.
Ultimately, China may cross the barriers towards creating its own model of an alternate trade and investment cooperation framework as super powers can hardly stop others from seeking favourable trade & investment deals independently. Leaders like late Chavez and Filipino President Rodrigo Duterte keep on sending some early signals to US. Alternate economic leadership will come only if China portrays itself as a bastion of prudent fiscal management, a responsible global economic power, avoids economic and currency policy conflicts, demonstrates to the world as a guardian of trade multilateralism and improves further the transparency of its system.
Aggressive economic diplomacy, recent initiatives such as proactive stance at economic fora like G-20, establishment of Asian Infrastructure Investment Bank, Silk Route Fund, BRICS Bank & President Xi Jinping’s domestic governance campaign are clear signals towards supporting such initiatives and are ultimately going to help develop the alternate models of international trade, sooner or later.
The author is an ex-economic diplomat & can be reached at [email protected]