Could US withdrawal from TPP have a silver lining for developing countries?

U.S. Secretary of State John Kerry participates in a meeting with world leaders to discuss the Trans-Pacific Partnership during the Asia-Pacific Economic Cooperation Summit held in Bali, Indonesia, in 2013. Photo by: William Ng / U.S. State Department

With the swish of the U.S. president’s pen, six years of negotiations for the Trans-Pacific Partnership went up in smoke. Donald Trump on Tuesday signed an order withdrawing the U.S. from the 12-country agreement.

But for the remaining 11 parties to the partnership — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam — the TPP is not dead yet. Negotiations are already underway to determine what a TPP minus the U.S. may look like. That could include new partners, such as Germany or even China, a country that was intentionally excluded from the previous negotiations in hopes the agreement would be a counter-weight to Beijing’s regional influence.

Developing countries in the TPP negotiations are watching particularly closely to see how new iterations of the agreement could impact their access to markets and ability to build more diverse trading economies in the Asia-Pacific.

The writing on the wall

U.S. election results in November immediately set phones alight between TPP partner countries as they began discussing a plan B. A press conference between Japan, Singapore and New Zealand on the TPP was cancelled. The news also invigorated talks for an alternative trade agreement between nations of the Association of Southeast Asian Nations — the Regional Comprehensive Economic Partnership.

A TPP minus the U.S. was also on the table at December’s Trade Facilitation Reform: A Business and Government Partnership conference, hosted by Australia’s Department of Foreign Affairs and Trade in Sydney. Behind closed doors, 19 countries discussed bilateral agreements they might formulate to create strong trade ties in place of the TPP given the expected U.S. withdrawal.

Since then, discussions have accelerated. Australian Prime Minister Malcolm Turnbull suggested on Tuesday that China could enter the agreement, effectively pivoting the agreement toward Beijing rather than Washington.

Australia’s Trade Minister Steven Ciobo also told media on Tuesday that he had spoken with fellow TPP countries at a World Trade Organization ministerial meeting this week to discuss “a TPP 12 minus one,” in order to maintain the agreement’s gains, “which will be great for Australia's businesses.” According to Ciobo, the deal is important in creating “a standard set of rules” for trade between the countries, thus improving working standards for developing countries, as well as reducing costs and barriers to trade.

The impact of the U.S. loss

The U.S.’s withdrawal from the TPP could particularly impact developing countries that are party to the agreement. According to a World Bank analysis, participating countries were all predicted to receive a boost to economic growth through 2030, including the U.S. But emerging economies Vietnam and Malaysia were expected to benefit most. Vietnam’s gross domestic product was projected to grow 10 percent faster by 2030, while Malaysia’s growth was predicted at 8 percent faster.

It’s unclear how those projections could change without access to the U.S. market. Reacting to the U.S. withdrawal, Malaysia’s Minister of International Trade and Industry Mustapa Mohamed said that access to the U.S. market had been among the primary reasons for joining the TPP.

Attendees at the Trade Facilitation Reform conference also warned that withdrawing from the agreement would limit U.S. regional influence. The TPP had provided developing countries in the Asia-Pacific the opportunity to look for influence and support in the region beyond China and Japan.

As one door closes, another opens

While the loss of the U.S. to the TPP is devastating to developing countries, other economic powers may see the benefit of trade ties with the region.

Ciobo told the Australian Broadcasting Corporation Tuesday that “there would be scope for China if we are able to reformulate” the agreement. He also indicated Indonesia’s expressed interest to sign on.

Offers from Germany may offer particularly compelling opportunities for developing countries. In an interview with Handelsblatt Global, German Vice Chancellor Sigmar Gabriel said the Trump administration’s withdrawal from or animosity toward some trade agreements and markets created opportunities for his country to expand, including the Asia-Pacific. Gabriel argued that Germany’s market is competitive, while the U.S. market often is not.

Germany’s population of 81 million is significantly less than the U.S.’s 323 million. However, agreements with Germany open developing countries to the wider European market of 508 million and growing.

Some foundations are already in place for trade talks with Germany. New Zealand’s Prime Minister Bill English recently met with German Chancellor Angela Merkel to discuss a free trade deal with the European Union. The idea was endorsed by Merkel and creates opportunities for Germany to further explore trade with the Asia-Pacific.

But for developing countries, the benefits of links to Germany and Europe are more than just financial. In endorsing New Zealand’s free trade agreement with the European Union, Merkel also noted that her country welcomed New Zealand’s decision to provide more agriculture-based development aid to Africa. Including Germany as a trading partner in the Asia-Pacific could also mean larger economies are encouraged to provide a greater aid contribution to all developing countries, not just Africa.

European ties may also encourage the TPP to tackle concerns flagged by NGOs during negotiations. Eric LeCompte, executive director of Jubilee USA, told Devex the rising cost of pharmaceuticals under the TPP would negatively impact health care to developing countries, for example. And in a submission to Australia’s parliament, ActionAid Australia argued that women would suffer the most from this and other aspects of the agreement. Women undertake the bulk of unpaid care and are more likely to feel the weight of higher costs for medicines and other services, as well as reduced worker rights.

With or without the U.S., trade will continue

At December’s Trade Facilitation Conference, Asia-Pacific countries made it clear to Devex that trade and trade agreements would continue, with or without the U.S.

In addition to regional agreements, the World Trade Organization now only needs three more country signatories in order for the Trade Facilitation Agreement to enter into force. TFA aims to cut trading red tape particularly for small- and medium-sized businesses, which are the primary job-creation engine in many emerging economies.

Aid for trade also remains an important component for donors, including Australia, Germany, the U.K. and the World Bank.

For developing countries, Trump’s decision to withdraw the U.S. from the TPP may be a blessing in disguise.

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About the author

  • %25257b6eb61a8f df39 4ae1 bb29 9056d33aa739%25257d

    Lisa Cornish

    Lisa Cornish is a Devex Reporter based in Canberra, where she focuses on the Australian aid community. Lisa formerly worked with News Corp Australia as a data journalist for the national network and was published throughout Australia in major metropolitan and regional newspapers, including the Daily Telegraph in Melbourne, Herald Sun in Melbourne, Courier-Mail in Brisbane, and online through Lisa additionally consults with Australian government providing data analytics, reporting and visualization services. Lisa was awarded the 2014 Journalist of the Year by the New South Wales Institute of Surveyors.

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