TPP out, RCEP in

Now that TPP has officially been declared dead by president Obama on Friday, the non-US members would be ill-advised to sit still and lick their wounds. Donald Trump or not, they don’t seem to be doing that. On the contrary, alternative mapping is already being discussed on how to rescue a multilateral trade agreement that would be so vital to Asia Pacific. There are essentially 2 visible paths to a solution:

One, the 11 remaining members pick up the baton and run with it. To take effect TPP must be ratified by at least 6 countries with an aggregate GDP of at least 85% of the still 12 signatories total. This is obviously impossible unless the US, whose GDP makes up 60% of the total, ratifies it. So initial voices are being heard to potentially revise the terms of the deal to accommodate the rest of the pack.

The Mexican minister for the economy on Thursday was the first to encourage a new thinking process. And let’s not kid ourselves, for Mexico this could potentially be existential. If any serious disruption to their trade were to occur due to new Trump policies, which is very likely at this stage, the country’s businesses would have to look for alternative export markets. TPP was after all also designed for Mexico to enlarge their export volume to America.

If that falls through, exports would have to be ramped up to places like Asia Pacific and Europe. As I heard, Japanese and Korean companies have ready-made plans in their drawers to increase investments into Mexico post the US election. Much of this was probably contingent on Clinton making the race and TPP to somehow still be ratified, but I wouldn’t be surprised for the investments to still take place and exports to be directed elsewhere.

And on Friday, the Peruvian president even suggested to forge an entirely new deal and invite China and Russia into a revised version of TPP, in the glaring absence of the US. The reason he in particular is speaking out audibly is that the next APEC summit is scheduled in Lima on November 20. The 12 TPP countries will meet the day before, to possibly discuss changing the trade deal’s framework excluding America.

For ASEAN, the currently biggest economic prize for the Western world, America’s pull-out of TPP and with it probably other relevant and comparable US economic engagements in the region, may be a huge disappointment and the loss of a significant option in their game of opportunism, but it certainly isn’t the end of the world. Japan, China, India, Korea, Australia and NZ already have free trade agreements in place with ASEAN.

The Singaporean prime minister during his visit to the White House in August tried to warn Americans, that ratifying the TPP was a litmus test of the US” credibility and seriousness of purpose in the Asia Pacific region. He and a few others had continuously pointed to the new zeitgeist in Asia, as in providing a military pivot was one thing, but without complementation on the economic and trade front it would decline in significance.

The leadership role in Asia Donald Trump is now serving to China on a silver platter. Duterte-like outbursts on one hand, and rather concealed diplomacy with Beijing by numerous others on the other, should have given the Trump camp a sense of where the wind is blowing from. It will be next to impossible to trash TPP and replace it with something credible overnight. The rest of the world will be moving on instantly…

… which brings us to solution number two. The largest beneficiary, and the party holding all the cards now, is China. The two main trade pacts to speak of, TPP and China-inspired RCEP, are in fact not that different, except that the latter is already a larger, 16 members encompassing, construct and America isn’t part of it. It all came down to what Obama, not unjustifiably, called the prerogative of who gets to write the rules in most of the world’s trade.

Now that Washington pulls back from TPP, it will be in the remit of China to write those rules. And Beijing has long declared RCEP as a strategic goal in the region, to build a counterweight to America’s trade block. You can hear the phone lines running red-hot, for China to fill the vacuum and assure the RCEP and other abandoned TPP members of its sincerity to build a mutually beneficial platform for all.

One of the reasons why RCEP hasn’t long taken over the TPP equivalent was that, despite all the opportunism that Asian politicians exert, there has always been a historically natural tendency of not throwing themselves at the bosom of China but to rely on America to play a counterweight and peacemaker in the region. Fewer options however means less patience to lock in a different position.

And from a purely economic point of view, RCEP may make a lot more sense for Asia’s countries anyway, even without the US. All 10 ASEAN are part of it, so is Korea, so is India. It is not to say that there aren’t obstacles with RCEP. Japan and India don’t have free trade pacts with China. But in the definitive absence of TPP things are more likely to come together. Japan has been working on a trilateral agreement with China and Korea for example.

It would certainly be dicier for the remaining members on the American continent, Canada, Mexico, Peru and Chile, to hook up with what is basically seen by Washington as a Chinese-led RCEP, but what other choice would they have? With the prospect of Trump building his wall and slapping tariffs on imports, as the Mexican president what options do you have but being driven into the sphere of the world that still believes in free trade?

As the Peruvian president suggested, Russia not only should but is very likely to play a role in any trade pact going forward. Russia already has a free trade agreement in place with Vietnam, and a similar agreement with ASEAN will certainly qualify for RCEP. In fact, ASEAN and China welcome Russia joining, as it would build on the geostrategic ambition across Eurasia, including Central Asian countries, Russia, China, ASEAN and India.

All the mainstream media noise and attention is currently with America, its newly elected president and how he wants to renegotiate NAFTA, but that doesn’t mean others in the world aren’t assiduously working on furthering their positions.