NS3040 Summer Term 2014

Trans-Pacific Partnership

TPP Timeline

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TPP Benefits/Sticking Points

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Transpacific Partnership (TPP): Overview

• The Proposed Trans-Pacific Partnership (TPP) reflects

• Shift in economic gravity to Asia

• Proliferation of regional and bilateral agreements with limited participation by the United States

• Compelling logic of TPP

• Viable alternative to WTO stalemate

• Addresses changing global economic environment

• Provides a new model for U.S. economic partnerships

• Potentially covers majority of U.S. trade

• In sum: TPP is culmination of two global trends

• Shift to bilateral FTAs to govern trade in wake of the failure of the WTO Doha Round

• Moves within Asia to deepen regional economic integration

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TransPacific Partnership (TTP) I

• Countries currently in negotiations for the TTP are: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

• If signed, it will represent one of the world’s most expansive trade agreements

• If Japan also signs the agreement will add billions to the U.S. economy and solidify Washington’s political financial and military commitment to the Pacific for decades to come.

• China which is the main trading partner for almost all other Asian states has promoted its “Association of Southeast Asian Nations (ASEAN) Plus Three (China, Japan and South Korea) framework

• It offers an easily implemented multilateral trade partnership based on a lowest common denominator formula in which countries remove only some trade barriers resulting in rapid, albeit narrow gains 5

TransPacific Partnership (TTP) II

Key Points•If fully implemented, the TPP could raise Vietnam’s GDP by more than 13% -- most countries sizeable gains.•U.S. position is that TPP is central to task of rebalancing US foreign policy to give greater emphasis to Asia-Pacific region•U.S. vision of the TPP:

• A trade regime that would exceed WTO provision and emphasize such 21st century areas as environmental standards and intellectual property protection

• Would underscore US leadership in the global economy

• Contain China?? 6

TPP Countries I

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TPP Countries II

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Existing FTA’s Among TPP Countries I

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Pacific Trade Complexity

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Existing FTA’s Among TPP Countries II

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RCEP and TPP: Complementary or Competing? I

• ASEAN 10

• ASEAN + 6 (Australia, China, India, Japan, Korea, New Zealand) pursuing intra-Asian integration in the Regional Comprehensive Economic Partnership (RECP)

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RCEP and TPP: Complementary or Competing? II

• RCEP aims to broaden and deepen ASEAN +1 pacts with the other 6 by the end of 2015

• Similar agenda /timetable as work on ASEAN Economic Community

• Overlapping participation

• 6 of 16 RCEP members in TPP

• Plus three others interested (Indonesia, Philippines, Thailand

• ASEAN countries interested in TPP –

• Bigger payoff from TPP reforms and

• Concern about cost of non-participation in terms of trade and investment diversion

• RCEP gives China the option to continue incremental reforms that would improve readiness to join more comprehensive regional pacts in the future

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RCEP and TPP: Complementary or Competing? III

• The US aware that the Chinese framework would marginalize the U.S. -- argues that the TPP would yield superior economic gains.

• The TPP requires a greater commitment among members regarding binding rules and standards, but offers the potential for deeper gains through progress on investment, property rights, competition provisions as well as reducing trade barriers.

• While the U.S. has not formally excluded China from joining the TPP, the country would need to revalue its currency, reduce subsidies to state-owned companies, provide better protection to intellectual property, as well as reduce trade barriers– all improbable steps

• Given the complexity of the TPP, its creation may not be a realistic prospect until early in the next decade – until then it does hold out an alternative to China’s ASEAN Plus Three. 14

TPP: Current Difficulties ICurrent Difficulties

•South-East Asia Leaders View US TPP With Skepticism

•Economic significance of any agreement lies to a large degree in the full inclusion of ASEAN’s four largest Economies

• Indonesia, Malaysia, the Philippines and Thailand

• As of now only Malaysia is taking part in TPP negotiations

•Domestic opposition to free trade agreements with the U.S. in all four countries raises serious doubts about participation of these ASEAN countries

• Streamlining domestic regulation with TPP regulations will confront strong popular and political resistance

• Wider skepticism about US Asia “pivot” will reinforce reluctance regarding TPP

• Popular resistance to trade deals shaped by Washington will have a bearing on TPP negotiations

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TPP: Current Difficulties II

• Specific obstacles exist among ASEAN countries for both the non-participants as well as the prospects for ratification in Vietnam and Malaysia:

• Indonesia: Doubts remain over whether certain sectors can withstand high levels of foreign competition or liberalize to the extent demanded by the TPP

• Malaysia: The status of state-owned enterprises under TPP remains major source of contention for the government – especially regarding future competitiveness of state oil company Petronas

• The Philippines: Existing foreign ownership and employment laws would not be acceptable under the TPP

• Thailand The anti-FTA movement dating back to 2006 occurred parallel to growth of protests against deposed Prime Minister Thaksin – this connection could prove very difficult for the incumbent administration to purse TPP membership 16

TPP: Current Difficulties III

• Vietnam. Participation in both the TPP and RCEP reflects interest to balance economic relations with China. However labor law requirements under the TPP might prevent ratification

• Major Problem

• The TPP does not provide a vision of integration that middle-sized, high growth economies could view as workable.

• From start, in case of Indonesia, the Philippines and Thailand, the TPP promised large improvements in exports and GDP, but was widely seen to threaten major disruptions in particular sectors shielded from direct competition.

• With recent addition of Japan to TPP talks and a number of issues outstanding, agreement will not be completed by end of 2013

• Indonesia, Philippines and Thailand may wait until the conclusion of TPP talks before deciding to join. Thailand would face stiff domestic opposition.

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TPP: Assessment I• One thing is certain: the TPP will not derail

Asia’s intra-regional trade integration for a number of reasons:

• Asia is likely to be the fastest-growing region in the world for the foreseeable future and to increasingly provide the bulk of incremental global demand.

• This means that intra-Asian trade will continue to outpace trade with the rest of the world

• Countries in the region have undertaken investments in transport infrastructure connecting the SE-Asian economies with each other and with China

• Rising real wages and land prices in China and the country’s appreciating exchange rate will drive labor intensive Chinese firms to eventually relocate in labor-abundant SE-Asian economies further generating trade and investment flows

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TPP: Assessment II

• In sum, trade and investment agreements like the TPP can only facilitate market forces, not fight them.

• Several scenarios see an eventual merging of a China-led Asian track and a U.S. led TPP track with the center of the world’s economy in the Pacific basin

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Possible Scenarios I

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Possible Scenarios II

Possibilities

•New members could join after TPP is signed using accession clause, but less likely that big countries could do so

•TPP unlikely to be template for FTAAP

•FTAAP more likely to be a hybrid pact among TPP and RCEP countries with reciprocal obligations between “hard law” of the TPP and consensus based Asian commitments

•TPP disciplines would continue to apply among TPP members, just as WTO does not dilute FTA commitments

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Update November 2013 I

“US/Asia Trade Deal Will Miss Deadline,” Oxford Analytica, November 5, 2013•The 12 negotiating partners in the TPP will hold rounds of meetings in November 2013• Culminating with chief negotiators meeting in Salt Lake City on November 19-24•Despite accelerated schedule little chance TPP will meet White House goal of signed agreement by year-end.

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Update November 2013 II

• Analysis/Impact

• Rising political and economic tensions between Japan and South Korea will preclude Korea entering talks anytime soon

• TPP is unlikely to become an issue in US elections in 2014

• Broad bipartisan support for trade deal

• U.S. Problems

• Administration has yet to lay the groundwork for congressional approval of the TPP once it is signed

• Factor is of greater concern to the other eleven TPP governments than short-term damage of the President’s absence from the APEC Leaders Meeting in October

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Update November 2013 IV

• In the absence of Trade Promotion Authority (TPA) for the President, Congress could change any aspect of the TPP after an agreement has been signed

• Administration not likely to push TPA if it would entail a major political battle at year’s end

• Japan

• Announced in March 2013 it would enter TPP negotiations

• Prime Minister Abe saw the TPP as a means of

• Reversing deflation and

• Restoring Japan to its former economic prominence by using the trade agreement to force economic restructuring

• TPP seen as the “fourth arrow” in the administrations “Abenomics”

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Update November 2013 V

• However Japanese government will face stiff opposition from the country’s domestic agricultural lobby, particularly the “sacred five” commodities, sugar, dairy, rice, what and barley and beef

• The main agricultural producers in the TPP – U.S., Canada, Australia, and New Zealand – pressing for the reduction if not the complete elimination of tariffs on these goods

• Under TPP Japan would become the largest export market for rice

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Update November 2013 VI• Malaysia

• Leaders are increasingly negative about participation in the TPP

• Feel that TPP has gone beyond trade and threatens sovereignty of its member governments

• The TPP would remove government controls on tobacco which U.S. strongly supports and Malaysia strongly opposes

• Also upset when the U.S. Trade Representative’s annual report on trade barriers criticized Malaysia a Muslim-majority country for its import controls on alcohol and tobacco

• TPP may extend patents of medicines by 5-10 years beyond the existing standard of 20 years – would postpone the development of generic versions and in estimation of Malaysian Ministry of Health increase country’s care costs.

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Update November 2013 VII • Ironically a report by the Asian Development Bank

finds Malaysia is one of the three countries (with Mexico and New Zealand) that have the most to gain economy from the TPP agreement

• However if Malaysia withdrew from the TPP that would discourage the six remaining South-East Asian countries from seeking entry at a future point

• Would frustrate US hopes that several larger ASEAM countries, Indonesia and Thailand would join at next opportunity

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Update November 2013 VIII

Outlook

•Competition between the US-Led TPP and ASEAN’s RCEP with China at the center will continue indefinitely

•Although China softened its rhetoric against TPP and has indicated possibility of eventual entry, hardline and nationalist elements will continue to view TPP as a vehicle to contain China

•Obama Administration has done little to refute this view

•Administration will not be able to sell the TPP to Congress if there is a near term possibility that China would Join

•Member countries having a hard time selling idea to populations due to restructurings TPP requires

•Obama Administration not prepared to send a TPP agreement to Congress for approval

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