Guest Blog – “The implications of Trump’s denunciation of the TPP”

[Below is a reaction to this news from the US on 22 November, from ARC discovery project co-researcher and Prof Leon Trakman, reproduced with permission from the forthcoming Newsletter of the International Law Association’s Australian branch. The Newsletter will also include my related but broader AFIA Blog posting with JNU A/Prof Jaivir Singh, “Does ISDS Promote FDI? Asia-Pacific Insights from and for Australia and India”.]

[Written by Prof Leon Trakman, UNSW]
Donald Trump’s announcement that the US will not ratify the Transpacific Partnership Agreement (TPPA) is not a surprise. He had so stated throughout the presidential campaign, as had his democratic rival, Hilary Clinton.
His formal announcement is that the state parties to the TPPA, including Australia, will revert to the position they had been in before the TPP was negotiated, seven years ago.
No doubt, the TPP’s demise, for now, will disappoint the expectations of some TPP states, such as Japan, itself a late party that has strongly endorsed it. Developing countries like Vietnam that stood to benefit disproportionately from its ratification will also be disappointed.
However, Trump’s announcement is unlikely to throw transpacific economies into turmoil, not only because his position was fully expected, but because the perceived benefit of the TPP for regional trade has been hotly debated and denounced by various labour, environmental, health and consumer lobby groups, among others, from its inception.
Trump’s announcement nevertheless has strategical importance, particularly in asserting that the US will negotiate bilateral trade agreements that best suit US interests in place of the TPP. This statement is vague at best and wholly unsubstantiated. First, it amounts to little more than a broad aspiration in the absence of verification. Second, it does not embody preplanning by key US authorities. In fact, President-elect Trump has so opined prior to appointing a Secretary of Commerce or a US Trade Representative. It is difficult to conceive of how replacing the largest regional trade agreement with a series of bilateral trade agreements could be seriously contemplated without the serious consideration by such trade authorities. Third, as a practical matter, negotiating bilateral agreements take time, as Britain is likely to learn post-BREXIT; and until they are negotiated trade barriers are likely to continue. Fourth, there is no assurance that the US will do better in negotiating bilateral trade agreements than under a ratified TPP. States may run for cover from such bilateralism fearing that a pro-US trade deal will be too expensive to sustain, even though the US remains the world’s largest trade importer. Fifth, the US already has bilateral trade agreements with a number of transpacific countries, including its 2010 US-Australia Free Trade Agreement. So, in many cases, no new bilateral treaties will eventuate in the absence of real economic impetus to negotiate them.
Importantly, the US’s withdrawal from the TPP, that excludes China, may provide China with even greater opportunity to conclude regional trade partnerships that exclude the US, such as the Regional Comprehensive Economic Partnership (RCEP) to which Australia is also a party.
Trump’s rejection of the TPP nevertheless has important economic consequences. the TPP is particularly attractive to member states as a prototype treaty directed at reducing and then eliminating trade barriers, including costly import and export duties. In contrast, the RCEP does not replicate that resolve, making it less attractive economically to countries like Australia seeking access to foreign markets.
If the US is to remain the primary player in defining global trade, the result of Trump’s assertion is likely to be a reluctance of states to reduce or eliminate trade barriers in bilateral trade agreements. If Trump’s enunciation against the TPP has legs, it is likely to undermine trade liberalization more generally; and that result, feared by macro-economists, is potentially the most troubling.”

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.