Thursday, 25 August 2016

PM Lee is right - this US Congress must pass the TPP

By Steven Okun and Deborah Elms, Published The Straits Times, 24 Aug 2016

The Trans-Pacific Partnership (TPP) is an agreement that helps keep the US front and centre in the Asia-Pacific and we share Prime Minister Lee Hsien Loong's hope that the United States Congress will ratify it.

On his recent official visit to the US, Mr Lee said: "Singapore fervently hopes that the US will stay engaged and maintain its indispensable role in the Asia-Pacific. In particular, we hope, and I'm sure the President shares this hope, that Congress will ratify the TPP soon."

We agree completely. The TPP is not just a Singaporean interest. It is not only about bringing economic benefits to the United States and other members either. This agreement also helps keep the US front and centre as an "indispensable" nation in the Asia-Pacific.

It hasn't even begun, yet the TPP already has been influential in the region. TPP countries - and even some that are hoping to join in the future - are changing or considering changes to their laws to meet TPP standards and rules.

President Barack Obama has now given notice to Congress that he will be sending a Bill to implement the TPP before this current administration ends. This Bill will die if the Congress does not pass the TPP before the new president and a new Congress are inaugurated on Jan 20 next year.

Given statements by both US presidential candidates, those in the region believe that if the TPP does not pass under this Congress and is signed by Mr Obama, it will be years before the US will be prepared to engage with credibility on crafting an amended trade agreement. Not approving the TPP will necessarily turn partners like Japan, Australia and Vietnam - which have faced often considerable domestic political heat over certain standards in the agreement during the nearly five years of negotiations - to those who can negotiate, sign and close a deal. And other countries, now on the outside of the TPP and looking in, will move forward without the US to engage through other initiatives with the rest of the TPP members.

The damage to US interests would be much greater than simply the loss of years of work putting together a complex agreement with a network of committed partners spanning the Pacific that is widely recognised as bringing the US economic benefits. The US will lose its pre-eminence in designing future trade and economic arrangements if it fails to join the TPP. The TPP requires that the US and Japan, plus at least four other countries, sign the deal for it to go into force. If Congress does not vote in favour of implementing the legislation needed to enact the TPP, the TPP cannot go forward - even if Singapore and the other 10 countries are ready and willing. If this happens, the TPP agreement will unravel.

American companies are already seeing the consequences of a world in which trade liberalisation occurs without the US. Australia has free trade agreements (FTAs) with Asean, China, Korea and Japan - permitting their companies much greater access with better benefits than the US gets in key sectors like agriculture and healthcare.

The EU has concluded trade agreements with Singapore and Vietnam, and is negotiating with others in the Asia-Pacific, including Japan and the Philippines, giving its members greater access to some of the world's fastest-growing economies, and the most strategically important region.

Prime Minister Lee, during his US visit, said: "For America's friends and partners, ratifying the TPP is a litmus test of credibility and seriousness of purpose. We need to know that agreements will be upheld and that Asia can depend on America. Your ratification of TPP will therefore be a clear statement of your commitment and confidence in our region."

There are many ironies attached to a possible US non-ratification of the TPP. Chief among them is that without the TPP, the other Asia-Pacific nations have a Plan B, while the US does not.

Who will step in if the US steps out? Three candidates to lead on trade are China, the European Union and Australia, all of which compete directly with the US in the region. US exporters are keenly aware of the advantages lost to their competition if the US does not move ahead.

From a regional perspective, the remaining TPP members will look to the Regional Comprehensive Economic Partnership (RCEP) as the next step. This agreement lacks much of what makes the TPP so special - chapters that address business issues of the 21st century, such as those on incompatible standards, testing regulations and rules on services. The RCEP is missing the US but does include Singapore, China, Indonesia, Japan and nearly every other key US trading partner in Asia.

The European Union is pushing for trade agreements with Japan, Malaysia, Indonesia, India and others, and plans to combine together existing bilateral agreements with Asean members into a regionwide deal.

Both China and the EU use trade templates that do not match US models. Neither provides the kind of preferences to American companies, of course, that the TPP would grant.

The TPP clearly benefits American companies. However, Singapore-based firms will also lose out should the TPP fail to get through Congress.

Tariff levels will not fall for companies trying to export goods. Services markets will not be opened. Investments will not be opened or protected to the same extent that other FTA partners receive. This is true even for a place like Singapore that has many different trade agreements because the TPP provides better access to 12 markets than any previous agreement that Singapore has entered into.

Absent the TPP, firms may also lose out on provisions that will really matter going forward. For companies doing business in Asia, the real barriers to trade are often non-tariff obstacles like standards for food and food safety, product testing, labelling, and protection and enforcement of intellectual property rights. The TPP contains rules on these issues. Other trade agreements in the region do not.

Ultimately, the stakes in ratifying the TPP are not just for businesses and workers to gain the benefits of the TPP itself, but also for companies in Singapore to remain competitive. Those of us who live and work here know this first hand.

The US Congress must pass the TPP.

Steven Okun is chairman of the AmCham Singapore TPP Task Force and Deborah Elms is founder and executive director of the Asian Trade Center.

Failure of TPP will be blow to free trade and Singapore
By Aaron Low, Deputy Business Editor, The Straits Times, 24 Aug 2016

Two weeks ago, United States President Barack Obama signalled to Congress that he was moving for a vote on the Trans-Pacific Partnership by sending them a Bill on the TPP.

It was the clearest indication yet that Mr Obama remains determined to push the 12-nation deal through despite strident opposition from both the Republicans as well as his own Democratic Party.

He intends to hold a "lame duck" vote on the TPP after the presidential election is over, hoping to capitalise on the fact that the current Speaker of the House and the majority leader are all still for the TPP.

Some see the move as a last desperate roll of the dice, while others see it as an opportunistic move to put in place the final piece of his foreign policy legacy.

The move is unlikely to pass - prominent members of both parties have pledged to block the vote - and could result in the US failing to ratify the same deal it has campaigned hard for over the past few years.

In fact, if the US does not ratify the deal, the entire TPP could collapse as it will not be able to come into force, said Singapore's Ministry of Trade and Industry (MTI). "The Obama administration is working hard to prepare the TPP for successful passage through US Congress," said the MTI spokesman.

But without political support from either side, the TPP is in big trouble, said Mr Jeffrey Schott, a senior fellow at the Peter Institute for International Economics.


Singapore, which was part of the original group that conceived the idea of a trans-Pacific trade deal, may not feel the direct effects of the loss of the TPP in the short term.

After all, out of the 11 other TPP economies, Singapore has locked in bilateral deals with six of them. Another three - Malaysia, Vietnam and Brunei - are in Asean and covered by the Asean Economic Community, a regional free trade area. Only Canada and Mexico do not have a free trade agreement with Singapore. But even these are currently being worked on and could be pushed to completion should the TPP fail.

The potential impact on gross domestic product (GDP) is also likely to be modestly positive, noted National University of Singapore economics don Davin Chor.

According to the Peterson Institute for International Economics, the TPP is expected to raise real incomes by 3.9 per cent in Singapore alone, or by about US$19 billion (S$26 billion) in about 15 years in 2030.

This works out to about 0.25 per cent growth in GDP every year. In other words, not a lot.

But Associate Professor Chor believes that these calculations understate the true cost of the trade deal. "We would be losing out on a major opportunity to lock in and deepen our economic relationships with a broad set of trans-Pacific partners," he said. "Given our position as a hub for commercial services, and our reputation for business-friendly and stable institutions, we would have stood to gain from an expansion in demand for these services by firms from partner countries seeking to expand their reach, say, in East and South-east Asia."

Indeed it is the intangibles that could cost Singapore much more than the dollars and cents of the trade deal.

On the political front, the TPP was meant to be a key thrust of the US' foreign policy to counter China's rising influence in the Asia-Pacific. The US would be in a much weaker position should it drop the TPP at this late stage.

Indeed, in recent years the Chinese have been asserting their will in the region.

China's muscular handling of the South China Sea dispute that involves several Asean countries shows the urgent need for a counter-balance in the region.

But if the US were to abandon the TPP, trust could well be eroded even among its staunchest allies, warned Prime Minister Lee Hsien Loong on a recent visit to the US.

"Your partners, your friends who have come to the table, who have negotiated, each one of them has overcome some domestic political objection, some sensitivity, some political cost to come to the table and make this deal," Mr Lee said. "And if at the end, waiting at the altar, the bride doesn't arrive, I think there are people going to be very hurt."

Almost simultaneously, the Chinese have been pushing hard to wrap up negotiations for the China-led Regional Comprehensive Economic Partnership (RCEP).

The RCEP is a proposed free trade agreement involving the 10-member Asean, Australia, China, India, Japan, South Korea and New Zealand. It is seen as a counter to the US-led TPP.

More crucially, the TPP is also symbolic of the struggle between two sides of the new political divide: staying open and bordering up. As an editorial in The Economist noted: "America is not alone. Across Europe the politicians with momentum are those who argue that the world is a nasty, threatening place, and that wise nations should build walls to keep it out."

Those calling for higher walls and closed borders are already emboldened by Brexit; the failure of TPP could further fortify their will.

As a small trading nation, it is in the national interest for Singapore to ensure that trade routes remain open and free trade flourishes.

Singapore could continue to seek out other free trade deals on its own, which it has done very successfully in the past.

But losing a rare opportunity to craft a multilateral deal that entrenches and promotes free trade in the Asia-Pacific must certainly feel like a body blow for the small Republic. Seen in this light, the failure of the TPP is not just another trade deal gone sour but could mark the start of a dangerous path down to a world more closed than open.

If anything, that is what Singapore should be most worried about.

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PM Lee urges Americans to support TPP

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