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Friday, December 2, 2016, 14:32

Other deals gain traction

By HAKY MOON in Hong Kong
Other deals gain traction
New Zealand Prime Minister John Key (sixth right) with ministerial representatives from the 12 participating nations after they signed the Trans-Pacific Partnership in Auckland on Feb 4. The signing of the deal was the culmination of five years of negotiations and more than 20 formal rounds of talks. (Photo / AFP)

The United States’ likely withdrawal from the Trans-Pacific Partnership (TPP) will be a blow to the countries that have invested much work toward ratifying the multilateral trade agreement. But, while it may seem the deal — originally driven by the US — has been thrown out the window, experts say not all efforts of the TPP will be wasted.

“If the TPP does die, it is the loss of a lot of work. Five years of negotiations, more than 20 formal rounds of talks and many more informal negotiating sessions, thousands of flights and countless hours in country capitals,” said Deborah Elms, executive director at the Asian Trade Centre, a regional policy strategy firm.

To put this in context, the TPP is more than 5,544 pages long and includes more than 2 million words. That makes it around three times as long as the Bible. It includes thousands of side agreements among the 12 participants. All that work is now likely to be sidelined, as least temporarily.

With the US and Japan likely to leave the trade pact, most Asian countries are now pessimistic about the TPP.

However, there are other trade agreements in the region, namely the Free Trade Area of the Asia-Pacific (FTAAP) and the Regional Comprehensive Economic Partnership (RCEP).

“Some aspects of the TPP may well reappear as sector agreements, just like with the Doha Agreement, which reappeared as the Trade Facilitation Agreement and the Trade in Services Agreement,” said Jayant Menon, lead economist at the Manila-based Asian Development Bank (ADB).

Indeed, much of the effort poured into the TPP is expected to reemerge and deliver results in both the FTAAP and RCEP. Recently, these two trade deals have been gaining added traction on the likelihood of the TPP being scrapped.

Pointing to all the hard work done on the TPP, David Dodwell, chief executive of communications firm Strategic Access and vice-chairman of government relations for the British Chamber of Commerce in Hong Kong, said there are more than 6,000 legally drawn agreements between the 12 participants.

“It will provide a reasonable template for any future trade agreement,” he said.

“My view is that the work done on TPP by the 12 participating economies will still underpin the discussion in the FTAAP. The architecture of the TPP would be America’s gift to the FTAAP, trying to make sure the FTAAP discussion stays closely linked with what they are trying to achieve with the TPP,” Dodwell said.

What differentiates the TPP from other trade pacts led by Asian countries is much of its legal content, such as that related to intellectual property and state-owned enterprises.

“They will want to make sure that (the legal content) is in. I don’t think China will disagree. The TPP agenda will be at the heart of the FTAAP discussion,” said Dodwell.

Chinese President Xi Jinping — speaking on Nov 21 in Lima, Peru at the Asia-Pacific Economic Cooperation CEO Summit — described the FTAAP as “a strategic initiative critical for the long-term prosperity of the Asia Pacific” and urged relevant sides to “firmly pursue the FTAAP as an institutional mechanism for ensuring an open economy in the Asia Pacific”.

The FTAAP is an international trade pact supported by 21 Asia-Pacific countries. Discussions began in 2006, and the pact is a long-term deal that aims to link Pacific Rim economies from China to Chile, including the US.

The goal is to harmonize the “noodle bowl” of regional and bilateral free trade agreements that proliferated following the collapse in 2006 of the World Trade Organization’s Doha Round of talks.

The plan is to finalize the agreement by 2025, and under the FTAAP, the US would gain about $626 billion in exports while China would gain $1.6 trillion.

Asia-Pacific policymakers say there are several pathways to realizing the FTAAP, including both the TPP and RCEP. However, Menon said that if the US is unwilling to participate in the TPP, the same stance would apply to the FTAAP.

“Without the TPP it’s hard to see how the US under the (Donald) Trump administration will agree on the FTAAP when they can’t even pursue an agreement like the TPP,” he said.

This leaves countries with a US-excluded pact, the RCEP, often described as ‘China-led’ but officially led by the Association of Southeast Asian Nations (ASEAN). Discussions on the RCEP were formally launched in November 2012 at the ASEAN Summit in Cambodia.

Elms of the Asian Trade Centre shares the same view as Menon.

“The default will become the RCEP. This negotiation has a different set of partners. They have been talking for a while, but negotiations got serious in late 2014. But this will not be the TPP. The quality of the RCEP is not the same as the TPP. The final product will not have the same level of deep, broad commitments,” said Elms.

The RCEP was long viewed as a rival deal to the TPP. It includes the 10 member countries of ASEAN along with China, Japan, South Korea, India, Australia and New Zealand.

As the world’s first pan-Asia free trade deal, the pact potentially includes more than 3 billion people, or 45 percent of the world’s population. RCEP countries have a combined GDP of about $21 trillion and account for as much as 40 percent of world trade.

In 2007, the combined GDP of potential RCEP members already surpassed the combined GDP of TPP members. Continued growth, particularly in China, India and Indonesia, could see total GDP in the RCEP grow to over $100 trillion by 2050, roughly double the projected size of TPP economies.

This massive Asian trade bloc holds promise for many countries now that the TPP is on the brink of being binned, but the pact does not come without flaws.

“The RCEP differs from the TPP because it doesn’t involve rules around environment and food safety standards,” said Faraz Syed, an associate economist at Moody’s Analytics.

The work done on the TPP can provide some useful experience for ambitious trade agreements like the RCEP, although some experts note that other trade pacts are a different animal, with different standards.

While ambitious and possibly an alternative to the TPP, the RCEP still needs to be negotiated.

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