TPP may not be entirely dead; U.S. to pursue bilateral FTAs with key TPP partners

President Trump’s USTR nominee, Robert Lighthizer, told the Senate Finance Committee in questions for the record following his confirmation hearing in mid March that “The President has made it very clear that he intends to promote American leadership in the Asia-Pacific through many channels, including by pursuing bilateral FTAs with our key TPP partners. I support that approach.”

There were 12 countries that negotiated TPP, and six others expressed an interest in joining – Indonesia, Korea, Taiwan, Thailand, Malaysia, and Colombia. TPP was to have an open architecture, and still others might have eventually joined.

The Jan 23 Presidential Memorandum regarding withdrawal from TPP also directed the U.S. Trade Representative to  “begin pursuing … bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.”

Pursuing bilateral agreements is a course that has limits. One reason is that the ultimate objective of trade negotiations is to set the rules for world trade. Bilateral agreements are an inefficient way to do this. Each of America’s partners in a series of separate bilateral agreements will have at least some specific ideas on how to craft rules. Accumulating a stack of agreements with differing rules is very unlikely to achieve a coherent outcome for global trade. Also, as a practical matter, getting any trade agreement approved by Congress is difficult. In addition, negotiators need trade-offs that come from having more than one other country at the table. Finally, trade agreements need to avoid free riders, so they include a requirement that to qualify for the benefits of the agreement, a product must originate in a signatory country, meaning it must have a minimum amount of content from the parties to the agreement. This requires businesses to engage in substantial record keeping and customs officials to require proof that these “rules of origin” are met.

The burden of paperwork will often outweigh the tariff saving from qualifying products for duty-free treatment under an agreement. With a lot of paper work, the trade agreements simply get ignored. This is especially true for small and medium sized companies. With growing e-commerce over the web supported by express delivery, this is will be an increasing share of world trade

There is a logical alternative. Japan was a strong partner of the United States in crafting the rules contained in TPP. Japan Prime Minister Shinzo Abe’s government might be sounded out as to its willingness to enter into a bilateral agreement meeting the criteria stated above – a bilateral agreement with the best of TPP with suggested upgrades arrived at in consultation with the Congress and interested domestic parties. A U.S.-Japan bilateral could be designed as the core agreement that other nations would be invited to join. Any additional country wishing to join would have to agree to the core agreement plus, as warranted, agreeing to additional elements that might be required in individual cases. These could be separate bilateral agreements. In approving the core agreement, Congress could stipulate conditions for additional countries seeking to join the deal, so as to make a series of accessions more feasible.

Japan and the United States account for 20% of the world economy. If the renegotiation of NAFTA is undertaken with the idea of joining it to a U.S.-Japan bilateral agreement, this would bring in another 3.5% of global production.

Read more:

TPP may not be entirely dead under Trump Administration, Alan Wolff, Fortune, Mar 22, 2017.

Alan Wolff is chairman of the National Foreign Trade Council and served as a senior trade negotiator in prior Republican and Democratic administrations.

USTR Nominee Written Responses to Questions for the Record, U.S. Senate Committee on Finance, March 17, 2017

Senator Orrin HatchSenate Finance Committee Chairman Orrin Hatch said the Trans-Pacific Partnership can be ratified under President Trump even if it begins as a bilateral deal with Japan, emphasizing that his plan would be in accord with Trump’s pledge to pursue fair, bilateral trade deals instead of larger regional ones.

“I think if we could sign up with Japan we’d get a lot of other countries too,” he said. “I mean the real problem here has been Australia and they’ve acted reprehensibly in my eyes, although I’m sure they feel that from their standpoint they’re doing what’s right.”







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