December 5, 2017
One of the first actions newly-installed U.S. President Donald Trump took was to formally cancel U.S. participation in the Trans-Pacific Partnership Agreement (TPP). Far from dead, however, the TPP still lives on in a new form, the Comprehensive and Progressive Agreement for Trans Pacific Partnership.
That agreement was a complex international trade treaty, driven very much by the United States and developed in partnership with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. China was explicitly blocked from the agreement, in large part because one of the major intents of the TPP was to assist nations signing the TPP in becoming less dependent on trade with China.
In its original form, the TPP was criticized by many as an end-run around existing country regulations, particularly in the United States, in a deal which very much favored big business and big pharma at the expense of the American workers and the American public.
On a positive side, the deal did include many tariff and non-tariff approaches to making trade easier between countries involved in the agreement. It included specific tariff restrictions that many felt were unbalanced, and complex enough that even experts were unclear as to which countries involved in the agreement would end up ‘winners’ afterwards and which would end up ‘losers’. The Peterson Institute for International Economics, the World Bank and the Office of Chief Economist at Global Affairs Canada showed the treaty would have provided positive benefits for all signatories. A separate study at Tufts University, along with others, said it would have had unbalanced outcomes. Further analysis by trade unions, especially in Canada, suggested significant negative impacts on the automotive industry in that country.
Beyond the possible positives of the tariff and non-tariff incentives, there were a number of controversial provisions in the agreement that many outside the negotiating rooms objected to. Those included some unusual provisions regarding intellectual property protection, particularly related to pharmaceutical patents, that effectively extended the legal life of those patents beyond the limits set both by national and international law. Those extensions were seen as a gift to big pharma, especially in large developed nations such as the United States, which were not only able to keep their patents but the TPP also forced tougher enforcement of those patents on smaller developing countries. All of this was seen as effectively raising prices of pharmaceuticals in many countries post-TPP, with the poorest in those countries suffering the most.
A second provision that many challenged as harmful to many individuals was a special investor-state dispute settlement (ISDS) mechanism built into the agreement. The ISDS allowed for companies within the agreement territories to settle disputes regarding those agreements in special ISDS ‘courts’ (of a sort). While that may sound like a logical approach with such complex international trade issues at stake, the creation of the ISDS effectively took away the jurisdictional powers of individual countries for those items covered by the TPP. It also made it virtually impossible for individuals, class-action suits or similar actions involving international trade disputes which might be covered by these agreements to be settled according to the laws of the individual countries. Put more bluntly, the TPP allowed this new agreement to replace existing Federal and State laws covering similar matters, with little consideration or regard of what the effects might be on small-to-medium enterprises that were not part of the lobbying teams for the TPP.
The original Trans-Pacific Partnership Agreement was completed and signed off by the countries at a high level on February 4, 2016. When Donald Trump took charge in the White House, it was still in the process of being ratified internally within the various nations signed up to the agreement – including the United States.
In May, the countries left behind by the United States dropping out of the deal vowed to find a way to move forward on the TPP in some new form. Notably, those included key U.S. allies Japan, Canada, and Mexico, all of which stayed on despite the U.S. withdrawal from the agreement.
The major ground rules were still the same, that the agreement was intended to be a way to make trade easier between the signatories, as well as to make it possible for countries to be less dependent on trade with China. Even without the United States as a party to the deal, the trade between those eleven nations represents about one-sixth of all world trade, or about $356 billion for 2016. A lot was clearly at stake in doing this right.
Japan took a major lead role in coordinating the agreement since May, with the country’s foreign minister, Taro Kono, become an important figure in coordinating the discussions. Australia also fought hard to keep the process of negotiating a replacement agreement going.
On November 9, the 11 nations announced they were close to a final new agreement. That new agreement, disclosed during a major meeting of the group, would be called “The Comprehensive and Progressive Agreement for Trans-Pacific Partnership”.
In their statement released November 9 about the agreement, the ministers said that the CPTPP, as it has now been named in short form, kept “the high standards, overall balance and integrity of the TPP while ensuring the commercial and other interests of all participants and preserving our inherent right to regulate, including the flexibility of the parties to set legislative and regulatory priorities.”
The new version of the deal is still in discussion. Some of the more in-dispute parts of the original TPP, such as the issues regarding intellectual property extensions across the world, may be put on hold when the initial deal finally is signed. Canada has also flagged that there are still questions regarding the auto sector and cultural protection in the new agreement. There also may be some further adjustments of both tariff and non-tariff provisions controlling trade between the nations, as well as some sliding of dates when some of the new provisions go into effects.
Despite that, most close to the agreement say the deal will likely be agreed to by all parties by sometime early in 2018. It is also considered highly probable that South Korea, the Philippines and Thailand will join the agreement soon after it is ratified.
The CPTPP is not the only agreement moving forward quickly as the world, particularly the section of it based in Asia, moves to fill the leadership vacuum formed when President Donald Trump announced his ‘America First’ foreign policy approach. And even with one-sixth of global trade governed by this agreement, it is far from the biggest such international partnership that the U.S. should be concerned about.
In the area of multilateral banking driven outside the normal nation-state system, China’s Asian Infrastructure and Investment Bank (AIIB), headquartered in Beijing with 37-member nations behind it, already has $100 billion of funds backing it despite being formed only 3+ years ago, in October 2014. That funding is about half that of one of the best-known of alternative institutions of its type, the World Bank, whose direction is very much under the influence of the United States. The AIIB’s current investments are largely focused in infrastructure (roads, telecom, railway, energy, and more) within the Asian region.
The New Development Bank, also with China in a lead position, is headquartered in Shanghai, China. It is a multilateral development bank which supports infrastructure projects, with a primary focus on investments in the BRICS region of Brazil, Russia,India, China and South Africa. It too already has $100 billion in capital which can be paid out for projects, despite only being formally authorized in force by treaty in July 2015.
Then there is also the Regional Comprehensive Economic Partnership (RCEP), a trading block consisting of the ten member states of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six states which already have existing free trade agreements with the ASEAN block (Australia, China, India, Japan, South Korea, and New Zealand.) Together this group, with China very much a dominant player, represents a total population of 3.4 billion people, and a total combined Gross Domestic Product of $49.5 trillion (or 39 percent of the world’s total GDP). When trade is the primary factor under analysis, this represents the world’s largest trading block with almost half the world’s trade contained between the members covered by the RCEP.
The U.S. attempting to stand its ground alone is clearly having the opposite effect from what Trump has pitched to the masses. Instead of attracting countries to work with the U.S. because of its new leadership, the rest of the world is actively thumbing its nose at the U.S. and moving on – at high speed. They are also doing so knowing full well they are doing this at the expense of the U.S. in the long run.
As to the implications of all that, a recent comment from Rufus Yerxa, the President of the National Trade Council, a lobbying group representing large U.S. companies such as Microsoft, Walmart, and Ford, is quite clear. “At some point,” he said in a recent interview, “the administration may begin to see that this was a strategic mistake, and that dropping out of trade is not in the interests of American workers.” He went on to say that, “We’ve got to compete and be a winner in global markets – and the danger is, the strategy is divisive”.
In the case of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the U.S. has been advised that if he wants back in at some time, it will not be turned away. It will, however, likely not be able to rejoin without accepting most of the agreement as already negotiated. And its power to lead future such agreements of any kind may be greatly diminished for the foreseeable future.