Trans-Pacific trade in a troubled world

This goes beyond specific sticking points on agriculture and autos. Strategy and credibility are at stake. 

For the US, President Barack Obama has made the TPP a major initiative in his “rebalance”, or pivot, to Asia. Beyond military presence, this is meant to be America’s major economic initiative for Asia-Pacific engagement. In Japan, Abenomics is attempting its “third arrow” on structural reform but economic confidence over the past months has declined. Concluding the TPP would be a major signal of the Abe administration’s commitment to reform. 

For these reasons, despite the impasse last week, the US and Japan must try again to settle their differences and lead the way to an agreement. 

With the TPP now past four years of negotiation, time is not on their side. Last week’s failure relates to the mid-term elections in America, set for November 4. Even if Japanese concessions were given, many believe the Obama administration would not be able to obtain Congressional “fast-track” authorisation and conclude the TPP. Another window may come after those mid-term elections.

But realism is also needed. The promise that the TPP should be a “gold standard” and “21st century” agreement has haunted the negotiations. Some have taken this as an excuse to include every demand that American lobbyists have harboured. 

In addition to the unresolved bilateral issues between the US and Japan, the standards demanded on labour, environment and intellectual property protection are exacting. There are also issues specific to different countries. 

Vietnam’s state-owned enterprises could be impacted. Malaysia is trying to retain preferences in government procurement to favour bumiputra – ethnic Malays. On the other side of the Pacific, Canada has an issue about dairy products. 

Yet despite this, there has been progress. While negotiations have been secretive, the majority of terms seem already agreed in principle, with only smaller issues outstanding – albeit sticky and championed by sectoral interests. Strategic intent and realism should mean the parties conclude a good agreement sooner, rather than to hold out for the best later, or perhaps never. 

For a warning we need only look towards the Doha Round in global trade negotiations – which in plain speaking are dead in the water. 

In our troubled world, as growth prospects have moderated, nationalistic concerns have re-emerged. Agreements that can bolster economic integration and growth are needed. But an agenda that is too heavy and ambitious will fail. 

If the TPP fails to conclude as scheduled, there will be costs – chief of which would be the credibility of the US and President Obama. Some will also blame Tokyo and the wider US-Japan alliance.

Attention will then shift to alternative ways of moving ahead. The TPP, after all, is not the only effort in the region. Other proposals are at varying stages of discussion among different, partly overlapping, groups. 

One is the Regional Comprehensive Economic Partnership (RCEP), which has already seen five rounds of discussion. RCEP does not include the US and instead centres on Asean to bring together all major Asian economies – including China and India, where RCEP governments will meet again in December.  

China is also talking up the possibility of a free trade pact among all members of the Asia Pacific Economic Cooperation, which it will host in November. Additionally, Beijing has been busy offering economic integration initiatives that offer a considerable upside and yet are light on legal details. 

One is China’s pledge to help build and fund infrastructure, both bilaterally and through a new Asian Infrastructure Investment Bank, now being formed. Another is the expected upgrading of the Asean-China Free Trade Agreement. China is already the largest trade partner for Asean and expectations are that trade will grow further – to US$500 billion by 2015 and $1 trillion by 2020. Projections also see two-way investment flows of $150 billion within the next eight years. 

The failure of the Japanese and Americans to compromise last week is not irretrievable. TPP negotiations are advanced and, if concluded on schedule and realistically, could set the direction for others to come on board thereafter. 

American and Japanese officials must return to the negotiating table in the months ahead. When they do so, they would do well to look out of the window and then at the clock. They may then be reminded that there are broader strategic imperatives at stake, and time will not stand still in a troubled world. 

 

Simon Tay is chairman of the Singapore of International Affairs and Associate Professor at the National University of Singapore’s Faculty of Law.