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The TPP 11 rekindle multilateral trade hopes as Trump looks on

Broad agreement on US-less trade pact could set the tone for other deals

Japan's Minister of Economic Revitalization Toshimitsu Motegi, right, and Vietnam's Industry and Trade Minister Tran Tuan Anh shake hands after a news conference at the TPP Ministerial Meeting in Da Nang, Vietnam on Nov. 11.   © Reuters

DANANG, Vietnam When Japanese Minister of Economic Revitalization Toshimitsu Motegi walked into the press briefing room at the International Media Center in Danang on Nov. 11, his expression told many stories. One of them was of fatigue, as was to be expected after the intense negotiations on the Trans-Pacific Partnership trade pact held in the central Vietnamese city. There was also relief, as Japan had been instrumental in the 11 remaining members reaching a broad agreement on a renegotiated version of the TPP.

Above all, however, there was determination, a sentiment echoed in his comments to reporters. "During the four months of negotiations, we saw many times the member states clashing over details," he said of talks among the TPP 11, as the remaining members are known. "[But] we all shared the determination of establishing a free and fair 21st century rule in Asia-Pacific, the center of global growth, and that is why we have been able to reach an agreement."

The accord, reached on the sidelines of the Asia-Pacific Economic Cooperation meeting in Danang, is a major achievement. The group worked hard to salvage the TPP after President Donald Trump pulled the U.S. out of the agreement at the start of this year. Particularly significant is the fact that the TPP 11 agreed on a new multilateral deal practically in front of Trump's eyes -- a deal that could well shape the tone of future global trade negotiations.

ONE VS. MANY Trump's message in Vietnam was clear, and delivered in his usual straight-talking style. "I will make bilateral trade agreements with any Indo-Pacific nation that wants to be our partner and that will abide by the principles of fair and reciprocal trade," he said in his speech at the APEC CEO Summit on Nov. 10. "What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty and make meaningful enforcement practically impossible."

Trump regarded the TPP as the epitome of the latter type of agreement, and Washington's exit from the pact in January left some of the remaining nations questioning the point of pushing on with negotiations. But determination among the member states to establish the TPP as a high-standard "trade deal for the 21st century" won out. The new agreement was reached in just four months, an unusually short time for trade negotiations.

Only 20 provisions from the initial 8,000-page TPP were suspended as part of the new agreement. Among the many key elements left untouched were provisions regarding the free flow of data related to e-commerce transactions and agreements on eliminating tariffs.

"The results reached at Danang will facilitate trade development and promote more effective economic integration," Vietnamese Industry and Trade Minister Tran Tuan Anh said at the Nov. 11 press conference. "All members reached [an agreement] on a number of important basic matters, such as maintaining a high-quality TPP which meets the benefits and interest of all members."

The member states will look to sign the deal in 2018. It would take effect by 2019, assuming it is ratified by at least six member countries.

KNOCK-ON EFFECT The potential economic impact of the new deal is admittedly much smaller without the U.S. The TPP 11 account for only 13.5% of the world's gross domestic product and 15.2% of global trade volumes, compared with 38.2% and 26.5%, respectively, with the U.S. on board. But regional businesses are welcoming the deal.

"The TPP ... is expected to connect Vietnam's textile companies to larger markets," Vu Duc Giang, chairman of Viet Tien Garment and the Vietnam Textile & Apparel Association, said. "[The trade deal] is going to create a more diversified market for many other industries. ... This is one of the good signs for garment exporters and producers."

Frederick Burke, managing partner at the law firm Baker & McKenzie Vietnam, shares this optimism. "The impact will still likely be substantial, and that is why businesses in the region who are not from the TPP 11 countries also support it," he said. "A rising tide lifts all boats, and the growth will create opportunities for other trading partners as the TPP 11 economies grow."

The deal also has implications beyond the short- and long-term economic impacts. First and foremost, it breathes new life into multilateral trade negotiations just when the impetus seemed to have been lost after Washington's about-face on the TPP. Japan and the Southeast Asian members were also wary of trade negotiations in Asia becoming a tool in the regional power struggle between the U.S. and China. The new TPP agreement, which does not involve either of the two giants, will give the signatories a stronger hand in future trade negotiations with Washington and Beijing.

And that is not all. "The agreement on the TPP could have the effect of prompting other trade negotiations to use the deal as a benchmark" for setting rules, said Keisuke Kobayashi, deputy director of the Asia and Oceania division of JETRO, Japan's trade promotion organization.

The first trade negotiations where such a knock-on effect may come in to play are for the Regional Comprehensive Economic Partnership, or RCEP. The 16 participating nations have agreed to continue talks in 2018 with more frequent discussions on both the ministerial and working-official levels.

The key differences between the TPP and RCEP trade pacts are their scope and their standards. Burke of Baker & McKenzie said the new TPP -- which the members now call the Comprehensive and Progressive Agreement for Trans-Pacific Partnership -- is still a "progressive agreement reflecting the state of the art in international trade and investment" even after the suspension of 20 provisions. The RCEP, on the other hand, is a more "traditional" trade agreement, he said.

China, a key member of the RCEP, has lately been paying much lip service to the idea of free trade and high-level trade pacts like the TPP. "Openness brings progress, while self-seclusion leaves one behind," Chinese President Xi Jinping said in a speech immediately following Trump's. "We should support the multilateral trading regime. ... The building of a free trade area of the Asia-Pacific is a long-cherished dream of the business community in our region."

Containers at an industrial port in Yokohama, Japan, in Jan. 2017.   © Reuters

But the RCEP "is more about China increasing its influence over the rest of Asia" than bringing economic benefits to the region, according to Gareth Leather, senior Asia economist at Capital Economics. As China has already lowered its tariffs on imports from most Asian countries, there is little incentive for the world's second-largest economy to open up even further on nontariff measures.

There are also potential hiccups for the new TPP, which still needs to be ratified domestically by its signatories. Any backlash at home could again weaken the impetus for multilateral trade. Countries like Canada still have reservations about the basic agreement reached by the TPP 11 ministers. "There has been a lot of progress made," said Canadian Prime Minister Justin Trudeau at the Nov. 11 press conference, "but there is more work to do."

The strength of the multilateral trade framework will also be put to the test once Trump begins his bilateral negotiations with Asia-Pacific nations. Traditional trade deals like the RCEP, whose membership includes some of the TPP 11, may also add pressure. The Asia-Pacific nations may have succeeded in reigniting the flame of high-standard, multilateral trade pacts when they met in Danang, but the fight to keep it burning has only just begun.

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