The Trans-Pacific Partnership – A Bridge Too Far?

Richard Stubbs - Professor of Politics at McMaster University

It is not just Japan with its powerful agricultural lobby that is standing in the way of an agreement. More generally, leading political figures and well-connected social and business groups within the Asian partners have expressed concerns about restrictions on the crucial role of state-owned enterprises in their economies, opening up government procurement, and the consequences for state-run programs of the IPR provisions. For example, in Malaysia sworn political enemies, former PM Mahathir Mohamad and opposition leader Anwar Ibrahim, have both come out strongly against the TPP.

A good deal of antagonism has also been aroused by the investor-state dispute settlement (ISDS) mechanism which, it is argued, gives multinational corporations far too much power over the state. Indeed, recent reports indicate that the Indonesian government has decided to terminate its bilateral investment treaty (BIT) with the Netherlands. It may also terminate its BITs with other countries as they come up for renewal. This will make it politically very difficult for Indonesia’s Association of South East Asian Nations (ASEAN) neighbours, Malaysia and Vietnam, to agree to have an ISDS mechanism included in the TPP.

The form of capitalism found in East Asia also relies heavily on production networks. Yet Free Trade Agreements associated with Western countries tend to assume that manufactured goods are produced in one country. Cumulative rules of origin which would take into consideration a country’s participation in production networks are generally problematic for the US or are included in such a way as to privilege the TPP members – such as the US. The infamous ‘yarn forward’ rule, which will require Vietnam to source yarn from the US rather than its current supplier, China, is but one of the problems faced by East Asian economies. For Malaysia and Singapore, for example, over 70% of total manufacturing trade is in networked products.

Obviously, on the other side of the Pacific, both the US Administration and Congress remain strongly committed to market-led capitalism. Completing the TPP is said to be just around the corner. Indeed, sometimes it is assumed that all the US has to do is to get Trade Promotion Authority (TPA) – or fast track – from the US Congress and the TPP will be signed and ratified in short order. However, with Democratic Party leaders arguing that TPA should be shelved until after the November mid-term elections for fear of alienating groups who have not been impressed with previous FTAs, little is likely to happen. Even if TPA is passed by Congress, there will be considerable pressure for it to contain provisions such as sanctions for currency manipulation, lack of workers’ rights or degradation of the environment, each of which would make the US negotiating position even more inflexible.

Certainly there is no real sign that the US has much room to manoeuvre on a number of key provisions. The Administration will have great difficulty giving up on protection of its sugar and textile industries. Neither Hollywood nor the pharmaceutical industries will allow IPR provisions to be watered down. And US corporations are unlikely to favour excluding the ISDS mechanism from the TPP.

It is possible that access to the US market and fears of China’s more aggressive regional stance will persuade the Asian partners to water down their negotiating positions and perhaps the US will scale back its demands. But at present this outcome looks unlikely. With ASEAN exports to the US slowly decreasing as a percentage of total trade and that with China rising, chances are that the Regional Comprehensive Economic Partnership (RCEP), whose membership includes ASEAN, China, Japan, South Korea, Australia, New Zealand and India, will look like a better bet than the TPP. RCEP is less intrusive, less ambitious and more flexible than the TPP. And there is the possibility it will evolve along sequential lines with a Framework Agreement being concluded and then gradually implemented as opposed to the TPP’s ‘single enactment’ approach where nothing is agreed until everything and everyone is agreed.

For the 12 negotiating partners, then, the clash of capitalisms may well mean that the TPP is a bridge too far.

Richard Stubbs has published widely on security and political economy issues especially with regard to East and Southeast Asia. His most recent research has been on East Asian regionalism, regional international relations in Southeast Asia, China-Southeast Asia relations, the fate of the Developmental State, and the Malayan Emergency.