The TPP deal will unravel unless Congress accepts President Obama’s request for ratification before he leaves the White House, says AmCham Singapore’s Steve Okun and Deborah Elms
“Singapore fervently hopes that the U.S. will stay engaged and maintain its indispensable role in the Asia-Pacific. In particular, we hope, and I’m sure the president shares this hope, that Congress will ratify the TPP soon,” Prime Minister Lee said on his recent State Visit to the US.
AmCham Singapore agrees completely. The TPP is not only economically in the US interest, it keeps the US front-and-center as an “indispensable” nation in the Asia Pacific.
It hasn’t even passed, yet the TPP already has been influential in the region to the US’ benefit. TPP countries and even some that are hoping to join in the future are changing or considering changes to their laws to meet TPP standards – standards that largely reflect US approaches as set out in Congress’ Trade Promotion Authority requirements.
President Obama has now given notice to Congress that he will be sending a bill to implement the TPP.
All of this comes to an end if the Congress does not pass the TPP this year.
Given statements by both US presidential candidates, those in the region believe if the TPP does not pass in this Congress and is signed by President Obama, it will be years before the US will be prepared to engage with credibility on crafting an amended agreement.
Not approving the TPP will necessarily turn partners like Japan, Australia, and Vietnam — who have faced often considerable domestic political heat over certain standards in the agreement during the nearly five years of negotiations — to those who can negotiate, sign and close a deal.
And other countries, now on the outside of TPP and looking in, will move forward without the US to engage through other initiatives with the rest of the TPP members.
The damage to US interests is much greater than simply the loss of years of work putting together a complex agreement with a network of committed partners spanning the Pacific that is widely recognized as bringing the US economic benefits.
The United States will lose its preeminence in designing future trade and economic arrangements if it fails to join the TPP.
Crunch point
The TPP requires that the United States and Japan plus at least four other countries sign the deal for it to go into force.
If Congress does not vote in favor of the implementing legislation needed to enact the TPP, the TPP cannot go forward—even if all other 11 countries are ready and willing.
If this happens, the agreement will unravel.
American companies are already seeing the consequences of a world in which trade liberalization occurs without the United States.
Australia has FTAs with China, Korea and Japan – permitting their companies much greater access with better benefits than the US gets in key sectors like agriculture and health care.
The EU has entered into an FTA with Vietnam, and is negotiating with others in the Asia Pacific, including Japan and Malaysia, giving its members greater access to one of the world’s fastest growing economies, and one of the most strategically important from a geopolitical perspective.
Prime Minister Lee during his US visit, said, “For America’s friends and partners, ratifying the TPP is a litmus test of credibility and seriousness of purpose. We need to know that agreements will be upheld and that Asia can depend on America. Your ratification of TPP will therefore be a clear statement of your commitment and confidence in our region.”
There are many ironies attached to a possible US non-ratification of the TPP. Chief among them is that without the TPP, the other Asia Pacific nations have a Plan B, while the United States does not.
Who will step in with the US absence? Three candidates are China, the European Union (EU), and Australia, all of which compete directly with the US in the region. US exporters are keenly aware of the advantages lost to their competition if the US does not move ahead.
Take Wine
One example is in the wine industry, where the US and Australia are direct competitors.
In 2015, the value of Australian wine exports reached its highest value since the Great Recession on the back of its FTAs with China, Japan and Korea.
Under the TPP, import duties on U.S. wines will be completely abolished in eight years, which will help US grow in Japan. This is critical for states like California, since their TPP competitors Chile and Australia already have free trade agreements with Japan, and benefit from a duty advantage.
From a multilateral perspective, the remaining TPP members will look to the Regional Comprehensive Economic Partnership (RCEP) as the next step. This agreement lacks much of what makes the TPP so special – chapters that address 21st century doing business issues. RCEP is missing the US, but does include China, Indonesia, Japan and nearly every other key US trading partner in Asia.
The European Union is pushing for trade agreements with Japan, Malaysia, Indonesia, India and others, and plans to combine together existing bilateral agreements with ASEAN members into a region-wide deal.
Both China and the EU use trade templates that do not match American models. Neither provides the kind of preferences to American companies, of course, that the TPP would have granted.
As a result, absent the TPP, American companies are increasingly likely to find themselves disadvantaged. Tariff levels, which are higher in foreign markets than in the United States, will not fall for American companies trying to export goods. Services markets will not be opened. Investments will not be opened or protected to the same extent that other FTA partners receive.
The kinds of standards for food and food safety, labeling, protection and enforcement of intellectual property rights may be quite different (or even nonexistent) in these other types of trade agreements.
American companies have become quite used to setting the de facto standards for many types of products. This cannot be taken for granted.
Ultimately, the stakes in ratifying TPP are not just for US businesses and worker s to gain the benefits of TPP itself, but also for the United States’ ability to remain competitive and advance our interests in the region. Those of us who live and work in the region know this first-hand.
The US Congress must pass the TPP.
AmCham’s TPP Task Force advocates for the passage of the TPP based upon its economic and strategic importance to AmCham members overall. It brings local and regional perspectives of members of AmCham Singapore to highlight evidence and anecdotes from the eyes and ears of the business community on the ground in the region on the importance of the TPP.
