President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) signing an executive order on January 23 to formally pull out of the pact, which would have covered 12 nations and about 40 percent of global gross domestic product. The US-led deal would have reshaped commerce throughout the Pacific Rim. Mr. Trump opposed the pact because he said it could hurt American jobs. The agreement has never been ratified by Congress.
«For America’s friends and partners, ratifying [the trade pact] is a litmus test for your credibility and seriousness of purpose», said Singapore Prime Minister Lee Hsien Loong speaking in the name of Pacific Rim signatories to the TPP. The president’s decision leaves the door open for Beijing to lead the integration process in the region. China has sought to expand its trade ties with its neighbors and begun an ambitious infrastructure project designed to reinvigorate ancient trading routes to the Middle East and Europe. In a speech last week to the World Economic Forum at Davos, President Xi Jinping likened protectionism to «locking oneself in a dark room».
The Beijing-led 16-nation Regional Comprehensive Economic Partnership (RCEP), which notably excludes the United States, may the world’s biggest free trade agreement (FTA) to encompass 46% of global population, with a combined GDP of $17 trillion, and 40% of world trade. It will initially comprise several Southeast Asia countries, plus Japan, South Korea, Australia, New Zealand and India. Some leaders from TPP nations signaled after Trump’s election they’d shift their attention to the RCEP, with the next round of talks due to be held as soon as next month in Japan.
It is a more traditional trade agreement, involving cutting tariffs rather than opening up economies and setting labor and environmental standards as TPP would. That deal doesn’t currently include the US and contains fewer measures to tackle non-tariff barriers to trade. The TPP is contentious in part because it addressed issues like environmental and labor protections.
The RCEP was in the focus of attention at the Asia Pacific Economic Cooperation summit held in Peru last November. If RCEP succeeds, China would be in a stronger position to lead a bigger free trade area in the future. Already in Asia, some countries, like the Philippines, are aligning themselves with China. Chinese officials are also welcoming Latin American nations to RCEP. China also advocates the idea of Free Trade Area of the Asia-Pacific (FTAAP), with the RCEP becoming its fulcrum.
The other parties to the TPP could decide to renegotiate it into an agreement just among themselves, but some may feel they have no choice but to join the RCEP. Japan and Australia expressed their commitment to the TPP on Jan. 24. They have already started discussions with Singapore. The TPP can't be in force without the US. It requires the ratification of at least six countries accounting for 85 percent of the combined gross domestic product of the member nations. Other members of the deal would have to work around the US withdrawal.
Australian Trade Minister Steven Ciobo said his country could push ahead with the TPP without the United States by amending the agreement and possibly adding new members. «We could look at, for example, if China or Indonesia or another country wanted to join, saying, 'Yes, we open the door for them signing up to the agreement as well». But, alternatively, some may feel they have no choice but to join the RCEP. Malaysia has already shifted its attention to the China-honchoed agreement.
The EU may benefit from the US withdrawal. German Vice Chancellor Sigmar Gabriel said that the decision of US President Donald Trump to withdraw the country from TPP free trade agreement will open new opportunities for the German economy. The president has said he would try to renegotiate the North American Free Trade Agreement (NAFTA), which governs trade with Mexico and Canada. After some time, the US may event raise the issue of changing WTO rules.
The US withdrawal from the TPP opens new prospects for Russia and the Russia-led Eurasian Economic Union (EAEU). The EAEU already has free trade agreements with Vietnam and Singapore. New Zealand refused to talk about it in 2014 but now it may become more pliant as well as South Korea, Indonesia, Thailand and Chile. There have been talks about setting up FTAs between the EAEU and specific ASEAN countries, such as Singapore, Cambodia, Thailand and Indonesia. The Russia’s trade turnover with these states is not very impressive but they are good springboards for expansion.
Last June, Russian President Vladimir Putin proposed to create a more extensive Eurasian partnership on the basis of the Eurasian Economic Union (EAEU) that would involve China, India, Pakistan, Iran and a number of Community of Independent States (CIS) countries among others willing to join. The Union has an integrated single market of 183 million people and a gross domestic product of over 4 trillion US dollars. The EAEU introduces the free movement of goods, capital, services and people and provides for common transport, agriculture and energy policies, with provisions for a single currency and more extensive integration.
Last June, the EAEU signed a joint declaration on transition to the negotiation stage for development of the Agreement on Trade and Economic Cooperation between the Eurasian Economic Union (the EAEU) and the People’s Republic of China. Recently the EAEU has received around 40 proposals for free trade agreements (FTA). The idea of forming an EAEU-ASEAN free trade area has already been floated.
The Pacific integration process may result in the formation of a major Euro-Asian political and economic arc to become the backbone of the world order in the 21st century to cover a major part of the Eurasian space and most Asian countries with the US excluded for the process. The US withdrawal from the TPP is a reflection of the global trend with the world moving toward multipolarity in the global economy.
