Wednesday, March 14, 2018

The Future of the TPP: How it Alters the RCEP’s Importance for the Region

by Aditya Vijay*

When Donald Trump officially pulled the US out of the Trans-Pacific Partnership (TPP) in January of 2017, the global consensus was that the deal was effectively dead. With the US accounting for nearly 60 per cent of the total GDP of the 12-nation TPP, Washington’s move away from the deal was unquestionably a blow to the idea of creating a single market for trade in the Asia–Pacific to rival the European Union. However, almost a year later, the TPP seems to have been given a new lease of life by the remaining 11 countries, which are intent on moving on without US support, to create a new free trade framework for the region.
This new framework called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) incorporates many of the salient elements of the original TPP formulated by the Obama administration in February of 2016. However, it has suspended the implementation of a few provisions. These provisions, namely the investor–state dispute settlement (ISDS) provision and intellectual property protections, were heavily advocated by the US but faced strong pushback from many other countries. [1]With Washington no longer party to the deal, the provisions were inevitably dropped. Negotiations for the structure of the CPTPP concluded on January 23, 2018, and the 11 nations are expected to sign the agreement into effect in March of this year. Naturally, the question that arises now is whether the CPTPP is an adequate substitute for TPP. Alternatively, will the Regional Comprehensive Economic Partnership (RCEP) become a more attractive proposition for countries like Japan and Australia, which are included in both deals? Before answering these questions, it is imperative to study the two multilateral trade agreements, which currently stand as alternatives to the now redundant TPP, the CPTPP and the RCEP.
The original TPP was envisioned by lawmakers and diplomats on both sides of the Pacific as the model free trade agreement for the 21st century. Then Secretary of State Hillary Clinton referred to it as the ‘Gold Standard in Free Trade Agreements’. [2]It was also a cornerstone of Japanese Prime Minister Shinzo Abe’s ‘Abenomics’ policy. The original TPP would have gone down as the largest trade agreement in history, with a combined GDP of USD 28 trillion, representing around 37.4 per cent of global GDP and 25.9 per cent of global trade. [3]The CPTPP, however, carries significantly lesser international heft, accounting for 14 per cent of global GDP and 15 per cent of global trade. Simply put, the CPTPP does not possess the global weight necessary to shape world trade as its predecessor did. While the CPTPP framework will bring greater economic integration, the volume of trade and the size of the markets will be significantly smaller without the US. One way to solve this problem is by allowing China, the only state with enough economic clout, to replace the US, to join the CPTPP. However, the inclusion of China would be conditional on reducing the quality of the CPTPP, as several key provisions would have to be changed. [4]This path seems unlikely as the TPP was specifically engineered to serve the interests of the member countries on a similar level of economic development. In addition, Beijing itself has not demonstrated any keen enthusiasm to be a part of the TPP, which it views as a crucial element of Washington’s strategy to contain Chinese economic influence in the Asia–Pacific region.
A far more likely scenario is of the RCEP gaining more prominence, given that the CPTPP does not carry the economic weight that the TPP had. The RCEP is a proposed free trade agreement between the 10 countries comprising the Association for Southeast Asian Nations (ASEAN) and the six countries, which already have individual free trade agreements with the ASEAN, namely Australia, China, Japan, India, South Korea and New Zealand. Chinese President Xi Jinping has been a strong advocate of the RCEP as a model of multilateral trade in Asia. But as Jeffrey Wilson, writing for the Australian Institute of International Affairs, notes, the RCEP’s proposed reforms, like emphasising reduced trade barriers and promoting economic and technical mechanisms to protect the interests of developing nations, are more lukewarm than the TPP’s. [5]Additionally, unlike the CPTPP that focuses on Asia–Pacific, the RCEP with its inclusion of China and India focuses predominantly on the Indo–Pacific. Given the increasingly isolationist stance taken by President Trump and his proclivity to favour bilateral trade deals with individual countries over multilateral arrangements, the ‘Trump Shock’, as Wilson calls it, might push Japan and Australia to focus on the RCEP. [6]With China’s participation, the RCEP would account for nearly 25 per cent of global GDP and 30 per cent of global trade, making it a considerably bigger and more lucrative market than the CPTPP. [7]In this regard, for countries part of both the CPTPP and the RCEP, the latter becomes a more attractive proposition and would become the principal trade agreement with the CPTPP augmenting it.
Ironically, China and its President have come to be regarded as the international defenders of the existing global trade order. Neither the CPTPP without the massive US market nor the RCEP with its focus on developing economies is a perfect substitute for the erstwhile TPP. However, the larger and more diverse number of markets on offer in the RCEP framework combined with a dominant economic power, in this case China, willing to assume leadership, means that the RCEP will assume greater importance than the CPTPP for Japan, Australia and New Zealand. China’s role is crucial for the success of the RCEP and so far, Beijing has shown little sign of shirking its responsibility.

*The author is Research Intern with CPPR. Views expressed by the author is personal and does not reflect that of CPPR.

[1]Torrey, Zachary. February 3, 2018. “TPP 2.0: The Deal Without the US”
[2]Adityo, Alwin. March 2, 2017. “Can RCEP revive a dead TPP?”
[3]Helbe, Matthias and Xie, Yizhe Daniel. December 23, 2017. “Is the CPTPP a risky gamble?”

[4]Helbe, Matthias and Xie, Yizhe Daniel. December 23, 2017. “Is the CPTPP a risky gamble?”
[5]Wilson, Jeffrey. January 20, 2017. “After Trump: Will RCEP replace the TPP?”
[6]Wilson, Jeffrey. January 20, 2017. “After Trump: Will RCEP replace the TPP?”
[7]Priya, Prachi. December 6, 2017. “Regional Comprehensive Economic Partnership: India pushes for greater market access, ASEAN irked”

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