Trans-Pacific Partnership Halted, What Next?

The US has withdrawn from the Trans-Pacific Partnership (TPP). So, what is next for global trade? 

Published 12 April 2017


The US has withdrawn from the Trans-Pacific Partnership (TPP). 
The TPP agreement requires at least 85% of the combined GDP of the 12 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States of America and Vietnam for it to come into force. Without the participation of the US, this threshold cannot be realised, therefore bringing the TPP to a halt. Export-driven economies within the TPP will be particularly disappointed with this decision, as they would have gained preferential market access to the lucrative and huge consumer base of the US. 
So, what is next for global trade? At this stage, it is difficult to forecast a direction this issue is heading towards, as the world is still only coming to terms to US withdrawing from the TPP and the seemingly growing anti-globalisation sentiment.
Can there be a TPP-11 with the remaining TPP countries forging a similar agreement via a different process of ratification? This is possible but many chapters of the agreement will need to be reviewed and some renegotiated. An agreement without the US also loses a great deal of attraction to the remaining participating countries. 
Furthermore, the US has now indicated interest in forging bilateral trade agreements. If the remaining 11 countries agree on a revised TPP agreement, what are the implications if the US subsequently asks that these countries, at a minimum, offer better free trade agreement (FTA) terms to the US in return for access to the prized US market?
Meanwhile, there have been reports that Australia and New Zealand have been lobbying China and other Asian countries to sign up for the TPP once the US withdraws from it. As the TPP is marked with the US footprint, it is unlikely that countries like China will sign up to the agreement “as-is”. China would likely negotiate for more favourable terms, and this new negotiation could take up many years. 
Not all gloom
A few other mega-FTAs in the pipeline can give us a sense of how global trade might shape up in the coming years.
For one, the Regional Comprehensive Economic Partnership (RCEP) can have immense potential, if negotiated successfully. The RCEP is an FTA that is currently being negotiated among ASEAN and its current FTA partners, namely Australia, China, India, Japan, New Zealand and South Korea, since 2013. 
The RCEP is intended to broaden and deepen the current network of FTAs that has already been achieved through the existing FTA partners of ASEAN. The RCEP would bring together India and China, which collectively accounts for about 36% of the world’s population, within a comprehensive FTA. However, the RCEP is not comparable to the TPP in terms of its depth and scope of the agreement. 
Having said that, the challenge and effort needed to achieve the RCEP should not be underestimated. With the US turning its focus inward, and with the Chinese Premier giving a strong message of support for global trade at the recent World Economic Forum, there is hope that good progress can be made with the RCEP.
At the same time, the US is considering a Border Adjustment Tax, of which the details have yet to be fully sorted out. This could well be an impediment to cross-border trade and, depending how it is implemented, has the potential to be challenged under World Trade Organization (WTO). The Trump administration has also expressed interest in reviewing the North American Free Trade Agreement (NAFTA). 
On a more positive note, the WTO Trade Facilitation Agreement (TFA) has entered into force in late February 2017.  
The TFA is aimed at providing greater transparency and certainty to companies when moving goods across borders in hopes to reduce the challenges and costs of “red tape”. The TFA does not always capture the headlines the same way that reductions in tariffs under FTAs often do, but particularly in developing markets, it will have an increasing effect in making international trade more efficient and easier for business. 
According to WTO Head DG Azevêdo, the TFA “would boost global trade by up to 1 trillion dollars each year, with the biggest gains being felt in the poorest countries. The impact will be bigger than the elimination of all existing tariffs around the world.”
Looking ahead
The world of international trade was shocked by the Brexit vote. And now with the breakdown of the TPP, the possibility for renegotiation of NAFTA and a potential Border Adjustment Tax, the established world order of international trade that was intricately linked with the US has now been thrown into much disarray.
There are some positives that can be highlighted though; the implementation of TFA and the ongoing negotiation of RCEP are some examples.
What is clear is that more than ever, in the past 40 years, business leaders need to vigilantly look at international trade as a key part of their business risk and strategy, and not to simply assume that it will be “business-as-usual” within an undisrupted or unbreakable trading framework.
The writer is Tan Juan Fook, Trade Policy - FTA Lead, Indirect Tax - Global Trade at Ernst & Young Solutions LLP.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization, its member firms or the British Chamber of Commerce Singapore.