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Politics

TPP underpins US 'pivot' but is really no big deal

After almost five years of talks, marked by several false starts and repeated missed deadlines, negotiators have finally clinched a deal on the Trans-Pacific Partnership, a free trade deal linking the U.S., Japan and 10 other Asia-Pacific countries -- but conspicuously excluding China.

     In a sense, the negotiations were doomed to succeed. Failure would have been a humiliating setback for the U.S. It would have robbed America's "pivot to Asia" of its most important component, seriously undermining Washington's efforts to strengthen ties with friendly countries in the region and reinforce its strategic presence in the face of China's rise. The geopolitical as well as economic consequences would have been incalculable.

     Supporters have hailed the TPP as an ambitious and innovative "21st century" economic agreement, embracing countries accounting for 40% of the world's gross domestic product. As well as lowering trade and investment barriers and promoting deeper economic integration between its members, they say it will lay down basic rules and principles by which the rest of the world will need to play in the future.

Oversold?

But how far will the deal live up to those lofty claims? Any answer must be qualified by two provisos. First, the TPP is not yet a done deal. It must still be ratified by its members' national legislatures, most crucially by the U.S. Congress. And that may not prove easy.

     Although the U.S. has been the prime mover behind the TPP, there is also fierce political and popular opposition to the deal in the country. Critics have assailed the plan as a furtive sellout to big business and an infringement on national sovereignty and democratic rights. At the same time, some U.S. companies have expressed disappointment with the deal, saying it does not go far enough.

     Complicating things further, TPP ratification risks becoming a political football in the runup to next year's U.S. presidential election. Already, Hillary Clinton, the front-runner for the Democratic nomination, has found it expedient to come out against the agreement -- even though she strongly supported it while serving as President Barack Obama's secretary of state.

     Second, the voluminous texts of the deal, setting out its highly complex but all-important details, have yet to be published. Even when they are, time will be needed to analyze them and work out exactly what they are likely to mean in practice. Nonetheless, some preliminary conclusions can be reached based on what has already leaked out from the closely guarded negotiations.

     In economic terms, the TPP's most important feature is to provide a back door to a free trade agreement between the U.S. and Japan, which together account for some two-thirds of TPP members' combined GDP, and to embed Japan more deeply into a network of FTAs with other Asian economies. That could help sharpen Prime Minister Shinzo Abe's "three arrows" reform program, which has been at risk of looking a little pointless. In addition, Vietnam looks set to do well from the TPP.

     Beyond that, the trade liberalization on offer looks unlikely to be spectacular: Indeed, Pascal Lamy, former head of the World Trade Organization, says it will be "modest." That is partly because opening up highly protected markets such as agriculture appears, unsurprisingly, to have been a struggle, while even Vietnam's gains in the textiles trade have been limited by protectionist constraints insisted on by the U.S. industry.

     Furthermore, six TPP members already have FTAs with the U.S. -- and still more have such arrangements with each other -- limiting the scope for further liberalization. In addition, as with all trade deals, liberalization will be phased in only gradually. When it is complete, trade between TPP members is likely to be somewhat freer, but far from totally free.

Special interests

What of the TPP's new rules? These are its most vaunted, but also politically most contentious, feature. How far they will free up trade -- or are even intended to -- is uncertain: Some seem equally aimed at appeasing U.S. business and other special-interest lobbies whose support will be needed to win congressional approval. One conspicuous example is mechanisms that will entitle companies to challenge government policies before arbitration panels -- a provision critics say will enable businesses to ride roughshod over national courts.

     In fairness, such mechanisms are a common feature of the bilateral investment agreements the U.S. has concluded with many other countries. It is argued, not unreasonably, that they encourage foreign investors to provide capital to countries with primitive and unreliable legal systems. But why the U.S. thinks they are needed in countries with well-established commercial courts, such as Australia and Japan, is far from clear.

     Another controversial U.S. demand, pressed hard by pharmaceutical companies and some other industries, has been for an extension of the lives of patents. Since patents by definition involve the granting of government-approved monopolies to producers, it is hard to see how such a measure would promote the more open competition that trade liberalization seeks to achieve. Though protests led by Australia seem to have beaten back some of the U.S. demands, it is unclear how many have made it into the deal.

     Whether the TPP will set the rules by which the rest of the world plays, as its supporters hope, is questionable. For that to happen, they would need to be embraced, at a minimum, by the two other big trade powers, the European Union and China. But talks on the Transatlantic Trade and Investment Partnership, an ambitious project to sweep away regulatory barriers between the U.S. and the EU, are making heavy weather; in some areas the gaps between Brussels and Washington are actually widening.

     China's position is even less clear, as are Washington's intentions toward it. U.S. officials have hinted at various times that they view the TPP as a counterweight to China's power and a means of containing it; at others, they have suggested the U.S. would be open to China joining the grouping eventually, but that the country was not yet able to meet the entry requirements -- something Beijing itself has conceded. At still other times, the U.S. has seemed to regard the TPP as a useful boost to China's planned economic reforms.

     China, for its part, initially dismissed the TPP as part of a "lock-out" strategy, but later expressed cautious, though unfulfilled, interest in being associated with it. Meanwhile, its early wariness has given way to a more relaxed wait-and-see attitude. One reason may be that Beijing feels less concerned by the TPP because it now has options of its own for expanding its influence in the region, such as One Belt, One Road, its Eurasian connectivity program, and the Beijing-based Asian Infrastructure Investment Bank.

     From the outset, the U.S. has viewed the TPP as much a geopolitical as an economic and commercial initiative -- a signaling device intended to demonstrate that it remains committed to Asia. Provided the deal is ratified, it will go some way to meeting that objective by giving substance to the pivot.

     What the TPP alone cannot do, however, is resolve nagging questions about the future of relations between Washington and Beijing, and whether the U.S. has a clear and coherent strategy for tackling them. Indeed, U.S. shifts of position over the exact purpose of the TPP and how China relates to it have intensified those questions. Until they are clarified, doubts about U.S. intentions toward Asia seem likely to persist.

Guy de Jonquieres is a senior fellow at the European Centre for International Political Economy, a Brussels-based think tank, and formerly a journalist with the Financial Times.

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