With rumors of cross-Pacific and cross-Atlantic trade wars agitating boardrooms and roiling markets, a leading voice in US trade circles suggests a solution: that both the US and China must eventually join the TPP, or Trans-Pacific Partnership, a “gold standard” multilateral agreement that is bespoke-designed for the 21st century.
Tami Overby, a former Senior Vice-President of the US Chamber of Commerce for Asia, was a key player in both the Korea-US Free Trade Agreement (KORUS FTA) and the TPP. The Donald Trump administration is now renegotiating KORUS, but withdrew the US from the TPP.
However, the other 11 signatories to the TPP, with Japan as prime the mover, last Thursday signed the pact – a pact which, Overby believes, will lure an increasing number of members into its orbit.
Global trade: The shifting tide
Since making landfall in Asia in 1988, Overby has recognized that a tectonic shift in global trade patterns, triggered by the ever-expanding Chinese economy, was underway.
“In 1988, the US was almost everyone’s number one trade partner, but now the world has shifted and China is almost everyone’s number one trade partner,” Overby told Asia Times during a trip to South Korea for the Winter Olympics. The problem is that some in the US are behind the curve in their perceptions. “Many in the US have not internalized that shift,” she said.
Yet, even if – as most economic metrics suggest – China draws ahead of the United States in terms of economic scale, Overby is not convinced that size, per se, is what matters. “If we keep our diversity and democracy strong, I am not worried about China: It is 1. 3 billion versus 325 million people, so I don’t worry about it, number-for-number, if their economy passes ours,” she said. “I do care that we have a rules-based system, high-standard rules and a fair shake.”
However, Trumpian Washington is trampling its way across the global economy: threatening tariff wars, playing trade as a zero-sum game, killing the strong-dollar policy and going all out to drag offshore capital and investments back home. Amid this fire and fury, Beijing is positioning itself to don the mantle of global leadership.
“China is going to take full advantage of the US absence, they are going to fill the vacuum in international fora where they are leading the charge to oppose protectionism,” Overby said. “The US – irony of ironies! – is the one objecting.”
Yet Beijing is not the hero it claims to be, Overby alleges.
“China is talking a good game but not walking the walk yet. It is moving in the right direction, but is not there yet in terms of full accountability,” she said. One example: China joined the WTO 15 years prior, but has still not signed up to rules on government procurement. “Chinese SOEs still get special loans and access,” Overby said. “It is not a level playing field.”
She also questions China’s role as a responsible regional player, given how it is leveraging its massive capital base and exporting its notorious local urge to over-invest via a range of grandiose strategic initiatives.
“The AIIB, the One Belt, One Road, the New Silk Road are all large pots of money,” she said. “As I travel around Asia, expanding ASEAN countries are worried about the debt they are incurring, but if you are Sri Lanka, how can you say ‘no’ to new airports and ports?” she asked. She added: “But what if they are empty – and you are left with this debt?”
Why TPP is the best game in town – for all players
With the big boys on the block – Beijing and Washington – playing dubious games, she reckons the next-tier players are making the smart bets. And the smart money now is the 11-nation TPP multilateral trade pact.
Before heading to Washington to take on her position with the US Chamber of Commerce, Overby had been president of the American Chamber of Commerce in South Korea. There, she cut her own trade teeth on a key benchmark for TPP: The KORUS (Korea-US) FTA. The process was tortuous: KORUS was announced in February 2006 and went into effect in March 2012. The implementation period for 95 percent of tariffs was seven years.
That process created a “gold standard” template that was utilized for the TPP. However, the TPP has moved beyond KORUS.
“The base of TPP was KORUS, but we tried to upgrade it, we added digital trade,” Overby said. “Data has to flow across borders.” As a result, TPP has generated a set of “21st century standards”, Overby said.
Moreover, TPP successfully accommodated the requirements of big, developed economies, such as the United States and Japan; smaller advanced economies, such as Singapore and Australia; and developing economies, such as Vietnam and Malaysia. The latter benefit from phased periodization and capacity building assistance.
While the US pulled out of the TPP in 2017, the pact holds massive potential with Japan, in particular, offering rewards for fellow signatories. “Japan is a huge market that has been hermetically sealed, and Japan has made a fundamental shift,” Overby said. “It was not easy for the Japanese leadership to push their cabinet.”
Tokyo’s move to liberalize and open up is also a survival strategy –helping Japan re-inject economic vitality vis a vis China. “If Japan does not get this play right, it is game over with China, they will be swamped,” Overby said. “This will help them reform and liberalize their economy and ensure future competitiveness.”
TPP versus RCEP
China’s response to TPP is the under-negotiation Regional Comprehensive Economic Partnership, or RCEP. But there is no end in sight to the RCEP negotiations. “I am not an optimist – India and China agreeing to anything is a nightmare,” Overby said. Even if eventually signed, “it will be low standard”, she opined.
Indeed. While the KORUS FTA had a seven-year implementation time-frame, a so-called FTA between Korea and China, which entered force in December 2015, has a 20-year time window.
So there needs to be a mechanism to lure China into a more transparent, liberalized trade regime than OECD and WTO rules demand. “We need a coalition of the willing – call it TPP if you like – to set the rules and attract China,” she said. “If we do that and do not get China in, we have all failed.”
She noted that when Japan joined the TPP, Beijing started looking at the pact more seriously – and balked. “Their trade minister said to us, ‘The standards are too high, we need to lower them,’ and I said, ‘If a country like Vietnam can make them, a great nation like China can.’”
When the TPP 12 – ie, when the US was part of the process – looked as if it were headed for closure, its members would have represented some 40 percent of global trade. Countries with protectionist tendencies, such as China and Indonesia, requested briefings.
“They were saying, ‘We want to know about this, come and brief us, we want to be part of the ‘cool kids’ club,’” Overby recalled. “Things are happening in trade so much faster because of the internet, and we can make sure the rising tide lifts all ships.”
The importance of pain
Still, trade is not easy. Pain – the pain of compromising during negotiations – is inevitable in agreeing complex deals that cross multiple borders, she said. “When TPP closed in Atlanta with 12 countries including the US, the chief negotiators were all really angry,” she recalled. “But to get to that sweet spot on these hard issues was phenomenal – and they did it.”
In fact, the level of mutual rage among negotiators at the talks conclusion offers pundits a key barometer to watch when assessing a deal, Overby, confided. “Is everyone the same amount of pissed off?” she asked. “That is how you judge when it is a success or not!”
Pain of a different kind looms over the horizon: pain to US exporters outside the pact. “This liberalization is going to happen and the US is not part of it. We will be on the outside,” Overby said, granting companies from signatories major advantages.
The revised, 11-nation TPP – the Comprehensive and Progressive Agreement for TPP – was signed last Friday. It enters force 60 says after the first six countries ratify it. Overby estimates that the latter process will take about one year; according to reports, Tokyo also hopes that will be in early 2019.
Although the 11-nation CPTPP would only represent 16 percent of global trade, eight other countries, including heavyweights South Korea and the (post-Brexit) United Kingdom, have expressed interest. This, Overby is convinced, will drive the Trump administration back to the TPP. “There is a saying in trade: ‘If you are not at the table, you are probably on the menu’,” she warned.
America appears to be inching in that direction. In January, Trump said he would consider rejoining a renegotiated TPP. And in February, Treasury Secretary Steven Mnuchin revealed that his office had “begun to have very high-level conversations about TPP”.
China-America: Where trade meets strategy
With low energy costs, tax cuts and ongoing deregulations, domestic US economic fundamentals look muscular, but a return to “Fortress America” is not feasible, according to Overby. “Ninety five percent of the world lives outside our borders, and our market is saturated – the growth is beyond our borders” she said. “Americans are all consumers and want high-quality, inexpensive goods” – and with the US standing at the tip of the value chain, those goods come from trade partners.
Returning to Asia, American political reliability is a further reason for Washington to revisit TPP. “Everyone in Asia is shifting toward China, as China is a bigger player and there is real concern around Asia about the credibility of the US and our staying power,” Overby said. “Trump withdrawing from TPP made everyone nervous.”
Meanwhile, with Beijing now beefing up its expeditionary military capabilities, executing an expansionist policy in the South China Sea and frequently acting contrary to Washington’s interest on North Korea, there is an urgent reason to deepen the economic links binding the two giant economies: conflict prevention.
“There is another saying,” Overby said. “The more trade crosses borders, the fewer armies cross borders.”