Comment: The United States paid dearly for the absence in the Pacific trade agreement

SINGAPORE: When the Donald Trump administration withdrew the United States from the Trans-Pacific Partnership (TPP) in 2017, reinforcing the new “America first” policy, observers sat down.

Under former President Barack Obama, the United States had sought to achieve deeper regional integration in Asia and the Pacific through increased investment, trade ties and more, thanks to this ambitious free trade agreement.

Although Obama was unable to pass the TPP in Congress, it was Trump’s subsequent withdrawal, along with his electoral promises that emphasize an agenda to restore American primacy, that fueled concerns about isolationism and Asia-Pacific disconnection.

Trump’s decision has come at a huge economic cost, both for the United States and for the rest of the world, demonstrating not only how the rhetoric of isolationism has been economically counterproductive, but also contrary to the interests of Americans.

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POTENTIAL INCOME LOST

Recent estimates suggest that the TPP would have increased real annual revenues in the United States by $ 131 billion in 10 years.

Similar benefits are also substantial for the world, where gains in global GDP would have been $ 492 billion.

In contrast, it is estimated that the implementation of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), by the rest of the TPP parties, will cost US $ 2 billion in real revenue losses for the same year.

Asia-Pacific is critical to the United States for economic and security reasons. The presence of the United States has helped bring stability to the region for decades by establishing a strategic balance between the different parties involved.

This peaceful environment has been a key pillar supporting the economic growth and rapid development of the region.

From an economic point of view, the United States has also benefited from its greater strategic position there. Several US companies from a wide range of industries operate in Asia-Pacific and maintain a significant presence.

In terms of goods, nearly 40 percent of US imports originate in this region and about 25 percent of US exports go to this market.

That trend may accelerate as the world goes digital. Tech titans like Google have showcased the burgeoning startup space with investments of up to $ 350 million in Indonesian e-commerce giant Tokopedia.

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Walmart has acquired a 7.5 percent stake in TikTok to further its video commerce ambitions, giving it an edge over Amazon.

THE WINDS OF CHANGE

The results of the US elections last November suggest that the US trade strategy in Asia-Pacific could change. The optimistic view is that a change in trade policy will follow.

After all, President-elect Joe Biden was a supporter of the TPP during the Obama administration. He has an expressed preference for seeking multilateral and regional engagement over the unorthodox approach that Donald Trump has taken.

This would benefit the region. Deepening regional economic integration with Asia and the Pacific would strengthen strategic partnerships and strengthen regional stability.

As open and connected global supply chains become increasingly crucial for countries grappling with the effects of closed borders and movement restrictions stemming from COVID-19 and the US-China trade war This year’s trade pacts like the CPTPP could provide a buffer against such uncertainty. and ensure a certain level of diversification.

It would also be to the advantage of the United States to join the CPTPP and improve its competitiveness, where reducing trade barriers, increasing market access, and imposing higher standards would stimulate investment, boost exports, and boost productivity.

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This is the most dynamic region in the world. Increased trade could create more opportunities for US service providers and provide better market access conditions for US products.

Reengaging with Asia-Pacific is of additional importance now for the US, given the signing of the Regional Comprehensive Economic Partnership (RCEP) among ASEAN member countries Australia, China, Japan, South Korea, and New Zealand a few weeks ago. creating the largest free trade zone in the world, accounting for around 30 percent of the world’s GDP and population.

The RCEP could reduce economic opportunities for the US in the Asia-Pacific region by diverting trade and investment flows and consolidating value chains in favor of the RCEP parties.

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A WINDOW THAT CLOSES

However, the reincorporation process will not be easy for the United States. To put the TPP into effect or seek to join the CPTPP, President-elect Biden needs to obtain a Trade Promotion Authority (TPA) from Congress, which gives the executive branch authority to negotiate free trade agreements and implement them expeditiously. .

The current TPA expires on July 1, 2021. This may be too short a time since Biden’s inauguration and there is still no legislative proposal to issue a new one. Most of the action in Congress will likely focus on dealing with the COVID-19 pandemic and its economic impact.

Additionally, any extension of the TPA or ratification of a free trade agreement will require the approval of the United States Congress. This is a difficult process.

The Biden administration will only have a majority in the House of Representatives, where some Democratic representatives have historically been averse to free trade agreements. Two seats (in Georgia) have yet to be decided in January to determine Senate control after a six-year Republican majority.

Furthermore, the Republican-controlled Senate may not support these initiatives, as was the case in 2016, when the Obama administration calculated that there were not enough votes to pass the TPP before the end of his term.

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Joining the CPTPP may also require substantial negotiation. When the CPTPP was agreed, the parties incorporated most of the clauses of the TPP, but suspended the application of certain clauses, mostly related to services, investment and intellectual property, that had been proposed by the United States, but that were sensitive to other parts of the TPP.

We would not rule out other countries being open for US signature without these unpopular clauses, although CPTPP parties will likely have to go through their own internal procedures to approve any new member accession or CPTPP renegotiation. agreement.

JOIN CPTPP MUST BE ON THE CARDS

A negotiation of US entry into the CPTPP should be on the cards from the incoming Biden administration.

President-elect Biden needs to find the right formula to get enough bipartisan support to pass a new deal.

Perhaps stronger labor and environmental chapters, along with more comprehensive provisions on trade facilitation, digital trade, and financial services, could support this initiative.

This formula can be effective considering the work done in the past to approve the trade agreement between the United States, Mexico and Canada (T-MEC). Additionally, the election of President-elect Biden to be the United States Trade Representative, Katherine Tai, was instrumental in gaining bipartisan support to pass this deal.

Carlos Kuriyama is a Senior Analyst in the Policy Support Unit of the Secretariat for Asia-Pacific Economic Cooperation (APEC).

Dr. Cai Daolu is a visiting senior researcher in the Department of Strategy and Policy at the NUS Business School.

The opinions expressed in this article are those of the authors and do not represent those of the APEC Secretariat or NUS.