Economic Affairs

TPP revival a boon amid rising protectionism

United States President Donald Trump sounded an apparent death knell for the Trans-Pacific Partnership (TPP) trade pact in January when he decided to withdraw the world's largest economy from the 12-nation agreement.

But the TPP has got a new lease of life. The remaining signatories, including Singapore, have agreed to move the trade deal forward without the US.

The TPP, which was signed by national leaders in 2015, is one of the most ambitious free trade pacts ever negotiated. Including the US, the signatories accounted for a whopping 40 per cent of the global economy.

Without the US, 11 countries remain in the trade agreement: Japan, Australia, Canada, Brunei, Chile, Mexico, New Zealand, Malaysia, Peru, Singapore and Vietnam.

It remains to be seen whether the TPP can actually be brought to fruition without the participation of the US, but this revival of its prospects is good news for small, trade-dependent Singapore.

AN AMBITIOUS, FAR-REACHING AGREEMENT

Singapore has been a strong proponent of the TPP since its inception, and the deal holds special symbolism for the Republic, which was among the first to broach it.

The TPP has its roots in the Trans-Pacific Strategic Economic Partnership, which came into effect in May 2006 between Singapore, Brunei, Chile and New Zealand.

Two years later, the US, Australia and Peru formally indicated their interest in negotiating a free trade agreement with these four nations. This agreement became known as the TPP.

Malaysia and Vietnam formally joined the talks in 2010, followed by Mexico and Canada in 2012, and Japan in 2013.

After years of intense negotiations and several controversies, a deal was reached in 2015.

Since then, Singapore leaders and the business community here have repeatedly spoken up for the TPP.

The agreement "embodies what Singapore sees as the future of the Asia-Pacific", said Minister for Trade and Industry (Trade) Lim Hng Kiang in 2015 after the deal was struck.

The TPP countries - including the US - represent a large market for Singapore, accounting for 30 per cent of its total trade in goods in 2013 and 30 per cent of foreign direct investment here.

Although Singapore is already an open economy, the trade pact was still expected to boost trade and investment links between Singapore and key markets in the region and elsewhere in the world, including in fast-growing Latin America.

Singapore does not have free trade agreements with Canada and Mexico, which means the TPP would open these new markets for companies based here.

In addition, the TPP is called a "high-quality" trade deal, meaning that it goes deeper than other free trade agreements in terms of outlining labour regulations, environmental rules, intellectual property protections and other requirements.

For instance, it includes provisions for Singapore firms in certain sectors to be able to bid for government contracts in other TPP countries, and take larger stakes in foreign firms operating in key sectors abroad.

Singapore also has strong geopolitical interests in the pact, says Dr Kanti Prasad Bajpai, the Wilmar Professor on Asian Studies at Lee Kuan Yew School of Public Policy, National University of Singapore.

The Republic is keen to "make sure this deal anchored the US in South-east Asia and East Asia more firmly", he notes.

CLOSING THE DEAL WITHOUT THE UNITED STATES

Mr Trump made a campaign pledge to pull the US out of what he called the "job-killing" TPP - a promise he acted on after taking office.

The exit of the US from the free trade deal throws a spanner in the works.

Singapore already has a bilateral free trade pact with the US - as well as with all of the other TPP countries except Canada and Mexico - so Mr Trump's decision is unlikely to have significant impact on actual Singapore-US trade volumes.

But the TPP is seriously weakened without the huge US market, which accounted for 60 per cent of the economies covered by the pact and was a major reason some countries decided to join the deal.

Even before the exit of the US, the TPP was already a lightning rod for controversy in some countries.

Critics have expressed concern about the threats it poses to some local sectors. They also argue that it will likely protect the rights of large investors and corporations

In addition, under the original terms of the TPP, the pact had to be ratified by six countries that account for a combined 85 per cent of signatories' gross domestic product. With the US out of the deal, that is impossible to achieve.

But the remaining nations - the so-called TPP 11 - have options. They can change the clause outlining ratification rules to allow the deal to move ahead.

They still have incentives to do so. Even without the US market, the deal would still allow smaller economies like Vietnam greater access to big economies such as Japan.

"The TPP's market size reduces significantly after the exit of the US. But still, it can benefit the remaining members, including Singapore, mainly because it is a deal that includes many new areas of trade like telecoms, financial services, e-commerce, government procurement and investments. Possibilities of new trade arising here are significant," says Dr Amitendu Palit, a senior research fellow at the Institute of South Asian Studies, National University of Singapore.

With the US no longer a party, some of the remaining countries may wish to revisit certain legal promises made under the existing TPP, especially if such promises had been made at the request of the US, says Singapore Management University law professor Locknie Hsu, who researches trade and investment law.

"On the other hand, the remaining 11 will now have an opportunity to further improve certain parts of the agreement if they wish, such as the e-commerce chapter, since e-commerce is growing at a very rapid rate in the region.

"Governments could further facilitate such trade for their small and medium-sized enterprises, to help them take their products to overseas markets more easily and quickly through the use of electronic channels," she adds.

Some governments of TPP countries also have domestically focused agendas for wanting to go ahead with the deal.

Countries often use international trade agreements to push through domestic reforms, "using the argument that they have committed to an international agreement and domestic stakeholders have to fall in line", notes Dr Bajpai.

In Japan, for instance, the provisions of the TPP are vital for Prime Minister Shinzo Abe to push through reforms needed to revitalise the country's economy, under his Abenomics programme.

Dr Palit says that for Singapore and other TPP members, being able to take the deal forward even without the US would represent "a major symbolic victory".

"What is important is whether all the 11 members of the TPP continue to take it forward, or some decide to drop off. If it is the latter, then both the economic and strategic impact of the deal will be reduced."

MORE ROADS TO FREER TRADE

The departure of the US from the TPP pushed other regional trade deals back into the limelight, including the 16-nation Regional Comprehensive Economic Partnership (RCEP) which is currently under negotiation.

The RCEP - seven of whose members have also signed the TPP - is now seen as the next big leap for global trade partnerships, creating one of the world's largest trading blocs with Asean at its core and plugging the regional alliance of 10 nations into the world economy.

That deal brings together China, India, Japan, Australia, New Zealand, South Korea and the 10 Asean members.

It does not include the US and is less ambitious on issues such as employment and environmental protection than the TPP.

In particular, China - which is not part of the TPP - has been putting itself forward as a free trade champion and has been enthusiastic about promoting the RCEP.

But the deal has not had a smooth ride so far. It has gone though 17 rounds of talks since 2013, but hit snags along the way and missed a 2015 deadline for completion.

The revival of the TPP "should encourage RCEP to head for an early conclusion", says Dr Palit.

"The effort to conclude should come from China because otherwise it might suffer some trade diversion losses from the TPP."

Still, Dr Hsu points out that the TPP is not the only way to achieve trade promotion and trade facilitation, nor is the RCEP.

Other trade negotiating opportunities for the remaining 11 countries are emerging, she notes. The European Union and Canada have separately indicated interest in negotiating free trade agreements with Asean.

Countries in Latin America which are parties to the trade arrangement known as the Pacific Alliance are already exploring discussions with Australia and New Zealand.

"Finally, other activities which may yield important commercial opportunities for this region, such as the Belt and Road Initiative, could stimulate interest in negotiating trade agreements with countries located along the 'Silk Road', such as Central Asia," Dr Hsu adds.

Ultimately, the revival of the TPP is a boon for free trade at a time when protectionism is looming large on the world stage.

And it is in Singapore's interest to continue playing a key role in such trade deals and negotiations.

"Singapore likes to be relevant and helpful in many forums. It is helpful to be at the table, shaping these deals and being seen in the company of other countries," says Dr Bajpai.

"Being involved also gives Singapore the opportunity to look after its own economic interests and make sure that these deals don't go in directions that are harmful for Singapore.

"Singapore also has an interest in making sure all the big powers are at the table dealing with each other and balancing each other off."

A version of this article appeared in the print edition of The Straits Times on May 24, 2017, with the headline 'TPP revival a boon amid rising protectionism'. Print Edition | Subscribe