Revived TPP will benefit its members without US

Many observers assumed that the US announcement of its withdrawal from the Trans-Pacific Partnership (TPP) in January 2017 would destroy the agreement. However, in November 2017, economic ministers of the remaining 11 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam – met in Danang to agree on core elements of a successive agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The revised CPTPP suspends several of the most controversial TPP elements – for instance provisions relating to investor-state dispute settlement and intellectual property right protection and pharmaceuticals – that had been strongly pushed by US business interests. The suspension of these provisions has helped alleviate concerns that the agreement would intrude on important areas of national sovereignty.

Details of the revised agreement were finalised in Tokyo on January 23 and released on February 21. A final agreement is expected to be signed at an economic ministers meeting in Chile on March 8, 2018. Once signed, member countries will still need to fulfil national requirements to ratify the agreement. CPTPP will only come into effect when it has been ratified by at least half its members.

The US’ withdrawal substantially reduced the market size and potential benefits to TPP members. Nevertheless, the CPTPP still accounts for about 13.5 per cent of global GDP. Most core elements of the TPP remain unchanged, allowing member countries to invest and trade in goods and services amongst each other with reduced tariffs and standardised trade procedures, including streamlined rules of origin, and provisions on environmental and social safeguards. With some of the most open and outward-looking global economies participating in a high standard agreement, CPTPP has the potential to influence the future development of global trade agreements.

In Vietnam, CPTPP-related reforms should provide increased opportunities for Vietnamese producers to access new markets. Increased trade in services also has the potential to accelerate the integration of Vietnamese producers into global production networks. While the US withdrawal greatly reduces the potential economic benefits to Vietnam, CPTPP membership should still help accelerate growth in Vietnamese productivity, incomes, and living standards.

However, not all sectors and industries of the Vietnamese economy will benefit equally. Some sectors will face increased competition. Thus, the distributional impacts on the economy need to be monitored closely so that timely action can be taken to ensure more equitable distribution of the benefits of increased integration.

Future directions

The CPTPP leaves open the option for additional members to join at a later stage. Broadening the membership base is potentially beneficial for all members. The broader and more diverse the CPTPP market, the more significant the potential economic benefits to the region. Indeed, a key indicator of CPTPP success should be requests from other countries to join the agreement.

But the immediate priority for CPTPP members should be to sign the current agreement and finalise domestic ratification procedures so that the agreement can be implemented. It is unlikely that any additional countries will be accepted for membership until sometime after CPTPP commences implementation.

It has been suggested that the US may try to re-join the agreement. Important US businesses argue that they will suffer from being excluded from the process. Newspaper reports suggest that US President Donald Trump might consider re-joining CPTPP if elements of the current agreement were re-negotiated to benefit specific US interests.

However, given that some of the earlier commitments pushed by the US have been suspended, it is hard to see the remaining 11 members now agreeing to additional commitments that are not in the economic interest of the region. While the region as a whole, and Vietnam in particular, would benefit from future US participation in CPTPP, this is unlikely to happen under the current US administration.

Talk about possible UK participation in CPTPP is probably premature. While UK participation may generate some additional benefits, the regional impacts of UK participation would be modest. No CPTPP members currently rank amongst the UK’s top 10 import or export markets. Moreover, the UK may find it difficult to negotiate details of participation prior to its expected exit from the EU in March 2019.

A possibly more likely medium-term scenario would be for other regional countries to join CPTPP. A recent Petersen Institute study estimates that a TPP16 (a CPTPP that includes Indonesia, the Republic Korea, the Philippines, Taiwan, and Thailand) could generate income gains “of $486 billion for member economies”, with gains “higher than in the original TPP”.

In summary, while broadening CPTPP membership should benefit all parties, it is too early to make definitive statements about what new countries might be the first to join an expanded TPP. The immediate focus is likely to be on CPTPP implementation, and on identifying and addressing the potential negative impacts of the agreement with interest groups within national economies.

Identifying and addressing any adverse social impacts of increased integration is important both for equity reasons and to address community concerns about the potential adverse social impacts of economic integration.