The Trans-Pacific Partnership [TPP] was supposed to be a multilateral foreign trade agreement between twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States, and Vietnam. In October 2015, the participating nations signed up for different sections of the agreement, but it is yet to be ratified by any national government. The involved nations make up approximately forty percent of the global economy, and the deal was valued at approximately $223 billion.
The idea of the TPP sounds great. Restructuring the current trade architecture of the Asia-Pacific region to remove the plethora of bilateral trade agreements, increasing economic growth by promoting cheaper trade with lower tariffs and access to markets usually blocked by protectionism (I see you, highly regulated Canadian milk market). It was the gradual creation of a single market – maybe even resembling a more stable EU.
Generally, the World Trade Organization [WTO] regulates international trade, but lately has not done a particularly good job. Numerous areas requiring legislation – the environment, investment, and intellectual property rights – are not covered by the WTO. A desire to regulate these issues was one of the original drivers of the TPP. A second reason was to rectify the “noodle bowl” crisis – a series of crisscrossing and confusing country-specific bilateral trade agreements. It often led to larger nations taking advantage of smaller economies desperate to start trading internationally. The sheer economic size of the TPP would unify international approaches to trade by linking the Asia Pacific region into a single mega-regional trade agreement.
Debate around the TPP isn’t new. What is new is the fact that Trump has signed an executive order to formally withdraw the US from the agreement. This was nothing more than a formality, as there has been little faith in the ability of the US Congress to approve the TPP since day one. In an interesting turn of events, both Prime Ministers Malcolm Turnbull and Shinzo Abe have remained committed to the TPP. It is unlikely that they will want the years of negotiation and spent political capital to go to waste, but without the US at the negotiation table it may be dead in the water.
An alternative has been proposed by China and is under negotiation – the Regional Comprehensive Economic Partnership [RCEP]. This agreement is between the Association of Southeast Asian Nations [ASEAN], member states including Brunei, Cambodia, Indonesia, Malaysia, Singapore, Thailand and Vietnam. Other members would include ASEAN’s free trade agreement partners such as Australia, New Zealand, South Korea, and the key driver of the agreement – China. RCEP was launched in late 2012 and negotiations began in early 2013. Combined, the member nations account for approximately one third of the world’s GDP, slightly less than the promised value of the TPP. Like the TPP, RCEP could act as a solution to the “noodle bowl” crisis by reducing the number of bilateral trade agreements, and has a clear goal of reducing tariffs for all members by 90% over the next decade.
What happens next is up to the governments of China, the US and Australia. China is likely to continue to promote RCEP. Along with its inevitable slowdown comes an increased need for the Chinese Communist Party to prove it can function in the international sphere, economically and socially. The US has had a rapid shift in direction. Whilst Congress’s want to ratify the TPP was uncertain, Trump’s shift away from the TPP may not have the effect he desires. His overall goal of promoting economic growth contrasts directly with the idea of bringing manufacturing jobs back to the US. It is highly unlikely that the US will ever go back to being a manufacturing-based economy again. Trump needs to understand this. He has missed out on huge economic gains the TPP would have brought. He should focus on building relations with the Asia-Pacific, not building trade barriers.
With elected government officials and trade agreements the way they are at the moment, it is unlikely that US-Chinese relations will warm in the near future That does not mean that Australia should not further develop our own ties to China. As our largest and most crucial trading partner we need to create a strong cultural and social relationship with China to protect our economies future.
To be honest, many of the concerns around the TPP were due to fear around the likelihood of the US forcing its own agenda onto smaller nations. Concerns that China was being left out and that Australia joining the TPP would further alienate our social relationship with China are no longer relevant. Perhaps China could even take over America’s place in the TPP agreement as the key major economic power. Another alternative is that the TPP can go ahead with just eleven countries left, or maybe the RCEP will be the more popular choice. On the international stage, many options are available.
What will happen in the future remains to be seen. Personally, I would prefer if the TPP could be ratified without the involvement of the US to prove that they are not the major power on the international stage that they used to be. If RCEP could also be ratified, Australia would reap huge economic benefits from both agreements, as well as stronger relationships with our neighbours. It may seem indecisive, but Australia’s best move is to continue supporting both agreements.
Words by Emi Paige
This article first appeared in print volume 88 edition 2 STOP