Just when the TPP thought it was safe … a scandal in Japan and an election in Malaysia come along
A cronyism row surrounding the Japanese PM threatens the chief cheerleader of the re-named pact. And even if Shinzo Abe scrapes by, Malaysian voters could throw a spanner in the works
The ink is barely dry on the reworked Asia-Pacific trade agreement signed last week by 11 countries from Japan to Australia, Malaysia and Singapore, but there is a question mark over whether the pact will take effect any time soon.
All eyes are on Japan, the pact’s biggest economy, with concern over whether the widening favouritism scandal linked to Prime Minister Shinzo Abe could roil his ruling party’s grip on power – and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) of which the premier was the head cheerleader.
For the deal’s global proponents, the prospect of it being scuttled despite crossing the finishing line is by no means unimaginable.
US participation – abandoned because of Trump’s “America First” protectionist agenda – would have created the world’s largest free-trade zone, encompassing 40 per cent of the global economy.
The 11 remaining countries who signed the CPTPP make up 13.5 per cent of the world economy, and together form a market of about 500 million people.
The deal will become effective only when six countries ratify it in their respective domestic legislatures.
Apart from Japan, the other signatory countries are: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
Deborah Elms, executive director of the Singapore-based Asian Trade Centre, said it was hard to see the deal come to fruition without Japanese ratification.
“If Japan were to fail to ratify the agreement, no one else will do so,” Elms said.
“A supply chain deal needs its leader.”
That said, some other trade experts cautioned against prematurely forecasting the impact of Abe’s political woes on the CPTPP.
The Japanese premier has been forced to deny that he was involved in cronyism in a land deal with a school operator linked to a family acquaintance.
Local political observers said the past two weeks of intense questioning and scrutiny represent the most serious political crisis to confront Abe since he retook power in 2012 – his second stint as premier after he quit in 2007 amid a flurry of scandals.
Victory in his ruling Liberal Democratic Party’s (LDP) September leadership elections would put Abe on course to become the country’s longest serving leader, but the scandal now threatens to upend even that. In theory, there is little obstacle ahead for the LDP to ratify the CPTPP.
The country’s legislature has previously passed laws to bring into force the erstwhile TPP – which means little deliberation is necessary to bring in fresh legislation for the CPTPP.
In the midst of the swirling political scandal, Abe on Wednesday said his government would “play a leading role for the early effectuation” of the trade pact.
“My sense is that Japan will ratify the agreement notwithstanding Abe’s troubles,” said Matthew Goodman, senior adviser and expert on Asian economics at Washington’s Centre for Strategic and International Studies.
“There will be some opposition, but most of the heavy lifting has been done, and the LDP has the ability – and the votes to push it through,” said Goodman, a White House economic adviser during the Barack Obama administration.
Japanese observers meanwhile say non-ratification is not the issue. Even if Abe were to be ousted, his potential successors Shigeru Ishiba, Fumio Kishida and Taro Kono are all seen as pro-free trade. Instead, the concern is about a delay in ratification.
Participant countries had initially expected to see the deal come into effect by the end of this year, with hopes Japan would kick-start the domestic ratification process.
Now, “if Japan is behind schedule, other countries will carefully observe the situation”, and possibly drag their own ratification process up to the end of this year, said Junichi Sugawara, a senior research officer for trade at the Mizuho Research Institute, a Tokyo-based think tank. This makes him believe the CPTPP will come into effect in early 2019 instead of this year.
Meanwhile, the shifting of political tectonic plates in other CPTPP countries is also being closely watched.
In Malaysia, a general election in late April or May would mean the country’s legislature is unlikely to sit until later in the year.
The pro-free trade Prime Minister Najib Razak is widely expected to triumph in the polls, but an upset could derail Malaysian participation in the pact.
The opposition, led by the 92-year-old former prime minister Mahathir Mohamad, has previously expressed deep scepticism about the trade deal, claiming it would reap few economic benefits for ordinary Malaysians.
The CPTPP slashes tariffs, but removes some pre-conditions the Obama administration insisted upon when it was negotiating American participation in the TPP, including the standardisation of strict laws governing intellectual property.
“Malaysia has long had political problems with the TPP, but Najib has shown an ability to move it forward,” said Goodman.
Mexico’s presidential campaign and elections in July, meanwhile, are likely to affect the South American country’s schedule for ratifying the CPTPP.
In office since 2012, current president Enrique Pena Nieto has been one of the most ardent supporters of the trade pact. Surveys show the left-wing, populist candidate Andres Manuel Lopez Obrador – viewed by investors as a protectionist like Trump – is the front runner to win the polls. ■