Latin America Advisor

A Daily Publication of The Dialogue

Will a U.S. Absence Diminish the New TPP Agreement?

The countries remaining in the Trans-Pacific Partnership will sign the deal next month.

Negotiators from 11 countries on Jan. 23 reached an agreement on the Trans-Pacific Partnership, or TPP, trade deal. The deal, now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, will include Canada, Chile, Peru and Mexico as members of the agreement once it is ratified in March. The consensus comes a year after U.S. President Donald Trump withdrew the United States from negotiations. Which of the Western Hemisphere countries have the most to gain from the agreement? Which industries will thrive under the TPP? Does the decision by the United States to withdraw from the talks lessen the importance of the trade agreement?

Monica de Bolle, resident senior fellow at the Peterson Institute for International Economics: “Mexico, Canada, Peru and Chile, all original members of the TPP, will gain immensely from the new CPTPP, which cracks Asian markets wide open for these countries. Canada and Mexico in particular will be able to rely on the CPTPP as leverage in the ongoing NAFTA negotiations with a tough U.S. administration. In fact, Canada’s recent complaints to the World Trade Organization regarding the use of trade enforcement measures by the United States reflects the country’s perception of increased leverage in the NAFTA negotiations as a result of the CPTPP. For Peru and Chile, access to Asian markets is a boon for their commodity sectors. For Mexico and Canada, the CPTPP opens opportunities for the automotive industry and for the agricultural sector—notably dairy in the case of Canada. The greatest advantage of adhering to the CPTPP for these countries is access to the Japanese market for agricultural products, which was the original intent of the United States when it was aggressively pursuing the deal under the Obama administration. The decision by the United States to withdraw does not lessen the importance of the agreement, which has, in fact, been recrafted to drop some of the original demands made by U.S. negotiators. Members of the CPTPP see great value in accessing each other’s markets under the umbrella of an agreement that embodies not only a reduction in trade barriers, but regulatory convergence, as well as addressing issues of intellectual property rights, digital commerce and a number of other 21st century issues. The U.S. decision to stay out of the multilateral arrangement is likely to harm some domestic companies and sectors as a result of inevitable trade diversion."

Arturo Sarukhan, board member of the Inter-American Dialogue and former Mexican ambassador to the United States: "A TPP minus the United States does not diminish its importance. First, it will buttress the coalition of the free trade-willing in the Americas, when Canada, Mexico, Chile and Peru sign the revamped agreement in Chile on March 8. Second, it will continue to create synergies with and among the four Pacific Alliance nations (Mexico, Colombia, Peru and Chile) and others that are engaging the group. Third, it’s the United States who will face costs. According to a Peterson Institute analysis, U.S. real income under the TPP would have increased by $131 billion annually, or 0.5 percent of GDP. Under the new deal without U.S. participation, the United States not only forgoes these gains, but also loses an additional $2 billion in income, because U.S. firms will be disadvantaged in TPP markets. When one is not at the table, one usually ends up on the menu. The greatest underlying geostrategic payoff of the TPP had always centered on its potential to discourage harmful trading practices by building a 21st-century rules-based trading system. And that logic remains, but with a different target. TPP12 (the original grouping of signatories, including the United States ) intended to create incentives to eventually engage with China, and for China itself to reform its state capitalism practices; TPP11—now rebranded with the mouthful ‘Comprehensive and Progressive Agreement for Trans-Pacific Partnership’, CPTPP—can become a useful tool in deterring Trump’s ‘my way or the highway’ protectionist policies, and whose views on international trade as a zero-sum proposition have remain unchanged for years, despite his occasional winks at ‘doing no harm’ to NAFTA and rejoining TPP if it becomes a better deal. TPP11 has a new role to play in a world—and hemisphere—characterized by geopolitical vacuum in the absence of U.S. global leadership."

Gregory J. Spak, chair of White & Case’s International Trade Group: "Though the U.S. withdrawal was a significant setback for the TPP, the TPP11 remains an economically significant agreement. The TPP11 parties account for approximately 15 percent of global trade, and are expected to benefit from commitments providing for tariff reductions, cumulative rules of origin and support for regional value chains, facilitation of cross-border e-commerce, investment liberalization and protection of intellectual property. Notwithstanding the U.S. withdrawal, several industries are expected to benefit from the TPP11, particularly automobiles, business services, machinery and equipment, food and agriculture, textiles and apparel, and leather products. The TPP11 parties in the Western Hemisphere (Canada, Chile, Mexico and Peru) could achieve greater gains under the TPP11 than under the original TPP. These countries already enjoy preferential access to the U.S. market under existing trade agreements and should not suffer the ‘preference erosion’ that might have resulted from the United States extending the same access to additional countries under the TPP. Industries in these countries should also gain competitive advantages over U.S. industries in the form of new preferential market access in Asia. Canada and Mexico could be the largest beneficiaries, with strong gains in the automotive and agricultural sectors, resulting from new market access opportunities, particularly in Japan. The TPP11 also remains important, because it includes disciplines in areas such as digital trade and state-owned enterprises that go beyond those in existing agreements. The entry into force of such provisions, even without the United States, would be an important development in the evolution of international trade rules. After all, the TPP was never just about tariff concessions; it was about establishing the horizontal rules (regulatory predictability, transparency, due process) that allow trade to prosper. Everyone should gain from this, especially the members of the agreement."

Frank R. Samolis, partner and co-chair of the international trade group at Squire Patton Boggs: “This March, 11 countries are expected to sign the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP is the successor to the Trans-Pacific Partnership (TPP), a proposed free-trade agreement between the CPTPP and the United States. U.S. President Donald Trump withdrew the United States from the TPP, in one of his first official actions. The United States’ decision to withdraw from the TPP changed the dynamics of the trade pact, thrusting Japan into a leadership role. While the TPP would have covered about 40 percent of the world’s GDP, the CPTPP’s coverage is only around 13.5 percent of global GDP. Even without the United States, the CPTPP will create new opportunities for its members, by opening markets with a combined population of 494 million people and providing preferential access into Japan, the world’s third-largest economy. While the agreement’s impacts across various sectors remain unknown, it will likely benefit many industries. In Canada, for example, the agreement’s tariff elimination and improved market access will likely benefit the domestic agricultural and automotive sectors. By certain estimates, each country can expect increased growth in national income of an average of 1 percent by 2030. While trade between the United States and CPTPP countries will continue, differences on high-tariff products like agricultural goods may affect market competitiveness. The CPTPP may also affect the ongoing North American Free Trade Agreement (NAFTA) negotiations, as Mexican and Canadian exports will now enjoy a competitive advantage over U.S. exports to other CPTPP partners. However, the United States will likely retain significant leverage in NAFTA negotiations, as it remains the most important trading partner for both Mexico and Canada."

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