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TPP or FTAAP: What It Means for US and the Asia-Pacific Region

Nov 25 , 2014
  • Hugh Stephens

    Distinguished Fellow, Asia Pacific Foundation of Canada

Although not a household name like NAFTA, by now most Americans who follow trade issues have heard of the TPP (Trans-Pacific Partnership), the trade agreement under negotiation between the U.S., Japan, Canada, Mexico, Australia, New Zealand, Singapore, Vietnam, Malaysia, Peru, Chile and Brunei. The TPP made headlines earlier this month when the President and the other eleven leaders met on the margins of the APEC Summit in Beijing, calling for a recommitment to complete the negotiations as soon as possible. All TPP countries are also members of APEC. While the TPP has been the target of much criticism by anti-globalization forces, who accuse it of being a secretive agreement that will “empower corporate entities while stripping the people of these twelve nations of self-determination and democratic process,” its supporters describe it as a needed “next generation” agreement that will focus as much on “behind the border” measures that impede trade as on traditional “at the border” measures such as tariffs and quotas. It will cover 21st century trade issues such as investment, intellectual property, competition policy, e-commerce, services and movement of service providers. In doing so, it could set the norms for trade agreements of the future – the type of agreements needed in an age of integrated supply chains and fluid movement of capital, business people and digital products.

Shortly after the Beijing meeting of TPP leaders, the full complement of twenty-one APEC leaders issued the Beijing APEC Declaration calling for progress on yet another new regional trade agreement, the FTAAP (Free Trade Area of Asia Pacific). The FTAAP, one more trade acronym now forcing its way on to the global stage, will be less familiar to Americans although it has been around as a concept for about a decade.  Since then it has been studied by various think tanks and academics. One widely quoted and credible economic study has compared the income gains that would come from the FTAAP to those produced by the TPP. FTAAP gains would be some eight times that of the 12 nation TPP—close to $2 trillion by 2025—and three times that of another trade agreement that is being negotiated among the Southeast Asian (ASEAN) nations, that also includes China, India, Japan, Korea and Australia/New Zealand (known as the Regional Comprehensive Economic Partnership or RCEP). These gains, however, are predicated on an FTAAP model that bridges the TPP and RCEP templates.

China—which is not among the TPP negotiating countries—has now become a leading advocate for the FTAAP. While the received wisdom is that both the TPP (with the U.S. as the leading member) and the RCEP (with China and ASEAN in the forefront) are potential pathways to a wider regional agreement, China’s championing of the FTAAP process has the advantage for Beijing of making the FTAAP a potential counterweight to the U.S.-led TPP. This may explain the wording of the carefully negotiated communique issued in Beijing. This communique endorsed the “eventual realization” of the FTAAP and called for a “collective strategic study” on issues related to its realization by the end of 2016. This wording papered over significant differences between China and the U.S. While China has been pushing for a full “feasibility study,” this has been resisted by the U.S. and some other TPP negotiating partners as premature. The real reason is U.S. concern that engaging in a full FTAAP feasibility study at this time would detract from and interfere with completion of the TPP.

Indeed, the TPP is in trouble. Negotiations between Japan and the U.S. over market opening measures are stalled, and the Obama Administration has yet to receive the “Trade Promotion Authority” (TPA) from Congress that would allow it to conclude an agreement without having to subject the final text to possible Congressional amendments. Opposition in Congress has been strong and vocal, although the mid-term election results will clearly change the dynamics considerably. While the recommitment to TPP completion by the twelve leaders in Beijing is an important demonstration of political will, the dragging TPP talks will only achieve breakthrough once the President receives TPA and the Japanese bite the bullet on the range of trade opening measures that they need to reform their economy. Japan has been reluctant to show its hand until the Administration gets the authority it needs to conclude a deal. Political courage is needed in Japan and the snap election called by Prime Minister Abe is a key element in this puzzle. Once the logjam between Japan and the U.S. has been broken, this could quickly lead to a final concluding round among all 12 partners.

Somewhat ironically, the FTAAP study announced at the Beijing APEC summit will also provide impetus for TPP completion. With that study due at the end of 2016, the U.S. and the other TPP countries will want to ensure that their own trade deal is completed well before the launch of the next phase of the FTAAP. In this way, the TPP—as one of the declared paths to a larger regional agreement—will be in a position to strongly influence the eventual shape, rules and level of market opening of an FTAAP. In doing so, it will hopefully lead to the acceptance of stronger market opening disciplines by economies like China, India and ASEAN—good news for the U.S. and other developed economies. As the largest economy in APEC, the U.S. will clearly have an important role in influencing the outcome of the FTAAP strategic study, but will still need to negotiate with China. The best way for the U.S. to ensure that the FTAAP is based on high standards and becomes the kind of trade agreement that will bring maximum global economic benefit is to push hard now for early completion of the TPP.

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