Path to renewed TPP, sans US, fraught with roadblocks

President Trump withdrew the United States from the Trans-Pacific Partnership agreement (TPP) soon after entering the White House. Since then, there has been discussion about the future of TPP. One option considered is a “TPP-11” outcome, where the remaining 11 countries that signed the TPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) go forward with implementing the agreement. 

A recent meeting in Toronto of the TPP-11 countries, along with plans for them to meet again later this month in Vietnam, have increased speculation that an 11-nation TPP may become a reality. While the prospect of simply changing TPP into an agreement among the remaining countries may seem simple, the reality is the opposite. There are several obstacles to finalizing a TPP-11 agreement.  

{mosads}First, the current terms of TPP do not allow it to go into effect without the United States. The TPP’s “entry into force” provision allows the agreement to go into effect only if all of the “original signatories” have domestically implemented the agreement, or if at least six of the “original signatories” that account for at least 85 percent of the combined gross domestic product of the original signatories in 2013 have domestically implemented the agreement. 

Even though the United States withdrew from TPP, it remains an original signatory of the agreement, and neither threshold can be met without the United States. Of course, the remaining 11 counties could agree to change these thresholds, but, as discussed later, reopening the agreement is risky. 

In addition, changing the domestic gross product threshold would not be simple. The threshold would presumably remain high enough to preserve the current requirement that Japan be one of the six-or-more countries that domestically implements TPP.  However, the significant difference between the size of Japan’s economy and the economies of the other TPP-11 countries may make it difficult to agree on a new threshold. 

The second challenge is from the risks of reopening TPP’s provisions for changes and further renegotiation. The final text of TPP reflects the give and take of negotiations between 12 diverse countries that sought differing priorities while protecting differing sensitivities.

Thus, reopening any provision in TPP, even one as relatively mechanical as the entry into force provision discussed above, threatens to upset the balance for one or more of the TPP-11 countries and may cause them to seek additional changes. This could lead to complex and lengthy additional negotiations that could seriously delay a final agreement. 

A related third point is that many TPP countries agreed to open their own markets and take on difficult obligations in exchange for greater access to the U.S. market. For example, Malaysia and Vietnam likely were willing to agree to domestically difficult disciplines on state-owned enterprises because TPP would also result in lower tariffs on their exports to the United States. 

By hosting a #TPP meeting sans US in #Toronto, this is #Canada‘s global #leadership at its best. https://t.co/LDseLuKy9F #CDNpoli #freetrade

— Kevin Vuong (@VuongKevin) May 2, 2017

This dynamic is now changed with the United States no longer in TPP, and this change is magnified by the fact that the United States’ economy is much larger than the economies of the remaining TPP countries. Thus, the lost potential market access is particularly great.

Accordingly, it may be hard for all TPP-11 countries to agree to go forward with TPP as is, without insisting on changes to balance out the lack of better access to the United States market. Of course, this would then lead to the complex renegotiation process mentioned earlier. 

Fourth, even if the TPP-11 countries agree to TPP as is (with the needed change to the entry into force provision), they will still need to decide how to handle the several provisions in TPP that are “hardwired” for the United States. For example, portions of many quotas and tariff-rate quotas in TPP are specifically allocated to the United States. The TPP-11 countries would need to decide whether to remove or reallocate these amounts given to the United States, another complicated renegotiation. 

Finally, whether all or a sufficient number of the TPP-11 countries can get domestic approval of TPP, either in its current or revised form, is uncertain.  Only some of the TPP-11 countries, such as New Zealand and Japan, have so far completed their domestic processes to approve TPP. 

Moreover, it appears that the Trudeau government in Canada still has not yet formally decided that it will seek approval of TPP. This creates further uncertainty for a TPP-11 agreement.

After the significant work and hard decisions that went into negotiating TPP and the fact that potential benefits of TPP remain, it is understandable that the TPP-11 countries may seek to make the agreement a reality. These countries will certainly continue to talk to each other about the potential next steps for TPP. 

Nonetheless, such discussions will need to take the above challenges into account and recognize that going for an agreement with 11-or-fewer countries will not be simple or quick. As in sport, prognosticators of how things will finish should wait for more analysis of all of the players. 

Stephen J. Claeys focuses on issues relating to international trade as a partner at Wiley Rein LLP, which represents clients in complex, high-stakes regulatory, litigation and transactional matters. Claeys previously handled international trade issues in the White House, the House of Representatives Committee on Ways & Means, and the Department of Commerce.

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