October 13, 2017 12:37 pm JST

'TPP 11' should preserve all agreed-upon rules: ex-US trade chief

Michael Froman warns of 'risk that the whole thing unravels'

SHOTARO TANI, Nikkei staff writer

Michael Froman, former U.S. trade representative, speaks to the Nikkei Asian Review in Tokyo.

TOKYO -- As the 11 remaining parties to the Trans-Pacific Partnership work to ratify the trade deal, possibly by November, a former U.S. trade representative warns that the pact could be severely weakened unless efforts are made to keep "high standards" intact.

Michael Froman, who led Washington's TPP negotiations under President Barack Obama before the country's withdrawal this year, serves as a distinguished fellow at the Council on Foreign Relations, a U.S. think tank. In an interview with the Nikkei Asian Review during his recent visit to Japan, Froman also voiced concerns over whether the growth of global trade can be sustained.

Some of the TPP's trade rules could be shelved amid opposition from countries that were pressed by the U.S. into opening their markets and loosening regulations.

"The whole goal of the TPP was to set high standards for the region," Froman said, "and so to reopen, renegotiate and weaken the standards undermines one of the main purposes."

When task forces for the "TPP 11" met in Tokyo for two days in late September, they compiled a list of rules that countries wish to suspend given the U.S. absence. The list was cut to around 50 items, from about 80 before the meeting. Member nations aim to narrow this list to single digits. While countries like Japan, Australia, New Zealand and Singapore intend to keep rule suspensions to a minimum, Vietnam, Malaysia, Chile and Peru do not oppose suspending more rules if enough parties agree.

But Froman regards even a single-digit list as unacceptable. The members should retain all of the rules negotiated during the 12-nation talks, he contends.

"I really think they should [keep all the rules]," Froman said. "We reached consensus around them. [The members] have solved them all internally, they have received approval for them all internally, and together they form this high-standard ecosystem."

"When you start unraveling that, there is a risk that the whole thing unravels, or that you end up with a watered-down version," he said. "What is the use of having a watered-down version?"

Trade headwinds

Nevertheless, the efforts by the 11 remaining members toward ratifying a pan-Pacific trade deal offer great significance for those who believe in the benefits of free trade, given the rise of protectionist rhetoric around the world, most notably from U.S. President Donald Trump.

And the fears that global trade would shrink after Trump took office have not been realized. Data from CPB Netherlands Bureau for Economic Policy Analysis shows that global trade volume increased by 5% on the year in July, while the World Trade Organization recently upgraded its 2017 growth forecast for international trade volume to 3.6% from 2.4%.

"I think what we have seen right now is a pretty benign international economic environment," Froman said. "The economic situation, objectively, looks somewhat stronger than it did a few years ago, and that of course helps drive trade as well."

However, Froman cited "a lot of headwinds" against continued global trade growth, including one issue that he said was raised in a speech last year by Jeff Immelt, then the CEO of General Electric.

Immelt told graduates at New York University's Stern School of Business that "in the face of a protectionist global environment," GE's strategy will be to "localize" in its markets around the globe, because "a localization strategy can't be shut down by protectionist politics."

Froman said companies are beginning to buy into the idea of localization as they find that the "trading regimes" are becoming unreliable.

"If [companies] can't count on markets remaining open, then they have got to move their production to their market in order to ensure access," he said. "If you want more jobs in the U.S. -- with 95% of consumers living outside of the U.S., you want to rely on trade, not on localization. I am hopeful that [global trade] does grow ... But I see a lot of headwinds including some fundamental rethinking of corporate strategy."

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