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Trump’s Rejection of TPP Has Opened the Door for China-led RCEP

Issued: January 16 2017

Following the announcement by US president-elect Donald Trump that he would reject the Trans-Pacific Partnership, the remaining 11-member TPP states are being courted to join the China-led Regional Comprehensive Economic Partnership.

After a decade of protracted negotiations, which finally resulted in its signing in Auckland in early 2016, the Trans-Pacific Partnership Agreement (TPP) now abruptly faces an imminent demise. US President-elect Donald Trump recently announced that he was rejecting the TPP, confounding the remaining 11-member TPP states which are now being courted to join the China-led Regional Comprehensive Economic Partnership (RCEP).


Though the 12 TPP member states – comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – would have formed a powerful trading block, accounting for some 40 percent of the world economy and a quarter of global trade, Trump considered it a “potential disaster” for the US. Instead, the president-elect intends to negotiate “fair bilateral trade deals” that he says would create jobs and resuscitate the US industry.


Many US and Asian experts say the TPP would have benefited the US. Indeed, John Key, the New Zealand Prime Minister, shortly before the US election, stated during a discussion at the Council on Foreign Relations in New York that the TPP would enable the US to assert its global leadership role in trade and the rebalance – or “pivot,” to use the American term – to Asia.


Daniel Russel, the US Assistant Secretary of State, told Asia IP during a meeting with international media in New York that the TPP covered several key factors that would set high standards for global trade and investments that would bolster US global competitiveness by enhancing labor rights, setting minimum wage levels, bringing state-owned enterprises and foreign and domestic private companies on an even keel, allowing the free transfer of information and safeguarding intellectual property rights.


Trump’s protectionist policies, many fear, will enable China to eventually become the world’s biggest trading nation, supported by markets of rising Asian economies which favour greater trade at much lower standards. These protectionist policies will also encourage Chinese companies to set up operations in the US market, using the “operate-from-within-the-market” strategy.


While RCEP will likely catapult China to assume the leading role in world trade and, in effect, in shipping and transportation, the TPP would have also unleashed the forces of growth both for shippers and carriers resulting from removing tariffs.


TPP would have removed some 18,000 tariff duties, facilitating US exporters and, particularly, the small industries, to penetrate foreign markets.


From small freight brokers to global logistics giants like United Parcel Service, supply chain providers were quietly preparing for a surge in business which the TPP would have generated in the Pacific trade.


The TPP’s demise also disappointed industries, including the Consumer Electronics Association, whose members exported US$36 billion in goods to TPP countries last year and were hoping for the removal of trade barriers and improvements in copyright protections.


Singapore and Malaysia had implored the US to pass the TPP, with Singapore’s prime minister Lee Hsien Loong even telling the US during a visit to Washington that TPP was important for the US leadership role in the world.


Vietnam, which is attracting manufacturing operations from China, would have been a strong TPP beneficiary. Vietnam, which had recently announced that it would spend US$5.1 billion to modernize its freight rail system to move goods more efficiently through the country, had invested substantially in modernizing and upgrading the facilities at its ports.


The TPP’s demise will generate interest in RCEP, which is widely seen as an inferior deal that will, mainly, lower tariff and non-tariff barriers but pay little attention to issues such as environment, labour laws and IPR. But RCEP talks have not made any headway over one key issue – trade liberalization, with the ASEAN member countries plus Japan and Australia pushing for major tariff reductions, while India, South Korea and China suggesting an incremental “three-tier approach” based on each country’s pre-existing free trade agreements.


There is another fear: China’s massive manufacturing overcapacity in a number of industries would end up in the remaining RCEP members’ markets. China’s cheap steel exports, for example, have already hurt Vietnamese and Malaysian steel suppliers who fear China will dump its overcapacity in their markets.


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