Commentary / Japan

Salvage best parts of TPP for future trade agreements

Many elements could be used as blueprints and inspiration for upcoming negotiations

by Matthias Helble

Special To The Japan Times

In July, the remaining 11 members of the Trans-Pacific Partnership met in Hakone, Kanagawa Prefecture, to deliberate about the future of the trade pact. The TPP would have substantially expanded trade between its members. More importantly, it would have been the first true 21st century trade agreement, as it would have substantially updated and extended international trade rules responding to new technological developments and economic realities.

Yet, some achievements of the TPP might not be lost. The accord holds important lessons for other ambitious regional trade deals both in terms of process and content. Furthermore, several chapters of the TPP can become blueprints for ongoing and upcoming negotiations at the regional or multilateral level. For example, the just-started NAFTA renegotiations might borrow heavily from the TPP. At the multilateral level, a one-to-one transposition of its provisions seems unlikely, yet certain elements could serve as valuable inspiration for future multilateral trade talks.

The TPP was supposed to become one of the most comprehensive and ambitious mega-regional trade agreements. It would have stimulated trade among its members, not so much by a reduction in tariffs but by promoting regulatory coherence, e.g., by harmonizing rules of origin.

The TPP also introduced several regulatory innovations, including in areas where the need for new trade rules has become increasingly urgent. For example, e-commerce is flourishing across countries and yet the World Trade Organization rule book is lagging decades behind. Another example are biologicals, which are gaining ground for medical treatment but are not yet covered, even by bilateral trade agreements. The TPP thus showcases the kind of new international trade rules that must be written.

However, the opportunities to introduce TPP provisions at the multilateral level are limited. The TPP members were able to negotiate a deal because they were a small group of countries with a similar vision of a more open and rules-based trade regime. At the WTO, the negotiation room is packed with countries holding different visions and ambitions. Furthermore, the WTO has become a truly universal organization. As is the case for the United Nations, decisions at the WTO are based on consensus, which has become increasingly difficult to reach. And if consensus is achieved, the agreement is typically less ambitious and less binding compared with a regional or bilateral trade agreement.

The withdrawal of the United States from TPP has weakened the regulatory impulse that it might have been able to provide. As described above, several of the regulatory innovations provided in the TPP were pushed by Washington in exchange of access to the U.S. market. For example, Vietnam was ready to overhaul its domestic labor laws given the prospect of better market access in the U.S. If the TPP members would like to push ahead without the U.S., it is unlikely that the current agreement could be maintained. The current agreement constitutes a delicate balance of offers and demands by all parties in both traditional and new areas. The U.S. withdrawal means that new negotiations are needed to find a new balance. It remains to be seen how much of the current TPP provisions would survive such an undertaking.

The most likely place where the TPP provisions will appear again are the recently envisioned bilateral trade agreements between the U.S. and countries in the Asia-Pacific region. U.S. President Donald Trump announced the replacement of the TPP with bilateral deals on his first day in office. In these bilateral deal, the U.S. as the world’s largest economy will have substantial leverage against its relatively small trade partners. It is therefore likely that some chapters of the TPP, for example of e-commerce or labor rights, which were promoted by the U.S., will find their way into these bilateral trade agreements.

Another outlet where the TPP provisions might become important is in the renegotiations of the North American Free Trade Agreement that started in August. It dates from the mid-1990s. Like the WTO agreement, NAFTA must be updated to take into account new technological developments. Furthermore, Trump has announced his determination to renegotiate NAFTA to create a more level playing field between U.S. workers and their Mexican counterparts. The TPP chapter on labor rights might serve as a blueprint for the labor rights’ provisions in an updated NAFTA.

The TPP clearly delineates the contours of a revamped multilateral trade framework that responds to the needs of the 21st century. Let’s salvage the best parts!

Matthias Helble is senior economist and co-chair of the research department at the Asian Development Bank Institute in Tokyo. His interests include international trade, health, environment and urban economics.