How the TPP could survive without the US

By: Deborah Elms and Minh Hue Nguyen - Posted on: February 14, 2017 | Current Affairs

OPINION: Despite President Donald Trump recently pulling the US out of the Trans-Pacific Partnership, the free trade agreement can – and should – carry on

Bernie Sanders supporters hold signs that refer to "No Trans-Pacific Partnership" on the floor during the first day of the Democratic National Convention at the Wells Fargo Center in Philadelphia, Pennsylvania
Bernie Sanders supporters hold signs that refer to “No Trans-Pacific Partnership” on the floor during the first day of the Democratic National Convention at the Wells Fargo Center in Philadelphia, Pennsylvania, USA, 25 July 2016. Photo: EPA/ANDREW GOMBERT

Many people have assumed that without the US, the Trans-Pacific Partnership (TPP) is no longer worth pursuing. This is not true. The benefits of the TPP, a trade deal between 12 Pacific Rim nations including Singapore, Malaysia, Vietnam and Brunei, remain for the rest of the members – whether or not the US ever rejoins the pact.

Why? Because the US is a relatively open market, and most of the other 11 TPP parties already have access to that market – whether or not the TPP includes the US.

Many TPP parties also have existing trade agreements with the US, including Australia, Canada, Chile, Mexico, Peru and Singapore. Note, however, that President Donald Trump has also said he will renegotiate NAFTA with Canada and Mexico, perhaps leading to fewer benefits in the future from existing agreements with the US.

Second, other than some market access issues where the US continues to apply tariffs at relatively high levels or maintains complicated market restrictions such as tariff rate quotas, the US market is even more open to all – especially in areas like services and investment. The US already protects intellectual property rights and facilitates trade at customs.

Third, because the US wanted to limit domestic changes in Congress, the extent of US modifications that would have been required by TPP implementation were quite modest.

As a result, for most firms trying to access US markets from TPP member countries, whether the US is explicitly included or not in the deal is not especially critical. TPP firms already have access to the US and this should remain.

So why do we need the TPP at all? While the TPP didn’t require many changes from the US, it does lower barriers between other members and requires transformation in procedures. In some countries, the changes are modest and in others, the changes are more substantial.

But, all in all, the final result will be a much more dynamic, integrated and competitive region with benefits that are limited to TPP member firms. Non-TPP member firms (including, now, US companies) will not have access to these preferential benefits.

Many of the specific provisions of the TPP are likely to set the benchmarks for future trade agreements.

The fastest way to assess a trade agreement for quality is to look at the extent and depth of tariff cuts. The TPP is a truly high quality agreement in this regard as it broadly starts with tariff cuts on 90% of all tariff lines on the very first day of the agreement. The majority of the remaining tariffs would be cut to zero within five to seven years.

For example, many plastic office supplies currently face tariffs of 20% or higher in some TPP countries. These would be cut to zero as quickly from the first day of the agreement, and all tariffs would be eliminated in all members in a decade. This would result in cheaper products and more choices for consumers as well as greater opportunities for suppliers of plastic office products.

Something similar happens in shampoo, where consumers currently pay as much as 10% to 15% tariffs on imported products. Environmentally friendly bamboo plywood can be quite expensive, in part due to tariff rates as high as 35% in TPP countries. These would also fall to zero under the TPP. Tariff rates would be slashed for clothing, footwear and food products of all types.

Tariff cuts are the easiest elements of the agreement to see and to measure. But the interlocking nature of the TPP means that firms should not just focus attention on this aspect of the agreement. The TPP would also provide companies with lower risk and greater certainty as well as improved opportunities for doing business across member markets. Firms – large and small – would receive benefits scattered in chapters all across the deal.

At a time when some countries are closing their markets and turning inward, the TPP provides an important framework for consumers and companies alike to keep trade lanes open.

This matters to everyone. Trade is not just an abstract concept. Individuals connect to trade nearly every minute of every day – as consumers, workers and citizens. Shutting it down imperils us all.

 

Deborah Elms is executive director of the Asian Trade Centre, a trade advocacy group based in Singapore, while Minh Hue Nguyen is a research assistant at the organisation.