The End of the TPP and the Rise of the RCEP as a New Leader in Multilateral Trade Agreements

Michael Thomas

The End of the Trans-Pacific Partnership

Of the many targets in Donald Trump’s sights during his 2016 US Presidential campaign, few received more publicity than the Trans-Pacific Partnership (TPP). With the same ire directed toward Obamacare, The New York Times, or his opponent’s emails, candidate Trump frequently denounced the 5,600-page multilateral trade deal that represented the cornerstone of President Obama’s “pivot to Asia”. When Trump assumed the presidency, rhetoric became reality and the President signed an Executive Order – ‘pulling’ the United States from the deal.

Trump’s action is troubling to many who support trade liberalization. Still, the TPP was not the sole plurilateral trade agreement being negotiated in the Asia-Pacific region over the past several years. Though it has garnered far less publicity, the Regional Comprehensive Economic Partnership (RCEP) has been subject to negotiation since 2011 – two years before the TPP negotiations even began. A significant difference with the RCEP, however, is that it includes China and does not include the United States. As a result the RCEP negotiation has been viewed as China’s “response” to the TPP, leading some, including President Obama, to warn that the deal would be used by China as a way to exploit the political vacuum if the US walked away from the TPP. For President Obama, the TPP was important because the United States was setting the trade rules for the foreseeable future. Now that the TPP has seemingly been abandoned, it is important to understand the RCEP’s content and the possible implications for political arrangements and leadership in East Asia.


Understanding the TPP

The TPP brought together twelve countries from four continents in trade talks that sought to increase trade between all of the involved parties. These countries represent 40 percent of global economic output. While the TPP is a plurilateral free trade arrangement, some are quick to point out that the deal appears to be more about enforcing the same rules across the Asia Pacific region as opposed to promoting freer trade. The agreement did aim to reduce tariffs in trade between all involved parties, but the central provisions focused on regulations for: state-owned enterprises, intellectual property (IP), construction, research and development, transportation services, investment, agriculture, labor and the environment, among other areas.

The TPP negotiations were driven by Japan and the United States, whose economic muscle provided them with leverage over the smaller economies involved in the deal. Access to these largest markets was the greatest incentive for many of the agreement’s smaller members, but the TPP was also a deal that both Japan and the United States viewed positively for some time. In the United States, this changed during the twilight of President Obama’s tenure in the White House. Despite his ardent support for the deal, both of the candidates vying to replace him in the 2016 US presidential election voiced their opposition to the TPP. Although it has been projected that only 0.1 percent of the US labour force was at risk of being negatively affected by the deal, the anti-TPP rhetoric seen in the 2016 elections appear to have extinguished hopes for the deal’s approval. In Japan, the story has been very different, with the government of Prime Minister Shinzo Abe becoming the first and only government to ratify the TPP. While opposition exists in the ASEAN countries and other economies within the agreement, it appears highly likely that the TPP could have been ratified by all countries involved if the United States would have lent its continued support to the agreement.


Trade in the Asia-Pacific Region

Many countries in the Asia-Pacific region supported the TPP, and ongoing talks for the RCEP and the Free Trade Area of the Asia Pacific (FTAAP) indicate the region’s continued interest in trade liberalization arrangements. Trade in the Asia-Pacific is complicated by the economic diversity of the countries that reside within the region. While established economies such as Japan or even the Republic of Korea (Korea) specialize in the creation of intellectual property and engage more heavily in research and development, other countries such as China or Vietnam are more involved in manufacturing. This creates a gap between the priorities of these countries when determining the rules for trade and investment with one another.

The region is also rife with geopolitical underpinnings that can influence the trajectory of trade liberalization. There are many tensions in the region: the influence of a China that is experiencing growing political and economic power; the tensions and suspicions that India exhibits toward China; the increasing centralization of the ASEAN bloc; and the US struggle to maintain influence in the region. These tensions can influence bilateral trade relationships, and can complicate as well the process of negotiating a multilateral trade agreement.


The RCEP Negotiations

Often associated with China, the RCEP was actually introduced by Indonesia with the intention of bringing together all ten Association of Southeast Asian Nations (ASEAN) countries along with Australia, New Zealand, Japan, South Korea, China and India – all with previous free trade arrangements with ASEAN – under a single trade framework. Covering almost half of the world’s population, a quarter of global GDP and 40 percent of global trade, the RCEP certainly rivals the TPP in scope. It also rivals the TPP in the slow effort to conclude an agreement. The 16 RCEP members have missed the deadline for concluding negotiations twice, in 2015 and 2016, and recently decided to extend the deadline for concluding the agreement to late 2017. Still, some expect that a deal will not come until the end of the decade at the earliest.

There are multiple reasons for this. First, several countries involved in RCEP have yet to make bilateral trade agreements with other members. These parties will need to begin negotiating ‘from scratch’, inevitably slowing the overall process. The most notable pair of countries are China and India, for whom reaching a bilateral trade agreement under the RCEP framework will be a very difficult hurdle. India maintains deep suspicion of Chinese mercantilism and has offered the least tariff concessions to Chinese goods out of the 16 RCEP countries.

Another challenge comes from the already existing trade framework of the ASEAN bloc, as it does not include strong rules regarding certain issues that are important to the wealthier RCEP members. The weaker rules involve intellectual property rights, labour and the environment and there are no rules governing SOEs. Such limitations have carried over into the RCEP framework, not only creating internal tensions between wealthier RCEP members and less-wealthy members, but also making the agreement an easy target for opponents of the deal throughout the international community. Still, the RCEP could be seen as a first, significant step in the process of developing a regional trade. The RCEP lacks regulations that the established economies feel are important, but the RCEP would seem to encourage trade and spur growth in a vital economic region. Later agreements like the creation of the FTAAP pose an opportunity to implement structural reforms that could then address issues that are of concern the Asia-Pacific’s established economies.

While some are quick to point out that the agreement is a “China-led regional trade alliance” meant to counter the US influence on the TPP, this characterization is rejected outright by many, including East Asian trade experts and the ASEAN states. The RCEP, like the earlier TPP, is explicitly open to any country that is willing to meet its terms. Moreover, many argue that the plan has always been to have the TPP and RECP merge one day into a vast Asia-Pacific free-trade area. It seems convenient for the RCEP and the TPP to be posed as part of the competitive geopolitical narrative between China and the United States. However, this does not appear to be a sufficient portrayal of the growing economic reality in the Asia-Pacific region.


About the Author

Michael Thomas is a second-year Master of Global Affairs student with major interests in global trade, international business, geopolitical risk and issues in the Asia-Pacific region. He has held positions at the Thai-Canadian Chamber of Commerce in Bangkok and Descartes Systems Group in Ottawa. He is the recipient of the Dr. David Chu Scholarship (2016), the Global Taiwan Research Project Award (2017), and the Gordon Cressy Student Leadership Award (2017). Michael holds a bachelor’s degree in political science from Carleton University

 
 

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