The Trans-Pacific Partnership agreement is clinging on. Despite the U.S. withdrawal from the pact earlier this year, the other 11 members are still aiming for ratification -- for good reason: Even without the world's largest economy, the agreement still offers tangible benefits to remaining signatories. More important, it helps sustain momentum toward trade liberalization, sets new standards for emerging trade issues, such as intellectual property rights, and could serve as a stepping stone for a much bigger free trade area if membership is expanded in the future. For a region built on trade, the TPP offers hope.
Obstacles remain. The group cobbles together vastly different economies, from commodity exporters like Brunei, Peru, Canada, Chile, New Zealand and Australia, the service hub of Singapore, to manufacturers like Mexico, Japan, Vietnam and Malaysia. Their levels of development also differ enormously: stretching from some of the region's lowest to highest per capita incomes. This incongruity, however, is also the TPP's strength, even without the U.S.: Natural complementarities would unleash benefits for all, none of which individual economies would be able to grasp on their own.
After several months of dithering and digesting the news of America's withdrawal, the remaining 11 TPP members are back at the negotiating table. Progress has been relatively swift: The hard negotiating part, after all, had already been concluded in preceding years. Adjusting the agreement to a smaller membership has been easier than initially thought. The U.S. was important, to be sure, but it had offered relatively few concessions without which others would now feel compelled to withdraw entirely. Ministers are scheduled to meet on the sidelines of the upcoming Asia-Pacific Economic Cooperation summit in Vietnam in November, with high hopes that a final agreement can be reached.
It may not prove quite so easy, however. Japanese Prime Minister Shinzo Abe has called an election for Oct. 22. His government is firmly committed, but a weakened mandate could complicate ratification. Meanwhile, in New Zealand, the recent close election result could weaken the country's commitment, or force the addition of more controversial stipulations, such as restrictions on foreigners buying property. Vietnam, too, has voiced reservations about intellectual property rights protections for pharmaceuticals that are part of the original TPP agreement. Some modifications to the TPP may be needed.
Malaysia also seems to be wavering, in light of long-held reservations about stipulations on public procurement and state-owned enterprises, while a looming election adds to the complications. Across the Pacific, things are not getting any easier either. The North American Free Trade Agreement is currently under renegotiation, adding to challenges for Canada and Mexico who are parties to both agreements.
The goal of reaching a deal by November, therefore, seems a stretch, if not entirely impossible. Protectionism may be a growing risk the world over, but most remaining TPP members appear willing to press on with trade liberalization. Japan is in the lead, being by far the biggest economy. And every major trade deal requires an anchor economy willing to make concessions that others find too tempting to resist. Much, therefore, rides on the Japanese election, and the government's commitment to push ahead with negotiations.
It would be wrong, however, to see the agreement's benefits as being confined to its signatories. First, the TPP provides perhaps the best available blueprint for a modern, high-standards trade deal that addresses issues well beyond the scope of more traditional agreements, dealing with trade in services, technology, public procurement, the role of SOEs, intellectual property, environment and labor rights.
If it fails, it could spell trouble for trade liberalization elsewhere. If it succeeds it could help temper some of the resistance to free trade that has emerged in an era of galloping globalization. None of this means that the TPP will be perfect, nor that it will address all of the disruptions and challenges that freeing trade entails. But the TPP provides a step toward a firmer framework, one that can be extended over time to address some of the dislocations that trade liberalization can cause.
The TPP is not an exclusive club. Its membership will remain open to all, including the U.S., should it one day decide to join the agreement it worked so hard to create. In Asia, its membership could also grow, encompassing more and more economies, including, presumably, China one day, the world's largest trading nation. China, of course, is currently leading efforts to build another pan-Asia free trade area, the Regional Comprehensive Economic Partnership agreement. Membership between the RCEP and TPP overlap, so a fusing of the two may well occur in years to come. That would be a grand undertaking, and one that would be strengthened if the TPP were to serve as an effective blueprint.
For trade liberalization to move forward, the TPP would be an important catalyst. Let's hope it is make, not brake, for the agreement that only a few months ago seemed destined for the scrap pile of failed diplomatic initiatives, but has since found new life.
Frederic Neumann is co-head of Asia Economics Research at HSBC.