Outcomes Of APEC – The TPP Is Dead, Long Live The CPTPP.
Legal News & Analysis - Asia Pacific - ASEAN - FDI
7 December, 2017
As the dust settles and Vietnam returns to some semblance of normality following this year’s APEC summit, regional business leaders and investors are left to consider the consequences of the forum.
This year marks the second time that Vietnam has hosted the APEC summit, and the event was largely considered a success for the country. Vietnam was placed in a difficult position, between the competing interests of the United States and China, requiring a deftness in diplomacy.
Most media outlets were more concerned with President Trump and what would be his first appearance at a multilateral forum in the Asia-Pacific region. Widely-expected faux pas did not materialise, but neither did much news on the US’ position towards the region. Trump’s keynote speech was short on surprises, following familiar themes of protectionism, isolationism and criticism of predatory economic policies. Essentially, the speech underlined what we already know – that under the Trump administration the US would be taking a step back from the Asia-Pacific region and trade will need to be conducted on a bilateral basis.
In a marked contrast to the American tirade, China’s President Xi Jinping presented himself as a champion of economic openness and globalisation. Xi espoused a vision in support of a multilateral trade regime, and received hearty applause in return from the amassed delegates.
Putting his words into practice, Trump’s subsequent stop in Hanoi saw the signing of US$12 billion in commercial deals, including in the natural gas, transport and aviation sectors. In particular, national carrier Vietnam Airlines signed a deal worth US$1.5 billion for engines and support services from US firm Pratt & Whitney.
Despite the very different stalls set up by the attendant superpowers, Vietnam managed to balance itself somewhere in between. In a joint statement, Vietnamese President Tran Dai Quang and Trump reaffirmed the importance of the countries’ Comprehensive Partnership, and agreed to promote bilateral trade and investment.
Vietnam also stood in support of Xi’s signature policy, the Belt and Road Initiative. Specifically, both sides agreed to enhance economic and trade cooperation, with a particular focus on infrastructure.
Regional and international media praised Vietnam’s hosting of the summit and the final Economic Leaders’ Week, highlighting the country’s commitment to economic integration, sustainable growth and support for micro, small and medium enterprises (MSMEs). In the eyes of many, Vietnam has cemented its position at the centre of APEC’s economic structure. The country took advantage of the opportunity to enhance its prestige in the international arena and show others the strides it has made in development since it last hosted APEC.
Resurrecting the TPP
Trump’s election last year seemed to herald the demise of the Trans-Pacific Partnership (TPP), at least in its current form. Without US support, the trade agreement was surely destined to be forgotten or watered down to the point where it becomes worthless.
The US withdrawal failed to dampen enthusiasm for the trade pact, however, with Japan and Australia strongly advocating the continuation of talks, and protecting the gains made in the original TPP negotiations.
Following discussions in Danang, the 11 countries still backing the TPP agreed to its resurrection, and renaming, as the Comprehensive Progressive Agreement for the TPP (CPTPP). The move represents a clear rebuke to Trump’s ‘America First’ focus on bilateral deal-making. Despite a last-minute wobble from Canadian Prime Minister Justin Trudeau, the members agreed on keeping core elements of the original deal that would advance open markets, combat protectionism, and strengthen regional economic integration.
Vietnamese leaders were certainly sorry to see the US turn its back on the TPP; knowing that access to American markets would have brought significant economic benefits. Although a deal is better than no deal, the CPTPP is expected to have a more modest impact on the nation’s economic future.
The National Center for Information and Forecasting predicts that under the CPTPP, Vietnam’s GDP could increase by 1.32 percent, compared to a potential 6.7 percent with the TPP. Similarly, the export growth rate is estimated at 4 percent, instead of the 15 percent previously. If the CPTPP is ratified, Vietnam would also be able to expand its export markets, with opportunities to reach Canada, Mexico and Peru.
Nevertheless, there is still room for the CPTPP to be derailed – the pact requires domestic ratification by each member economy. While Japan has already done so, other members, particularly Canada, could require longer to officially validate the pact.
There are, however, reasons to be optimistic. Many were certain the US withdrawal would be the death knell for trade pacts like the TPP, only to see America’s Asia-Pacific allies regroup and move forward on their own. There is clear commitment to regional economic integration, with or without America’s blessing.
A multilateral trade deal would provide much-needed clarity for businesses, especially smaller ones, in entering new markets. Universal standards would make life a lot easier for the region’s many MSMEs looking to expand their operations across borders. Those working in the digital sector would benefit from a framework on data security, privacy, intellectual property and e-commerce.
Even after Trump withdrew the US from the TPP, the original template survived almost wholly intact. The bar remains high, and the remaining members now have the opportunity to hash out a progressive framework for continued economic growth.
Although Donald Trump received the most attention in Danang, the main achievement of APEC may be the reanimation of a deal he sought to kill. This time the harsh rhetoric may have had an unintended consequence – pushing the region even further towards economic integration and free trade.
For further information, please contact:
Giles T. Cooper, Partner, Duane Morris