TPPing into irrelevance

Trade negotiators from a dozen countries will gather for their 20th official meeting in Ottawa, Canada, starting July 3 but all signs are indicating that talks on the Trans-Pacific Partnership will not get very far, if anywhere at all.

The meeting is part of a final push for an agreement in time for President Barack Obama’s visit to Asia for the APEC Summit in November. Since this will require members to sign on without fast-track assurance by the United States, it is likely that any announcement will affirm South Korea’s accession rather than the TPP’s completion. This would set the scene for another long delay.

A different approach is needed. After many years of trying to build a deep and wide-ranging free trade agreement, it is time for the TPP’s would-be members to go back to tried and tested unilateral action. By multilateralizing the accords of their many FTAs, they would do away with having to administer multiple rules-of-origin while enhancing welfare by maximizing trade creation and eliminating trade diversion.

With two-thirds of TPP member imports ― 80 percent if the U.S. is excluded ― already covered or about to be covered by FTAs, expanding preferences to remaining countries should not encounter much resistance from FTA partners, and would finally replace talk with action.

That such an end-run around the TPP can even be floated attests to the doubts bedeviling the concept. There is widespread confusion about why the TPP is taking so long, and what it may look like when finally concluded.

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 Darussalam and Singapore ― began talking about an FTA. It began to grab headlines when the U.S. 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. Unlike other plurilateral cooperation agreements, the TPP is widely dispersed geographically, with members from four of the world’s seven continents. It is just as economically diverse. Australia’s per capita income is 40 times that of Vietnam. The U.S. economy is 1,000 times the size of Brunei. Finding commonality amid such diversity cannot be easy.

Of course, the TPP delays pale in comparison to another struggling proposed trade pact ― the World Trade Organization’s Doha Round. But 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 U.S., there is not only a lack of commonality in negotiating positions; negotiators may not even subscribe to broadly similar principles.

Now add into this mix a highly ambitious agenda, to be tackled as a single undertaking. This can make common ground even harder to find, pushing some important items into the “too hard” category.

Moreover, there is the sense of the TPP being an unfair bargain. Never has there been a plurilateral negotiation with an agenda that appears so skewed in favor of one party. The carrot being dangled by the U.S. is improved access to its huge market. But as half the TPP members already have an FTA in place with the U.S. and the rest trying to conclude one, the incremental benefit is likely small.

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 that were not heard publically during the initial negotiations. Japan made clear recently that it will not necessarily extend all members the same concessions made to the U.S. in agricultural market access.

It appears the TPP is degenerating into a series of bilateral deals, with a U.S.-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.

How, then, do we move forward? If the TPP is concluded anytime soon, even in a compromised form, any breakthroughs should be multilateralized, or extended to nonmembers in a nondiscriminatory manner. If there is no end in sight, countries must take matters into their own hands ― as they always have. Short of resurrecting the Doha Round, unilaterally multilateralizing preferences is the only way to salvage something from the process. 

By Jayant Menon

Jayant Menon is lead economist in the Office for Regional Economic Integration at the Manila-based Asia Development Bank. ― Ed.