Trump threw the Trans-Pacific Partnership into chaos. Now Canada is holding out, Japan is worried, and China may profit
‘If the TPP stays in limbo, other Asian countries may start bending towards China’
Against all odds, Japan managed in 2017 to keep the Trans-Pacific Partnership alive after the withdrawal of the United States, which would have been the biggest economy in the framework.
Tokyo has convinced 10 nations to commit to joining the pact.
But Japanese Prime Minister Shinzo Abe’s hopes of signing the Pacific Rim trade pact soon now shaky following Canada’s last-minute request for a revision of the treaty.
Given the uncommitted attitude by Canada toward a fast implementation of the TPP in its current form, Japan and the nine other members could go on now without Canada, analysts said.
The newest version of the beleaguered TPP, agreed on in November in Vietnam, revised the original pact so it could go into force 60 days after at least six of the 11 signatories complete domestic procedures.
“There is a possibility that Canada could opt out of the pact. But if Canada, the second-largest economy among the 11 after Japan, also withdraws from the deal, the TPP is certain to further lose its attractiveness” such as for potential newcomers like Thailand, said Toshiki Takahashi, chief economist at Institute for International Trade and Investment.
“Japan may think the remaining issues left to be resolved for the TPP implementation are rather technical but the objection by Canada cannot be overlooked when the country is in tough talks with the United States in the ongoing renegotiating for the North American Free Trade Agreement,” Takahashi said.
The issue raised by Canada over its cultural goods and services needs to be finalised before any deal is signed, while a further three items – including state-owned enterprises and dispute settlement raised by Malaysia and Vietnam, respectively – also need to be worked out.
In the central Vietnamese city of Danang in November, Canadian Prime Minister Justin Trudeau defended his country’s stance on the last-minute negotiations for the implementation of the new TPP without the United States, even as Ottawa’s unexpected objection led to the cancellation of a scheduled leaders’ summit between the 11 TPP parties to endorse and announce the agreement.
The Canadian opposition also forced Toshimitsu Motegi, Japanese minister in charge of TPP negotiations who co-chaired the ministerial meetings in Danang, to make an irregular move and reconvene a meeting with the 11 ministers for an extra day to reaffirm that they had agreed on the new TPP, which in the end included clauses that still need to be settled.
“We are pleased with the progress we’ve made (in TPP) during our time at APEC but there is still more work to be done to ensure we reach the best deal for Canada and Canadians,” Trudeau told a press conference on the last day of the Asia-Pacific Economic Cooperation conference.
“Auto sector and culture are two areas where there is still more work to do. We know how important it is to protect the auto industry in Canada and make sure there are future jobs for future generations,” Trudeau said, adding, “We are always looking to create better fairer trade deals. My job is always going to be to stand up for Canadians.”
His comments continue to ruffle feathers more than a month after the 11 ministers issued a statement in Danang saying that they have agreed on “core elements” of the new TPP pact without the United States.
At the time, they agreed to incorporate the provisions of the original TPP into the new pact, with the exception of 20 items, such as on protection of copyright introduced at the request of the United States, which will be suspended.
The TPP will remove or lower tariffs on industrial and agricultural goods and introduces unified international trade and investment rules. The 11 TPP members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
“Honestly, we don’t know what Canada wants, we are waiting for an explanation,” said a Japanese negotiation source. “Meanwhile, we want the deal signed and implemented as early as possible.”
The original version of the TPP was signed in February 2016, before the election of US President Donald Trump. In January this year he pulled the US out of the deal, saying he prefers to negotiate trade deals on a bilateral basis to resolve his country’s trade deficits.
For Japan, clinching the TPP means getting leverage over Trump and adding pressure on the US farming industry, which could lose out on opportunities in the Japanese market by staying out of the agreement.
“Even if it means Canada’s joining is delayed, Japan should hurry an implementation of the TPP at a time when President Trump is expected to heighten his calls to resolve trade deficits with Japan” ahead of the US midterm elections in 2018, said Junichi Sugawara, a trade policy expert at the Mizuho Research Institute.
“Also if the TPP stays in limbo, other Asian countries may start bending towards China, which is pushing its own Belt and Road Initiative cross-border infrastructure initiative, even as Japan wants to take the lead in pushing high-level trade and investment rules in the region,” Sugawara said.
The failure of reaching consensus on high-level rules are hindering progress on negotiations on the Regional Comprehensive Economic Partnership, grouping 16 Asia-Pacific countries – the 10 members of the Association of Southeast Asian Nations, as well as China, India, Japan, South Korea, Australia and New Zealand.
But even the resurrection of the 11-party TPP would not necessarily induce a softer stance by the Trump administration or its eventual return to the pact, and even more so if it becomes a 10-party pact without Canada, analysts say.
The Japan-US high-level economic dialogue, being led by Japanese Deputy Prime Minister Taro Aso, who doubles as finance minister, and US Vice President Mike Pence, will likely continue to become the main stage for bilateral economic discussions in 2018.
It will be closely watched as Japan could face pressure to further open its agricultural and auto sectors in line with Trump’s “America First” agenda.
The US withdrawal from the TPP reversed the promotion of the regional trade pact as a central part of US Asia policy under the preceding administration of President Barack Obama. The TPP was also seen to have security significance amid the rise of China.