One of my recent posts explored the ongoing negotiations over the Trans-Pacific Partnership, a mega trade pact between countries covering Asia and the Pacific, including behemoths like the US, Korea (still unsure), Canada, Australia and Japan. Following unsuccessful negotiations in Singapore this past week, the stage is now set for a potential breakthrough in April before Obama’s next tour to Asia. Though significant obstacles remain around market access and issues like agriculture and services, there is hope that an agreement will be on the table in the next few months.
Paul Krugman is not very enthusiastic on the proposed accord and is surprised why it has received so much attention, almost undeserving of its potential. Two issues strike his criticism as eminently warranted. Since existing barriers between the nations negotiating are already so low in many areas, it is unclear how much of a difference the TPP will make or the range of net gains that stand to be accrued by acceding. The existence of other agreements between member nations involved here including NAFTA and the ongoing bilateral negotiations between some adds to this conundrum. Will the TPP be a game-changer? Largely unlikely. Second, the exclusion of China, perhaps consciously, does not bode well for the future of Asia-Pacific regionalism or East Asian trade. Removing the largest market, the largest labour force, largest manufacturing sector and the most capital intensive Asian economy from the picture is not a positive sign. Indeed, the negation of China detracts the pact’s potential writ large; Chinese exclusion may have unintended geopolitical ramifications for the entire Asian region. And finally, the spectre of domestic politics might rear and scuttle progress at any moment. In the United States, Congress continues to dangle ‘trade promotion authority’ for Obama, which is critical given its fast-track features. Looking at Japan, one can expect more domestic resistance as Abe continues to ram through necessary multi-track reforms, including TPP and other structural reforms, which are twinned to a certain extent.
Better to be cautious and humble as Krugman suggests than the obverse at this juncture and tread judiciously until breakthroughs are secured.