The TPP Is Dead. Long Live The Trans-Pacific Trade Deal

Mar 8, 2018
Originally published on March 8, 2018 4:20 pm

Updated at 4 p.m. ET

When President Trump pulled the U.S. from the Trans-Pacific Partnership, spurning the massive free trade agreement in one of his first acts in the Oval Office, most analysts figured the deal was dead.

After years of strenuous talks, eager anticipation from some and vitriolic opposition from others, it appeared the lightning-rod partnership stood no chance of surviving without the support of its biggest partner.

Those analysts were quite right — and, as it turns out, quite wrong at the same time.

Trade ministers from the remaining 11 signatories to the agreement descended on Santiago, Chile, where they inked a deal Thursday that will eliminate trade barriers and streamline economic policies for countries across a vast stretch of the Pacific Rim. Just don't call it the Trans-Pacific Partnership, exactly: The U.S. withdrawal ensured the others couldn't meet a key mandate for that deal to come into force as originally written.

So in its place, after heavy lobbying by Japan and Australia, the other TPP members finalized another agreement earlier this year with another name: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. It is largely the same as the TPP, concluded in 2015 and signed in 2016, only without the now-impossible condition that had mandated that the deal's final members must account for at least 85 percent of the combined gross domestic product of the original signatories. The new version, which goes by CPTPP or TPP-11 for short, also suspends some two dozen provisions that the U.S. had fought for but that the other countries had been reluctant to include.

In brief, the deal removes more than 98 percent of tariffs for a bloc consisting of Canada, Mexico, New Zealand, Malaysia, Vietnam, Singapore, Brunei and Peru. As its preamble makes clear, virtually all of the original provisions of the TPP "are incorporated, by reference, into and made part of this Agreement."

What has changed is the deal's scale.

The TPP would have established by far the world's largest free trade zone, covering roughly 800 million people and about 40 percent of the world's economic output. The remaining members of the CPTPP, by contrast, represent a combined population of nearly 500 million people and more than 13 percent of global trade.

That still makes for the third-largest trade bloc in the world, behind only the North American Free Trade Agreement and the European Union, according to data cited by Japan's Nikkei.

"The signing is a significant moment for open markets, free trade and the rules-based international system," Australian Trade Minister Steven Ciobo said in a statement heralding Thursday's signing. "It sends an important message to the world that prosperity is achieved through breaking down trade barriers, not building them."

Many in the U.S., including President Trump, strongly disagreed with that sentiment. On the campaign trail as a candidate, Trump criticized the trade deal as a means for special interests to "rape" U.S. manufacturers and growers. But the deal also drew plenty of detractors from the left — including labor union leaders, Sen. Elizabeth Warren and Sen. Bernie Sanders, who argued while running for president that its bias toward corporations "threatens our democracy."

The secrecy that shrouded the agreement during international talks also drew intense skepticism from both ends of the political spectrum, despite President Barack Obama's determined pitch for his signature trade initiative.

The U.S. wasn't the only signatory to have its fair share of skeptics. Critics in countries ranging from Canada and Chile to New Zealand and Australia have met Thursday's signing with vocal opposition. The Australian Council of Trade Unions, for instance, called the CPTPP "a raw deal for working Australians," while former New Zealand lawmaker Barry Coates argued that "TPP-11 would override important aspects of our personality" and threaten national sovereignty.

Still another fear was recently voiced in New Zealand: Perhaps the U.S. will return to the agreement.

"We have nine pages of new text wrapped around the old text, 22 items suspended — not removed. Suspended in case the US wants to come back in," University of Auckland law professor Jane Kelsey told a morning news show in the country.

"The real worry has to be not only that our government has rolled over on this one," she added, "but that it and the other 10 will roll over to the demands of the Trump administration if they want to re-enter."

As to how likely that prospect may be, well, it's tougher to say than one might expect.

Trump, who abandoned TPP because he felt his administration could negotiate better deals one on one, told CNBC earlier this year that he would be open to returning to the agreement if it were "substantially better." That sentiment was echoed just last month by Treasury Secretary Steven Mnuchin, who reportedly told an investment summit he has begun to "have very high-level conversations" about the agreement, which "is something the president will consider."

That is a prospect Japan's leaders certainly embrace.

"We have been working, motivated by hopes that the United States would return to the trade pact soon," the country's chief negotiator on the deal, Kazuyoshi Umemoto, told Reuters in response to Trump's comments. "We welcome it becoming positive toward the TPP."

That said, on Thursday, the very day the CPTPP was signed in Chile, Trump formally signed an order in Washington that imposes significant tariffs on steel and aluminum products — a protectionist policy that runs counter to the free trade impulse embodied by CPTPP and has inspired fears of a trade war. The move, plus his administration's recent push to renegotiate NAFTA, portends ill for any hopes that Trump will reconsider his skepticism of free trade agreements.

Some analysts believe these decisions have, however, helped persuade Trans-Pacific signatories Canada and Mexico to remain in the deal they signed Thursday.

The Trump administration "thinks they have more leverage than they do, and they are overplaying their hand," Antonio Ortiz-Mena, a former Mexican trade negotiator, told Foreign Policy. "Mexico does have other options — they may not be ideal, but they're options that weren't available 25 years ago."

The CPTPP will go into effect 60 days after a majority of the signatories domestically ratify the agreement.

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