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Brunei : The next chapter for the Trans-Pacific Partnership


The next of trade and cross border commerce in Asia and the Pacific and the US role in Asia’s economy were put in doubt by Donald Trump’s withdrawal of the United States from the Trans-Pacific Partnership (TPP) economic agreement.

The TPP was the economic arm of President Obama’s pivot to Asia. It was as well supposed to set the rules and standards of trade in Asia and for the world. It is no amaze again, that some of the remaining 11 members of the TPP are trying to save the agreement even without US participation. A lot of political capital was expended in negotiating the TPP and nations are looking for ways to maintain the momentum of economic integration.

Leading the push for a TPP 11, or TPP minus the United States, are Japan and New Zealand, and to a lesser extent Australia. Can the rest of the grouping that includes Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam forge an agreement out of what remains of the TPP?

If they do, it will be TPP in name only. Without the United States it will have to be a different agreement in structure and character.

The United States accounts for 69 % of the combined GDP of the TPP nations. The agreement was largely negotiated as a hub and spokes transaction between the US and the other 11 members bilaterally. And presently the hub has fallen out the bottom.

For some members of the arrangement, like Vietnam and Malaysia, the biggest selling point was better US market access at the expense of competitors outside the arrangement. The bargain involved acceptance of US rules and standards (that were additional suited to advanced economies) in exchange for preferential access over competitors such as China, India or Bangladesh to the lucrative US market for labour-intensive imports such as textiles.

Even for nations facing not so-stark a bargain, US market access was the economic prize. Entrenching the United States in Asia was the strategic prize. While it’s authentic that US engagement in Asia was at no time going to be secured or defined by the TPP but instead by broader US interests, those longstanding US interests in Asia are presently as well being tested by President Trump.

The technical policy that a minimum of six nations representing 85 % of the GDP must ratify the TPP agreement for it approaching into force (a policy that made US membership a necessary condition) can be changed. But, as Gary Hawke reminds us in this week’s lead essay, such a change would present the remaining members with ‘an extra lengthy set of negotiations’. The question, he asks, is whether ‘the cost of such renegotiation [is] worthwhile’. Considering that the ‘group of 11 is not an obviously attractive unit’, Hawke concludes, ‘the negotiating resources would be better deployed elsewhere’.

Some reckon that President Trump may suddenly change his mind or that the next US president will quickly right the TPP wrong and re-enter the agreement. Hawke points out that the chances of this are ‘surely nil’ in the ‘next two years’ at least. ‘Congressional attitudes have to change for the existing TPP draft to have any luck of ratification, and US adherence to an agreement shorn of some US negotiating points is even less likely’. Unsurprisingly, ‘those governments advocating proceeding with a TPP-11 are as well advocating that it should be with the existing text’.

What should the remaining 11 members of the TPP do? Instead of throwing good money next bad, Asian economies and their willing partners across the Pacific and in other open economies that want to protect and lift their living standards need to double down on the world trading system.

President Trump has not followed through on his other campaign threats on trade, such as slapping a 45 % tariff on all Chinese imports to the United States or withdrawing from the WTO but Trump’s America still represents the biggest threat to the world trading system. There’s no predicting what Trump may do in the lead up to the midterm US elections if jobs don’t come back to the rust belt, which they most likely will not.

The rules-based open world trading system was created by the United States, which has underwritten it for the completed 70 years. The GATT and additional recently the WTO underpinned the confidence in nations opening up to international markets and acted a backstop against protectionism with its obligations to bind trade restrictions and to honour the WTO dispute settlement mechanisms. That system has meant that Asian neighbours have built prosperous economic ties even in the absence of close political ties, bolstering political inclunding economic security in the region.

If Trump’s America undermines the confidence in the multilateral trading system it will have substantial economic and political consequences, nowhere additional so than in Asia.

Asia has powerful incentive to push ahead as a force for openness in the world economy. Instead of a truncated Asia expending energy on trying to save the TPP, the whole region, inclunding the large, dynamic economies of China, India and Indonesia can step up and make credible and ambitious commitments in opening up their economies in defence of open world trade .

The TPP has a role to play as an organ donor, as Shiro Armstrong suggests, where nations and other groupings can take what’s good about the TPP and apply it in other agreements. The evolution made in opening up Japanese markets, negotiating cutting-edge agreements on data flows and e-commerce, and putting pressure on nations to lift their game in response to US pressure in the TPP don’t need to go to waste.

Pragmatism, ambition and creativity are needed in response to negative pressure from the United States. No single country can take over the leadership role that the United States has played over the completed seven decades, but in Asia a coalition of open economies would have sufficient heft to underwrite the world trading system.

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