TPPing over?

Author: Jayant Menon, ADB

Why is the Trans-Pacific Partnership (TPP) taking so long to conclude? It has already missed three deadlines, the latest being October 2013. And President Barack Obama’s recent Asia visit did not produce the widely anticipated push towards the finish line. And what will the TPP will look like when finally concluded? Despite WikiLeaks’ best efforts, the negotiations are walled by secrecy. Will the TPP be the comprehensive twenty-first century agreement proponents tout? Or will it wallow as a watered-down compromise, riddled with exemptions, as detractors predict?

A useful starting point in explaining the delay is to look at the countries involved. In 2005, four small open economies — New Zealand, Chile, Brunei and Singapore — began talking about a free trade agreement. It began to grab headlines when the US embraced the TPP in 2009 as part of its ‘pivot to Asia’. Four other nations joined discussions soon after — Australia, Peru, Vietnam and Malaysia — followed by Canada, Mexico and Japan.

These 12 countries are a highly diverse group by any measure. First, unlike other plurilateral cooperation agreements, the TPP is widely dispersed geographically. There is nothing regional about it, with members from four of the world’s seven continents. And it is just as economically diverse. Australia’s per capita income is about 40 times that of Vietnam. The US economy is around 1000 times the size of Brunei. All this diversity suggests finding common ground when negotiating would not be easy.

Of course, the TPP delays are overshadowed by another struggling proposed trade pact — the WTO’s Doha Round. Although there are fewer countries in the TPP compared to the WTO, diversity is not a linear function of the number of countries involved. Where a group includes countries as varied as Vietnam, Mexico, Peru and the US, there is not only a lack of commonality in negotiating positions but negotiators may not even subscribe to broadly similar principles.

Now add to this a wide-ranging, highly ambitious agenda to be tackled as a single undertaking. Because of its lofty ambitions, negotiating diversity can translate into staunch opposition and some items can fall into the ‘too hard’ category.

It is not that the TPP agenda is just highly ambitious — this would make negotiations difficult but worthwhile. But there is the sense of it being unfair. There has never been a plurilateral negotiation where the agenda appeared so skewed in favour of one party. The carrot being dangled is of course improved access to the huge US market, but half the members of the TPP already have an FTA in place with the US, and the rest are trying to conclude one, so the incremental benefit is likely to be small.

At a time when globalisation is blamed for growing inequalities within and across countries, policies seen as transferring enormous resources from consumers in poor countries to a few pharmaceutical multinationals, for example, will certainly face opposition. Similar concerns arise from developing countries when dealing with labour or environmental standards, often seen as an instrument of protection that cuts into their ability to compete. Just about everyone, except the US, is concerned about the investor-state dispute resolution mechanism, which allows corporations to sue governments. The same is true for the currency manipulation clause, which could be subject to manipulation itself. And the list goes on.

Amid all this concern, the hoped-for motivation for genuine reform — using legal commitments to an external agreement to overcome domestic lobbies (the so-called ‘hands are tied’ argument) — seems nowhere to be found. More recently one hears of compromise and flexibility, terms not heard publically during the initial negotiations. Japan made clear recently that it will not necessarily extend to all members the same concessions made to the US in agricultural market access.

It appears the TPP is degenerating into a series of bilateral deals, with a US–Japan agreement at its core. The challenge is, when the time comes, to present a series of bilateral deals as if they were one comprehensive agreement. So look out for a lot of ‘transition periods’ and other loopholes.

Recently, there has also been concern that it will not be concluded at all. With renewed uncertainty whether the Obama administration can secure Trade Promotion Authority to fast-track the process, other members may be reluctant to sign up. A final push is currently underway, timed to coincide with President Obama’s visit to Asia for the APEC Summit in November. Since this will require members to sign on without US fast-track assurance, it is just as likely that the announcement will involve South Korea’s accession rather than the TPP’s completion, which would also conveniently justify another long delay. The update at the conclusion of a 10-day informal negotiating round in Ottawa, Canada, that began on 3 July gave no indication as to whether countries made any progress and no information about when they may meet again.  In this case, however, no news is not good news.

If the TPP is deferred indefinitely or if concluded with a multitude of exemptions, more will be needed to serve the interests of its members. Even if the TPP succeeds, it cannot be the end-all as commercial relations of its members extend far beyond the confines of the group.

How then do we move forward? Short of resurrecting the WTO, the only option is for countries to take matters into their own hands — as they always have. Unilaterally multilateralising preferences is the only way forward. With two-thirds of TPP member imports — 80 per cent if the US is excluded — already covered or about to be covered by FTAs, expanding preferences to remaining countries should not encounter much resistance from FTA partners, not only because volumes are small but also due to preference erosion.

Jayant Menon is Lead Economist at the Office of Regional Economic Integration, Asian Development Bank, and Adjunct Fellow at the Arndt-Corden Department of Economics, The Australian National University. The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, its Board of Governors or the governments they represent.

This is an abridged version of an article that first appeared in VoxEU.