What does the end of the TPP mean for the Asia-Pacific region?

In the post-TPP era, China is the lynchpin in another trade deal

The US has pronounced the TPP to be dead but a successor deal, the RCEP, that includes China, India, Australia and other Asia-Pacific nations is waiting in the wings.

By Jason Murphy

The end of the Trans Pacific Partnership (TPP) matters – but not in the way you might think.

The TPP collapsed the moment US president Donald Trump removed his nation from the deal, but the implications stretch far beyond trade. If the deal’s demise marks a withdrawal of the US from Asia it could signal the dawn of a new era, in which China is far more important.

China is the lynchpin in another trade deal – the Regional Comprehensive Economic Partnership (RCEP) – which is ascendant in the post-TPP era.

Part trade agreement, part geopolitical symbol, the TPP could never last without the US. Its rules said member states with GDP equal to 85 per cent of the 12 original signatories must ratify it. However, the US alone made up 65 per cent of the total GDP in the TPP – America was the key.

Neither can the TPP be put on ice in the hope of a new US president in four years. Its own rules stipulate it must be signed within two years. Perhaps something can be salvaged, says Monash University academic and trade expert Dr Giovanni Di Lieto, but it would have to be TPP 2.0.

“It would be something legally, technically different, because the TPP is formally defunct now,” Di Lieto says. 

“Of course politically the idea can be revived, but only politically.”

China’s RCEP rises as TPP falls

Political will is now being focused on China and its trade deal, the RCEP (often pronounced as “arr-sep”). China is making the most of its new opportunity to play a global leadership role.

As 2017 dawned, China’s president Xi Jinping was at the World Economic Forum in Davos, making the case for globalisation. 

“We should commit ourselves to growing an open global economy,” he said. “No one will emerge as the winner in a trade war.”

China’s aspirations to global and regional leadership are important to understanding the development of the RCEP.

China was not invited to join the TPP, and the RCEP – sometimes described as a “competitor” to the TPP – emerged shortly after the partnership was announced. The 16-nation RCEP bloc is centred on Asia.

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It includes the 10 members of the Association of South-East Asian Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. It also includes Australia, New Zealand, India, Japan and South Korea plus, of course, China itself, but it excludes the US.

Seven RCEP participants were members of the TPP: Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam.

The RCEP bloc covers half the world’s population and 30 per cent of global GDP.

The TPP was primarily an American creation. Far more than an agreement on tariff barriers, it aimed to create new standards for labour laws and intellectual property as well as avenues through which companies could challenge other countries’ laws. It comprised 12 countries and stretched across the Pacific to include Canada, Chile, Mexico and Peru.

Despite the reach and breadth of the TPP most experts give little weight to the economic consequences of its demise.

Who wins from the end of the TPP?

Many of the TPP countries already had bilateral agreements, such as Australia’s FTAs with Japan, Singapore, Chile and Malaysia, so less trade upside was available than in some other deals. “Those countries already have good trade arrangements with each other,” Di Lieto says, calling the TPP “much more geopolitical than economic”.

If he is right, China may be in position to make geopolitical gains with the RCEP.

The RCEP is a less ambitious trade partnership than the TPP. Instead of being full of rules, it focuses on cutting tariffs. Perhaps because of its limited scope, RCEP was less of a priority for Australia than the TPP. 

Its limitations may, however, ultimately be what make it politically acceptable in the diverse countries in which it must be ratified.

Members with less-developed economies have more to gain from flexibilities built into the agreement for developing countries. These were very limited in the TPP. 

Dr Amitendu Palit of the National University of Singapore calls the RCEP a “virtuous 20th-century agreement, more about economics and trade rather than the geopolitics which is unavoidable if the US is part of the story”.

Progress on free trade will continue

Palit argues that progress on free trade is far from dead, and the RCEP could be a model that, once established, can lead to something like the TPP being resuscitated.

“It can emerge as a symbol of economic cooperation in the Asia-Pacific among a large group of countries and that might be big enough … to work towards the concept of a free trade area in the Asia-Pacific,” he says.

The 17th round of negotiations on RCEP, the first of four rounds scheduled for 2017, starts in Japan in late February.

If the RCEP does whet appetites for more and bigger trade deals, a successor to the TPP may be back on the table. The big question is whether the US role in any successor agreement will be as a leader.

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