THE TRANS-PACIFIC PARTNERSHIP trade agreement was signed last Monday to great fanfare from US president Barack Obama, who regards it as one of the cornerstones of his presidency.
Never mind that the negotiations for the deal – which was signed by the United States and Pacific Rim countries including Australia, Canada, Japan, Singapore, Malaysia, Mexico and Vietnam – were conducted amid rigorous secrecy to the extent that the full terms of the deal will be seen by the ordinary public in a month’s time.
Or that one of the agreement’s most staunch supporters since negotiations began over eight years ago, presidential hopeful Hillary Clinton, has turned against it.
The truth is that the TPP, which seems to have been designed to put China in its place on the global ambition front, is unlikely to have the dramatic economic impact its architects envisage.
One reason – and this irony won’t be lost on the China bashers – is that in the absence of China as a signatory, the pact lacks the scope in terms of the markets it encompasses to have a huge impact. Just 12 countries have signed up, and perhaps crucially for Asia, India, Indonesia, South Korea, Thailand, Taiwan and the Philippines are not parties to the deal.
These countries might well just believe they are already served by the multitude of bilateral trade agreements they already have in place with their major trading partners.
Indeed, tariffs are not the main barrier to international trade, but rather supply and logistics chains are. According to a study completed in 2013 by the World Economic Forum, reducing supply-chain barriers could increase global GDP by as much as six times more than would be achieved by abolishing all trade tariffs.
The pact lacks the scope in terms of the markets it encompasses to have a huge impact
IN FACT THERE’S already a trade agreement in place in South-East Asia – the Asean Free Trade Agreement, or AFTA – under which trade tariffs have already been reduced to zero between the six of the 10 signatory countries. (The poorest of them – Cambodia, Laos, Myanmar and Vietnam – are on a slower schedule.)
AFTA includes a significant carve-out though: rice, one of South-East Asia’s most significant commodities both economically and politically, is not included. And the thinking behind that carve-out is easy to understand in the context of the TPP.
Rice subsidies have traditionally been a handy vote buyer in South-East Asia. Indeed, the former prime minster of Thailand, Yingluck Shinawatra is facing criminal charges on just that subject in the country she once presided over. Opening the doors to cheap rice imports risks the erosion of key rural votes in regions where rice is the most significant agricultural output.
Beyond this, the political elites of the countries which cold-shouldered the TPP do not wish to be subject to the constraints of a trade agreement that is about far more than just trade in goods.
It encompasses trade in services, technical barriers to trade, intellectual property rights, labour and environmental standards, regulatory coherence and competition policy.
Quite who will police all this and how the policing will be done is not yet in the public domain. But I imagine to the average Indonesian or Filipino tycoon, not to mention the layers of the political apparatus that support business elites in many Asian countries, the TPP is the stuff of nightmares.
I can’t help but wonder if the Chinese authorities are laughing themselves silly over the TPP, which is designed to stamp the United States’ authority on the new world order.
ONE AREA WHERE they will undoubtedly imagine they have been handed a comparative advantage is in the sphere of development banks. Under the TPP, signatory countries’ banks will not be allowed to provide soft loans at below market rates. Well, that knocks out some of the competition as far as China’s development banks are concerned.
Indeed, providing funds at below market rates would be a sure-fire way of grabbing a slice of the global market for the newly established Asian Infrastructure Investment Bank, China’s attempt to challenge the old Bretton-Woods status quo and the dominance of the World Bank and International Monetary Fund.
Will the presence of TPP signatory shareholders prohibit the development of that strategy? We shall find out in time, but from the little we know about the deal that was thrashed out last week in a hotel room in Atlanta, the whole project seems rather unwieldy.
Of course, the TPP has to make its way through 12 legislatures before it can be implemented in the form envisaged. President Obama will need all the influence he can muster to vault the bipartisan hurdles he faces to get the TPP bill passed into law.
But it is by no means certain that he will get the result on which he seems to stake a large part of his legacy in office, as the atmosphere heats up in Washington ahead of next year’s presidential elections.
Meanwhile, in Singapore I’m interested to see just what impact the TPP will have on labour practices, where the kind of employment protection seen in Japan simply does not exist. That has given Singapore a highly flexible and competitive labour market.
If that comparative advantage is eroded by adherence to the TPP they might regret signing it. But then again we must wait for the release of the fine print to see if there are any teeth behind the TPP’s grand aspirations.
