PISM Spotlight: A Transpacific Agreement without the U.S.
13 MAR 2018 Spotlight
On 8 March, representatives of 11 countries in the Asia-Pacific region met in Santiago, the capital of Chile, to sign the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). It is the new version of the Trans-Pacific Partnership (TPP), which the United States renounced in January 2017. The CPTPP is an expression of opposition to U.S. President Donald Trump’s protectionist trade policy and an attempt to strengthen cooperation among the countries of the region in the face of China’s growing clout.

What is the agreement?

The agreement covers free trade in goods and services between 11 countries of the Asia-Pacific region: Australia, Brunei, Chile, Japan, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. It aims to eliminate or significantly reduce customs duties on 95% of products and reduce non-tariff barriers. The total GDP of its member states is over $10 trillion (more than 13% of global GDP), which makes CPTPP the third-largest free-trade zone (after NAFTA and the EU). Talks over CPTPP began after Trump’s announcement in January 2017 that he was withdrawing the U.S. from the TPP. The remaining signatories of the agreement (the 11 countries mentioned above) decided to continue the project. On 23 January 2018 the end of the talks was announced. The deal must now be ratified.

How is the CPTPP different from the TPP?

The CPTPP has almost the same content as the TPP but with 22 clauses suspended that had been introduced to the older deal largely under the influence of the U.S. This applies, for example, to provisions mandating longer terms of protection of intellectual property, including medicine and copyrights. Moreover, the scope of the mechanism called Investor-State Dispute Settlement (ISDS) was limited. The suspension of these provisions can be removed only with the consent of all the parties to the deal. The decision to suspend the clauses important for the American side, and not to liquidate them, may indicate the openness of the members of the CPTPP for the return of the U.S. to the agreement. In January 2018, in Davos, President Trump said a U.S. return to the deal is possible if the conditions were “much better.”

What does CPTPP mean for Asia-Pacific?

The CPTPP may be interpreted as opposition to protectionist tendencies in international trade, including those of the current U.S. administration. It may also be seen as symbolic that on the day of signing the deal, the U.S. imposed duties on the import of steel and aluminium. With the new trade deal in place, U.S.-based companies may be in a worse position on the markets of CPTPP countries compared to firms from the member states. This is particularly true for countries with which the U.S. does not have a separate trade agreement (e.g. Japan or Vietnam). The CPTPP is also an attempt to build a stronger position for these countries against China’s growing economic and political clout. For example, the agreement may be an element of pressure in the negotiations of the Regional Comprehensive Economic Partnership (RCEP) promoted by China and to which some CPTPP members belong.

What effect will CPTPP have on the European Union?

The EU has no agreements or completed negotiations on free trade with four of the 11 CPTPP members—Australia, New Zealand, Malaysia, and Brunei. The signing of the CPTPP may induce the Union to speed up the ratification process of negotiated agreements with Vietnam, Singapore, and Japan, resume negotiations with Malaysia (suspended from 2012), accelerate talks with Mexico (on a modernised agreement of 2000), and launch new talks with Australia and New Zealand so that firms from EU countries will not have worse operating conditions in these markets compared to companies from the CPTPP member states. Limits on some CPTPP clauses, e.g., New Zealand and others on provisions regarding ISDS, indicates that it will be difficult to include similar provisions in agreements with the EU.