HONG KONG (Reuters Breakingviews) - A new Trans-Pacific Partnership is a big deal, even without the United States. Losing the world’s biggest economy seriously reduces the overall impact of the trade pact, which Donald Trump jettisoned at the start of his presidency. For Japan, Australia, Canada and others, however, it is valuable anyway, and over time the framework could expand. Breakingviews looks at how and why TPP stuck around.
Why is TPP still going?
For both political and economic reasons. The deal helps the group’s members reaffirm their commitment to free trade, even if the traditional champion of globalisation has radically changed its tune. TPP should also shore up the negotiating positions of the 11 countries involved when the Trump administration pushes for one-on-one deals aimed largely at cutting trade surpluses.
Without the United States, the benefits obviously will be reduced, but should nevertheless be material. And the participants have already laid much of the groundwork on domestic reforms, taking on powerful groups such as farmers. So they may as well reap the benefits. A final deal is not yet completed, but could be just months away, assuming the remaining objections of Ottawa and others can be smoothed over.
How has it changed?
Not all that much. The name is clunkier: it’s now officially the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. And without the United States, it now covers about 14 percent of the world by GDP, namely Brunei, Japan, Malaysia, Singapore and Vietnam in Asia; Australia and New Zealand in Oceania; and Canada, Chile, Mexico and Peru in the Americas.
Some clauses of the original deal have been set aside, due to opposition from Canada and others. Many of these relate to intellectual-property provisions. For example, the Asian Trade Centre notes that copyright will no longer be extended to 70 from 50 years. But the two core premises – slashing tariffs while enforcing high standards in areas like labour and the environment – are intact.
What are the economic benefits?
Significant, but smaller than they originally were. Estimates published in October by the Peterson Institute for International Economics suggested a so-called “TPP11” would lift global real income by 0.1 percent, or $147 billion in 2015 dollars, by 2030. That compares to the original $492 billion increase. The growth in exports would be 0.8 percent, down from the previous 3.1 percent.
Who are the biggest winners?
Uncle Sam’s closest neighbours. A separate study by the Canada West Foundation, a think tank in Calgary, suggests compared to the original deal, the biggest beneficiaries would be the four signatories in the Americas. This quartet keeps its existing access to U.S. markets and makes inroads across the Pacific, without having to share these benefits with U.S. companies.
Conversely, Japan and Mexico, who stood to benefit the most in America, will see the biggest reduction in gains. Meanwhile, the Peterson Institute says Washington’s absence would see it move from a $131 billion gain to a $2 billion loss of income in 2030, although this does not factor in the benefits from aggressively renegotiating elsewhere.
What does it mean politically?
It signals a shift in the balance of power. In resurrecting TPP, other governments, most notably Japan and Australia, are partly assuming the leadership role usually played by the United States in multilateral dealmaking. They are also stepping up when many assumed that China would naturally fill the vacuum left by the United States on regional diplomacy and trade.
It’s not exactly a rebuke to China, though. Any agreement would be a complement, rather than a rival, to the Beijing-endorsed Regional Comprehensive Economic Partnership. That pact covers more countries but demands less of its members. It focuses on lowering tariffs, rather than also standardising rules in areas such as the digital economy, investment and services.
What could become of the TPP from here?
It could get bigger and more useful. Part of TPP’s appeal is that it is not a closed club, but one that others can apply to join. For example, Peterson Institute researchers say it could grow to encompass Indonesia, South Korea, the Philippines, Taiwan and Thailand, all of whom have expressed interest. That “TPP16” would generate $449 billion of global income gains by 2030, closer to the sum envisioned when the United States was involved.
Some proponents are also hoping the United States will have a change of heart, even though the country’s 2016 election revealed suspicion about TPP from both political parties. Australia, for one, has stressed it is important to leave the door open to Washington. If it eventually returns, some suspended provisions on IP and other matters, many of which were pushed by U.S. negotiators, could be reinstated. As befits a huge trade deal, there is likely to be plenty more wheeling and dealing ahead.
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