“Fate of TPP and Other Possible Configurations”, a Commentary by Sanchita Basu Das

2016/72, 17 November 2016

As Donald Trump prepares to move into the White House, attention has now shifted to the fate of the Trans-Pacific Partnership (TPP). The President-elect has repeatedly mentioned during his campaign that the deal is a ‘disaster’ for the US economy. It is now clear that the Republican leadership will not bring the trade pact to a congressional vote in the lame-duck session. So the death of TPP seems almost certain.

There are now 3 possible scenarios: a) TPP goes ahead among 11 members with Japan’s leadership, b) the Regional Comprehensive Economic Partnership (RCEP) gets an impetus and the negotiation concludes soon in 2017 and c) China leads the Free Trade Agreement of Asia-Pacific (FTAAP), along with its emphasis on connectivity.
The first option of TPP without the US is already being discussed in policy circles. The Straits Times on 15 November reported that Japan has thrown its weight behind the TPP sans US. Japan’s leadership will be quite acceptable among the participating members, given its significant economic size. It will also position Japan more effectively vis-à-vis China’s economic initiatives of Belt and Road and FTAAP.  Japan can continue using TPP, a well-calibrated trade deal, to push its domestic economy for much-needed reform and can keep it alive for the US to join sometime in the future.  However, to go through with an 11 member TPP requires an amendment to the enactment rules so that the US participation is no longer needed for implementation.
With uncertainty around TPP’s eventual fate, attention is shifting towards RCEP, a trade agreement among 16 countries, led by ASEAN. Quoting Japanese Prime Minister, Mr. Shinzo Abe, the Straits Times reported, ‘there is no doubt that there will be a pivot to the RCEP if the TPP doesn’t go forward’.  China has also emphasized the RCEP soon after the US election and announced its intention to re-energise the negotiation, which until very recently was moving at snail’s pace.  Earlier during the 2015 APEC Summit, President Xi Jinping had requested for an early conclusion of RCEP negotiation, while fast-tracking talks on China-Japan-South Korea trilateral agreement. Barring Japan and India, China has concluded its bilateral trade agreements with ASEAN and the other 3 RCEP countries. Another big economy in RCEP, India, has recently agreed to compromise on its offer of three-tier tariff structure, and has requested for a tariff schedule with ‘limited deviation’ from tariff offers made by other members.
The third option of FTAAP derives from Chinese interest in regional connectivity and an Asia-Pacific trade agreement to justify such linkage. While FTAAP seeks to reduce policy barriers in international trade and investment, Belt and Road seeks to facilitate the movement of goods, services and people. President Xi in the 2015 APEC summit stressed on a potential FTAAP, arguing that it reduces fragmentation caused by multiple and non-inclusive FTAs. He urged APEC members to ‘make free trade arrangements open and inclusive to the extent possible’, implicitly criticising the TPP for its high standards and exclusion of China. He further said, ‘through implementing the ‘Belt and Road’ Initiative, we will go for even broader, deeper, and more sophisticated cooperation at the regional level’. The strategic study on FTAAP, initiated in 2014 under Chinese APEC chairmanship, is scheduled to be launched later in 2016.
While it remains to be seen on how Japan pushes the TPP going forward, discussion on RCEP and FTAAP will pick up steam in the coming months. China, using its own agenda, will strive to fill the void generated by the absence of US leadership in the Asia-Pacific trade agreements.
Sanchita Basu Das is Fellow at ISEAS – Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.