The agreement is not tailored to shelter inefficient pockets of production from competition, but designed to become quite comprehensive in terms of coverage, with simple rules of origin.
That makes it one of the few PTAs which can be joined by new participants. Singapore Prime Minister Lee Hsien Loong recently expressed the hope that the P4 arrangement can become a template for others and welcomed the intention of Australia, Peru, the US and Vietnam to negotiate a wider TPP. He is likely to be disappointed.
The TPP could negotiated fairly quickly, but may not be ratified for a long time. If it does eventually come into force, the new template will be the more typical one which relies on complex, product-specific rules of origin to limit new competition, making it impossible to extend to all of East Asia.
Ann Capling has summarised the main features of the P4. Agreements on border barriers are backed by chapters on other important issues. In some cases they are statements of good intention: for example, to encourage the use of electronic trading and documentation, which is what APEC is already doing. Other chapters, including customs administration and government procurement are substantial and could serve as models to facilitate trade among all economies.
Many of the potential members of a TPP are already linked by PTAs, sub-regional as well as bilateral. Elms notes that six of the eight already have bilateral PTAs with the United States. They will not expect more than token further improvements in market access.
However, Elms foresees some problems will arise for New Zealand and Vietnam. Among these are the marginal gains made by earlier trading partners. For example, the additional access granted earlier to Central American economies meant no new access for Australian sugar. Australia was able to make some gains in access for dairy products and lamb. This, in turn, suggests that New Zealand will find it difficult to improve access for two of its most important exports.
A considerable proportion of the 2,000 or so pages of rules of origin in the North American Free Trade Agreement (NAFTA) are devoted to preventing competition from labour-intensive products, especially textiles, clothing and footwear, from other than Mexico. Vietnam will find it very hard to gain significant new access to the United States market for the products which reflect its comparative advantage. But both New Zealand and Vietnam will be very eager to have any agreement with the United States. As Australia did, they will accept meagre gains.
Whatever is granted is likely to be accompanied by even tighter rules of origin against the rest of East Asia. A TPP will not ‘tame the noodle bowl’. And the United States will become even more reluctant to accept any disciplines on arbitrary resort to anti-dumping and safeguard measures against any economy.
The effect on international trade flows would be negligible. As Ravenhill and others have pointed out, the proliferation of PTAs is having little effect on the pattern of trade. Most MFN tariffs are already low, so businesses make little use preferential rates due to administrative complexity (even the P4’s clean rules of origin require 18 pages of explanation). Products where preferential access would make a significant difference are routinely exempted or surrounded by prohibitive rules of origin which limit either trade creation or diversion.
Bergsten has no doubts about the success of negotiations and sees the announcement of an initial TPP deal as the highlight of the United States’ hosting of APEC in 2011. Obtaining ratification will be a lot harder. U.S. Trade Representative Ron Kirk announced at Singapore that the US will follow through on its 2006 agreement in principle to negotiate a TPP, but President Obama remains cautious. After he spoke of engagement in the project in Tokyo, a senior White House official explained this was ‘to see if this is something that could prove to be an important platform going further.’ (New York Times, November14, 2009)
As Elms notes: ‘Enthusiasm for additional trade is at a near record low in the wake of the economic downturn.’ It will not be easy to win support for any new trade deal in Congress. The Korea agreement is still pending. Any new agreement like the TPP, for which there is no negotiating authority, could be amended at will, requiring rounds of renegotiation. Attention will continue to be diverted from the main game – defending and strengthening WTO disciplines for trade based on the quality and price of products, as against their ever-harder to determine origin.
Even if endorsed, the TPP is not certain to become a platform for wider accession beyond Latin American economies which already have TPAs with the US. China cannot contemplate membership while it waits to be recognised by the United States as a market economy, possibly in 2016. Even then, its accession would require a fundamental de facto if not de jure scrapping of the rules of origin of NAFTA which were needed to make that 1993 agreement acceptable to Congress.
The problems the TPP will encounter will certainly delay any prospect of negotiating an APEC wide trade bloc – they may even introduce some realism into analyses of its potential.
In the meantime, APEC may be able to spare energy to pursue more efficient ways to integrate its economies, complementing an environment of already low border barriers to trade in most products with an environment of transparent, consistent and efficient economic policies and regulations, along with best practice information networks and logistics.
For example, APEC leaders could consider an APEC-wide cooperative arrangements on customs procedures, government procurement and other practical matters dealt with in the P4 agreement. These should be available to all trading partners, not just those which do not threaten real competition to a few sensitive products in various economies.
This post is part of a series of articles on the Trans-Pacific Partnership.