Trans-Pacific Partnership Agreement: Centerpiece of US Rebalance Policy
by: Karla Mae G. Pabeliña
After five years of intensive negotiations, the Ministers of twelve countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam – announced the conclusion of the negotiations for the Trans-Pacific Partnership (TPP) Agreement on 4 October 2015. The outcome is regarded as a “high-standard, ambitious, comprehensive, and balanced agreement” that will promote sustainable economic growth in the twelve countries that together account for 40 percent of the global market.
The five defining features of TPP include comprehensive market access, regional approach to commitments, addressing new trade challenges, inclusive trade, and platform for regional integration. The TPP is expected to facilitate the development of production and supply chains, making trade more seamless and efficient. It would promote innovation, productivity and competitiveness by addressing emerging issues including the digital economy, and the role of state-owned enterprises. The inclusivity of the TPP would ensure that economies at all levels of development as well as businesses can benefit from trade, and make it a platform for regional economic integration. The TPP is an expansion of the Trans-Pacific Strategic Economic Partnership (TPSEP or P4) of 2005, which was signed by Brunei, Chile, New Zealand, and Singapore. Though the United States was not involved in its embryonic phase, it has been at the forefront of TPP’s expansion and negotiations following its inclusion in 2008. Thus, the TPP is regarded as a US-led multilateral arrangement.
Strategic dimension of the TPP
The United States understands that its future prosperity and security are partly defined by the events in the Asia-Pacific region. Accordingly, since 2011, the Obama Administration has laid the groundwork for the US Rebalance to Asia-Pacific region. The US has strengthened economic, diplomatic and security engagements, both bilaterally and multilaterally, with a coordinated, “whole-of-government” approach to policy implementation. Such engagements include strengthening existing alliances, expanding networks of cooperation with emerging partners, engaging multilateral institutions, promoting democratic values, and advancing US trade and business interests.
Underlying the rebalance policy is a realization that the center of gravity affecting US economic prosperity and political stability is shifting towards the Asia Pacific. Economically, Asia is the leading destination for US exports (USD 341,422.1 million dollars, January- September 2015) and source of imports in goods and services (USD 752,785.1 million dollars, January- September 2015). From 2001 to 2011, there has been an 8 percent annual growth in US trade with Asia. The US has robust trading relationships with China, ASEAN, Australia, India, Japan, South Korea and Taiwan. The expectation that the region will become more vital for the US’ economic interests led the US Government to pursue the TPP.
The TPP is a centerpiece of the US rebalance policy to Asia. The agreement is envisioned to be the new standard for trade and investment in the Asia Pacific; an important step towards open trade and regional integration across the regions. With its defining features, the TPP is a landmark 21st century pact that would promote US’ role as a driver of global growth, thereby sustaining its global leadership. In the words of President Barack Obama: “We can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”
Assistant Secretary Daniel Russel, in his testimony before the House Foreign Affairs Committee, argued that the “countries in the (Asia-Pacific) region look to us (United States) to help establish the rules and set the high standards.” He warned that failure of completing and approving the TPP would facilitate the steady loss of US market share, thereby feeding into the “inaccurate perception of US economic decline.”
Beyond economics, the TPP’s value is strategic. US Trade Representative Michael Froman, in the press release on the conclusion of the TPP negotiations, argued that TPP is a “means of embedding the US in the region, creating habits of cooperation with key partners, and forming a new foundation of collaboration on a wide range of broader issues”. Such engagements may have an excludability effect on China, leading some analysts to posit that TPP is a containment strategy of the US to hinder China’s rise and economic clout in the region. It should be pointed out that China was initially invited to the TPP negotiations. It later backed out due to the stringent restrictions the deal would have on state-owned enterprises and internet access.
The region going for mega FTAs: TPP vis-à-vis RCEP
The TPP is also viewed in comparison with the Regional Comprehensive Economic Partnership (RCEP), which is composed of the ASEAN Member States and its six partner countries: Australia, China, India, Japan, New Zealand and South Korea. Similar to TPP, RCEP aims to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement among the ASEAN states and ASEAN’s FTA Partners. Its coverage would include trade in goods, services and investments, economic and technical cooperation, intellectual property, competition, and settlement of disputes. Though an initiative by ASEAN, India and China are main proponents for RCEP – two countries excluded from the TPP.
China is also pushing for concrete steps towards the realization of the Free-Trade Area of the Asia Pacific (FTAAP). China’s Deputy Trade Minister Wang Shouwen argued that TPP and RCEP will become “two wheels of a bicycle” which is FTAAP. The Beijing Roadmap for APEC’s Contribution to the Realization of FTAAP, released during the APEC 2014 Meeting in Beijing, called for “collective strategic study” of the pathways to FTAAP. Disagreements among the APEC member-economies nonetheless pervade on what should constitute as the main component of the FTAAP, and the likelihood of synergizing the TPP and RCEP within its framework.
The real hurdle: the domestic front
Despite the veneer of optimism on the successful conclusion of the TPP negotiations, states party to the TPP have huge domestic hurdles to overcome. In the United States, for example, the trade deal has to pass through rigorous examination by Congress. Voting patterns on the ratification of trade deals reveal that Democrats are divided on TPP. Leading Democrat Candidate Hillary Clinton’s criticisms on the TPP is a manifestation of the opposition of congressional democrats. Yet President Obama is hoping that the Republican-controlled Congress, who agreed to ‘fast-track’ legislation, will have no procedural delays and filibuster once the TPP is presented.
For the TPP to be implemented, President Obama needs to manage party politics among Democrats, solicit approval from congressional Republicans, and gather as much public support. The President has to do all of these things, at the latest, by the end of February primary season. With the election in a year, it is an uphill battle for the Executive to have the TPP ratified.
Other countries party to the TPP must also engage their respective constituents to get support on this US-led trade pact. National leaders must hurdle through delicate domestic politics, and fulfill constitutional requirements for it to be approved by their respective Congresses or Parliaments. National political consensus is key to the successful implementation of the various necessary institutional reforms. As states move towards the domestic approval of the TPP, the US must exhibit consistency and commitment. It must ease the concern of TPP members over its inability to ‘get its own house in order’. Only if the US is able to project sustainability, can deeper cooperation from partners be possible.
Right at the door
The Philippines is right at the door of this trade pact. Trade Secretary Gregory T. Domingo said that the Philippines has already indicated its intention to join the TPP. The question remain though whether the Philippines can fulfill the stringent requirements and abide by regulations of the TPP given its constitutional limitations. An analysis of the benefits and challenges of being part of the TPP will be discussed in the next article.