Remember the Trans Pacific Partnership (TPP) trade agreement? It was ready to go, participated by 12 big Pacific Rim countries and led by the United States. In January 2017, President Donald Trump pulled the United States out of this trade treaty, which it had nurtured from idea to a fully signed trade agreement, among his first official acts as the US President.
Disappointment was expected for the 12 countries that negotiated the TPP. The TPP was the largest free-trade market in the world with about 725 million consumers. The mega trade bloc represented about 30% of world’s trade and 40% of global gross domestic product (GDP). But the TPP had an Obama imprint, and Trump had been saying his predecessors, particularly Obama, did not know how to negotiate trade agreements for the United States.
Some in the US had dubbed it to be the gold standard of free trade agreements in the 21st century.
While the TPP had the traditional features of trade agreements like the reduction of tariff and non-tariff barriers, it was designed more as setting down uniform rules in global trade, rules that US trade negotiators could not have possibly succeeded in getting the World Trade Organization (WTO) to approve.
It set down business rules and practices that largely reflect those in the US or better, rules on intellectual property (IP) rights, e-commerce, labor and environmental standards, investor-state dispute resolution. US Trade Representative (USTR) negotiators with its American private sector lobby, particularly in the pharmaceutical industry, saw in the TPP the opportunity to create a fully integrated economic area with business rules that would reduce the regulatory risks in trade agreements.
The pullout of the US from the TPP did not stop the TPP-11 countries from going ahead with the trade agreement, but calling theirs the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) agreement. Soon after the announcement of the US pullback, the 11 countries negotiated for about a year and on March 8, 2018 signed the CPTPP trade accord. On Dec. 18 of that year, it entered into force for a minimum of six countries.
The US pullout from the TPP de-Americanized the trade agreement. Intellectual property rules were the most purged. The CPTPP preserved the content of the TPP except for 22 articles, majority of which were on IPP and investment rules.
The USTR succeeded in TPP to lengthen copyright terms, build in patent extensions, and introduce separate protections for new technologies which effectively assured the evergreening of patents. For example with TPP rules, it is likely that our generic firms could not legally manufacture their generic versions of Moderna or Pfizer’s anti-COVID-19 vaccine once these are off-patent in 2040. New uses can possibly be discovered for these vaccines by their current owners, allowing them to hold on to their patent rights to the vaccines under the TPP rules.
Equally controversial was the investor-state dispute system (ISDS). This feature of the TPP was patterned after how disputes regarding bilateral investment treaties are settled by independent tribunals like those under the auspices of the International Center for the Settlement Investment Disputes (ICSID). Critics, who included accomplished lawyers and economists in the US like Nobel Laureate in economics Joseph Stiglitz, say the ISDS undermines the national sovereignty of contracting parties by allowing multinational companies a chance to bypass their local laws through findings of unaccountable tribunals.
The CPTPP negotiators decided to exclude these TPP provisions. They did not close the door to these however, hoping that someday the United States comes back and may find these provisions important. The investments chapter of the TPP remained however, but contracting parties limited the scope of its ISDS provision.
The US returning to the TPP is highly expected under the Biden administration. The US was, and remains, the crown jewel of the TPP. It is suffering now from an economic recession which is largely due to the COVID-19 pandemic, but these problems will be surmountable in a year or two. Countries expect the US to assert the global leadership which it lost under the outgoing Trump administration, and the TPP is seen to be important for that.
The US rejoining the TPP will bring this mega trade deal back to where it used to be: the world’s largest free trade market. Without the US, the CPTPP lost a significant amount of importance — about 16.5% of global GDP and 230 million consumers. As in the climate deal which President Trump also bungled, the world community, in pursuit of keeping global warming in check, would have to welcome back the US. Likewise the CPTPP has no recourse but to welcome back the US to pursue its objectives of expanding trade and the wellbeing of its respective populations.
Will the US rejoin? Yes. Even the Trump administration thought of rejoining the TPP in 2018 but did not pursue it. Well, there are at least two reasons for that. One is the TPP-11 countries would have to welcome the US back under their terms not Trump’s. The US cannot be the leader anymore, particularly if TPP-11 countries disagree fundamentally with the trade views of President Trump. Or the Trump administration was inefficient: it could not focus on it or could not accept the TPP to be a better Asia-Pacific trade strategy than its US-China trade war.
Will the Biden administration want to rejoin the TPP? It has to, particularly since China is now taking over the leadership in trade in the Asia Pacific region. The TPP had been the central US strategy to project its influence in this region. Now that the Regional Comprehensive Economic Partnership (RCEP), the other mega trade deal under China’s leadership, and CPTPP are very much alive and have overlapping participants, and with their reach spreading down to Pacific side of South America, the incoming Biden administration would easily conclude the fastest and most sensible strategy is to knock on the door of CPTPP.
The prodigal ex-leader of the TPP has come back!
But the Biden administration will have to start from where CPTPP is: it is a TPP less 22 articles, mostly on IPR and investment rules. If investor-state dispute settlement (ISDS) or evergreen patent rules are that important to the US, those would have to take some time to be developed while trust is restored in the original TPP block. Even domestic politics in the US at the time just before the withdrawal of the US from the TPP indicated fractured support for the trade agreement. Some of those who had reservations, like Senator Bernie Sanders, were unhappy with it and ratifying the TPP would have required significant effort by former President Barack Obama to sell the agreement to the US public. The concerns in the US about the TPP had been, and likely still are, that it destroys more American jobs than it creates, is strongly pro-big business like the pharmaceutical industry, and undermines the national sovereignty of its trading partners with the ISDS.
PHILIPPINES AND TPP
The Philippines was excluded by the TPP-12 countries which, at the time they negotiated the agreement, believed our country was not ready to assume the obligations of a TPP member. But just about the time the TPP was signed, the Obama administration strongly viewed that the TPP without the Philippines, among the closest allies of the US in the region, would weaken its pivot to the region.
The Philippines was invited by the US to join a second wave of TPP members which already included Thailand, Indonesia, Columbia, South Korea, and Chinese Taipei. This was at the close of the Aquino administration. The current administration was likely to go along with the plan of joining the TPP, given that most of its trading partners in the region were planning to join it, with a few reservations likely on IPR and ISDS rules. Of course, the withdrawal of the US in 2017 did not compel the Duterte government to officially decide to join the TPP.
Several years ago, I calculated the economic benefits of the Philippines joining the TPP. I estimated that Philippine exports could expand by 42% and nominal GDP could increase by 59%. Analysts have observed how Vietnam has overtaken the Philippines. If one looks at the factors contributing to that, it is that Vietnam has a free trade agreement with the US, is a CPTPP member, and is an RCEP contracting party. The Philippines is an RCEP member too, but if the US joins the CPTPP, it cannot make the mistake of staying out of TPP.
Staying out of these agreements would be a big mistake for the Philippines. Vietnam, Indonesia, Malaysia, and Thailand can easily erode Philippine market shares in the US because they would have preferential market access and the Philippines simply would have most favored nation status. Why not a bilateral free trade agreement with the US? That one is a more difficult route to pursue politically.
Now that 2021 is increasingly viewed as the year when the COVID-19 pandemic will wind down, when economic activities all over the globe will recover, global value chains restart and warm up, and when the global community sees the destructiveness of trade wars, it is time for us to sharpen our trade negotiating skills and be a more active participant of the global trading community.
Ramon L. Clarete is a professor at the University of the Philippines School of Economics.