On March 8, one year after President Donald Trump withdrew the US from negotiations on the Trans-Pacific Partnership trade agreement, the 11 remaining TPP countries signed a revised agreement called Comprehensive Progressive TPP, or "TPP 11." Like its predecessor, TPP 11 aims to free up trade in the Asia-Pacific region by lowering tariffs and removing other barriers to market access.
President Trump said he withdrew the US because TPP would be a "disaster" for US business. But there is a growing awareness that US exporters may pay a heavy price for that decision.
The TPP 11 countries account for 13.4 percent of global GDP. As it comes into effect, US goods and services will likely lose market share to competitors in those countries, and US companies may well be forced to offshore jobs.
One simple example: US beef exporters to Japan immediately face tariffs almost 30 percent higher than those for competitors from Australia, New Zealand and Canada, and the differential later will rise to 300 percent.
Canada now estimates that US imports could fall by $3.3 billion due to preferences for exports from TPP 11 countries, and that long-term economic gains for Canada will be almost $1 billion higher than under the original TPP because US competitors fall outside TPP 11.
US manufacturers wanting to keep their market access will have to move to the other side of the tariff wall: that is, invest in production facilities in the TPP 11 member countries. Exporters that cannot transfer production overseas, like farmers and ranchers, will lose market share.
President Trump's Strategy and Its Costs
In rejecting TPP, the Trump administration argued that the US could negotiate more concessions in one-on-one bilateral trade agreements. But no countries in Asia have expressed interest in negotiating a bilateral deal with the US, except perhaps Taiwan. When considering a trade agreement, it is wise to assess not only how to maximize the concessions of others but also the costs of not joining.
And the costs to the US of TPP withdrawal go well beyond the loss of market share and jobs:
- Some of the hardest-won and most controversial TPP provisions of importance to US business were suspended after the US withdrew, including enhanced protections for intellectual property, investors, financial services and pharmaceuticals.
- The TPP breaks new ground in liberalizing trade in sectors in which the US is most competitive, like digital trade, e-commerce, pharmaceuticals and financial and IT services. By rejecting the TPP, the US is missing opportunities to mine these provisions for growth.
- The TPP contains numerous novel provisions, drafted largely by and favoring the US, to combat China's mercantilist practices such as forced technology transfer, biased local licensing requirements and unfair advantages to state-owned enterprises. The US has expressed frustration that World Trade Organization rules do not reach China's policies, but it walked away from new rules meant to fix that.
- The TPP contains "new-era" environmental, labor, regulatory transparency and anti-corruption provisions that would have helped level the playing field for US businesses that already comply with US regulation and internal corporate social responsibility best practices.
- US national security policy is to project leadership in Asia. Abandoning the "next generation" regional trade agreement that the US championed for ten years probably hurt its credibility, especially as China and the Association of Southeast Asian Nations countries push for conclusion of the Regional Comprehensive Economic Partnership — another important regional trade agreement that does not include the US.
25 Republican senators, a group of US governors and some business groups have all urged the administration to re-engage on TPP. Both President Trump and Vice President Mike Pence have said they would reconsider membership if the US could get "a substantially better deal."
How to Fix It
To rejoin, the US would have to get the unanimous consent of the other 11 TPP parties, who have said they will not make further concessions to the US and may even resist reinstating US-friendly provisions suspended after the US withdrew.
Nevertheless, rejoining TPP should be a top priority for the US, which should take four important steps now to regain the initiative:
- Immediate appointment of a senior trade negotiator for TPP re-engagement. Congress appears ready to act on a budget increase for the Office of the United States Trade Representative and pending nominations for senior trade officials, which may help jumpstart the effort.
- Creative drafting of symbolic but feasible TPP revisions and side letters that will allow the president to claim a "better deal" was achieved.
- Engagement behind the scenes with countries most interested in US membership, particularly Japan and Vietnam, to serve as a bridge for compromise with other members.
- A timetable requiring a roadmap before the November 2018 US mid-term elections, with a realistic target date for US re-entry well before the 2020 presidential election.
The president has opened the door to TPP re-engagement. Now it's up to Congress, and to industries with the most to lose, to push the US through.
Reproduced with permission from Law 360. For more information, please visit: https://www.law360.com/articles/1023735
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