When President Barack Obama said, ‘The TPP means that America will write the rules of the road in the 21st century’, he was not speaking metaphorically. Large passages in the final text were lifted verbatim, sometimes en masse, from past US free trade agreements (FTAs).

When President Barack Obama said, ‘The TPP means that America will write the rules of the road in the 21st century’, he was not speaking metaphorically. Large passages in the final text were lifted verbatim, sometimes en masse, from past US free trade agreements (FTAs).

TPP advocates harbour the hope that ratification could pass during the lame duck session scheduled for between the 8 November presidential election and the 16 December adjournment, but that now faces extremely high obstacles. Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan and others say they will not schedule a vote then. They insist that several provisions of the TPP be, in effect, renegotiated. However, many of the chapters already reflect US interests, or at least the priorities of US interest groups with the greatest leverage in Washington.

With the United States having gained more on its priorities than it gave to others on theirs, imagine the resentment among other TPP countries when Capitol Hill insists that they reopen negotiations to give even more, just to satisfy US pharmaceutical and tobacco firms.

Scholars Todd Allee and Andrew Lugg documented that about half the passages in past US FTAs show up in the TPP — more than those of any other country. US dominance is even stronger in the chapters where US policymakers had the greatest interest, such as investment. Nearly half the passages in the 16,000-word investment chapter were lifted in big chunks directly from past US FTAs.

Yet, the United States did not open its market very much in return for the myriad concessions it wrested from others. According to the United States International Trade Commission (USITC), TPP will result in US imports from the world in 2032 being a mere 1 percent above what they would be without TPP. The increase in imports deriving from TPP will amount to less than 0.2 percent of GDP.

Part of the reason for these dismal results is that much of the growth in imports from TPP countries will come at the expense of others not in the TPP. It may be nice for Vietnam that it can sell more footwear and apparel to the United States, but if this comes at the expense of Bangladesh’s exports, what is the benefit to the United States? Or to global growth?

Not only does TPP fail to lift US imports very much, it doesn’t do much for US exports either. According to the USITC, by 2032, TPP will boost US exports to the other TPP partners by a piddling 0.2 percent of GDP.

The most basic reason that TPP won’t increase US trade very much is that, in most of the sizeable TPP countries, tariffs outside of agriculture are already so low that a pact focused on bringing them to zero would not make much of a difference.

However, this is only part of the problem. The Obama administration was unwilling or unable to expand imports in areas where it could have done so. This is not because US trade officials don’t really believe in free trade. It’s because they had to fashion an agreement that could get through Congress. Take the case of government procurement.

In 2009 (latest available), only $326 billion in federal and state procurement was open to imports. That was just 20 percent of total US procurement that year. In 2014, only 4.6 percent of the United States’ total spending on government procurement (federal, state and local) was spent on imports, compared to 4.7 percent in Japan, 6.1 percent in China and 7.5 percent in the European Union. By contrast, total imports of goods and services by the United States in 2014 amounted to 13 percent. If imports had the same market share in procurement as in the economy as a whole, US imports would increase by 1 percent of US GDP — five times as much as the entire TPP.

Opening up US procurement further, especially to the states and localities, would have been a virtual invitation to Congress to reject the TPP. The Obama administration learned that lesson in 2009 when, against its will, Congress insisted on putting all sorts of ‘Buy American’ provisions in President Obama’s huge stimulus package.

Rather than face a political firestorm, the Office of the United States Trade Representative (USTR) in 2014 pledged that the TPP would make no changes to US procurement laws at the federal, state or local level or undermine existing requirements. The United States rejected requests from others that it pledge to refrain from any further ‘Buy American’ provisions and it rejected requests to cover state and local governments.

In the TPP talks, according to Jean Heilman Grier — a former senior procurement negotiator with the USTR in both World Trade Organization and TPP talks — Japan and Canada (as they did in GPA), along with Australia, Chile and Peru (as in past FTAs) agreed to liberalise procurement by its prefectures and localities, but only for countries that reciprocated. The United States, along with Malaysia, Mexico, New Zealand and Vietnam, rebuffed the offer of reciprocity.

So much for Washington’s talk of a ‘gold standard’ pact.

One of the greatest sources of US influence has been the widespread perception that it was a ‘benign hegemon’, especially compared to prewar European colonial powers, the Soviet Union or China. Today, US hegemony is seen as less benign, at least on international economic issues.

TPP to tarnish US relations is republished with permission from East Asia Forum

The post TPP Passage Less Likely appeared first on Economy Watch.

The collapse of South Korean company Hanjin Shipping has left ships, cargo and crews stranded around the globe. It highlights the complex consequences of a shipping company going bankrupt, with Hanjin’s creditors and customers waiting to see whether the business can be saved.

The collapse of South Korean company Hanjin Shipping has left ships, cargo and crews stranded around the globe. It highlights the complex consequences of a shipping company going bankrupt, with Hanjin’s creditors and customers waiting to see whether the business can be saved.

Hanjin Shipping Co is one of the world’s top ten container carriers, operating some 70 liner and tramper services, transporting more than 100 million tons of cargo annually. Its fleet consists of some 150 container ships and bulk carriers.

Increased competition and Hanjin’s own high debt levels have led to its demise, as it struggled to adapt to changes in the market. Demand for shipping has fallen since the global financial crisis, at the same time as technology has started to produce larger mega-ships. Over capacity is one major problem.

Container operators are also increasingly constrained by competition laws in the US, the EU, Japan and more recently, China. It is a scenario playing out among other shipping companies in what appears to be a major readjustment of the size and operations of the world’s shipping fleet.

The company’s financial woes have caused it to seek protection from its creditors through Korea’s corporate “rehabilitation” laws. This is similar to Chapter 11 bankruptcy in the United States. This is where the insolvent debtor restructures the debts it owes to creditors, according to a rehabilitation plan, while the company continues its operations.

Under South Korean law, the plan must be approved by the creditors and the court and it is then implemented by a nominated receiver. The receiver is now in charge of Hanjin’s operations, and its ships, worldwide.

In the meantime the chairman of Hanjin Group has transferred 40 billion South Korean won to the company to help unload cargo stranded on the its vessels, but regulators have warned securing further funds could take “considerable time.”

Ideally, the plan will give Hanjin sufficient breathing space while the receiver restructures its business into perhaps a leaner operation, or one in which others, including creditors, may take a financial interest.

Ships are unusual assets for a receiver or liquidator to deal with. A shipping enterprise can be extensive geographically – with ships at all points of the world and difficult logistically – with those ships at various stages of cargo handling. A range of other players – the owners of vessels chartered to Hanjin, and bunker (fuel) suppliers and port agents in many different countries – all add to the complexity.

Typically, a liquidator takes possession of the fixed assets of a failed business – land, plant and machinery – assets that stay put and can be located and secured. While some of those assets may be overseas, shipping collapses invariably involve the application of cross-border insolvency laws.

Ships travel from place to place and can be hard to find and secure. Maritime law is unique for that reason; for example, the ship’s crew has a direct claim on the ship itself for their unpaid wages – a maritime “lien”. They can have a court martial board the ship, to arrest and secure it under a court order.

Arrest involves the marshal attaching an arrest warrant to the ship’s cabin or mast, and taking steps to prevent the ship leaving its mooring. This right of a crew dates back to the days when unwanted and unpaid sailors might find that while on shore leave at a distant port, their employer, the ship owner, sails off.

Others also have rights to arrest a ship at various ports around the world, this is happening right now with Hanjin. The South Korean receiver will be resisting these arrests of Hanjin’s ships.

However one of the fundamentals of bankruptcy is that ordinary unsecured creditors owed money have to wait in line for the receiver to decide how best to deal with the insolvent business. This includes realising assets to pay and what can be paid in way of dividends to those creditors – in many cases only 10 cents in the dollar, if they are lucky. Some maritime liens and other claims give the relevant creditor a “secured” claim, one that is paid out first before the ordinary creditors.

It appears that the South Korean receiver Mr. Tae-Su Seok is applying to various courts around the world for orders to challenge what may be secured claims. Well developed international cross-border insolvency laws will help him access to foreign courts to obtain orders protecting the ships in that jurisdiction. At the same time, he will be looking for funds to try to keep any profitable parts of the business going.

The shipping world is waiting to see how and whether the Hanjin rehabilitation succeeds. Other major collapses, for example in Korea with Pan Ocean and Korea Line Corporation, have resulted in creditors’ claims being considerably compromised. In these cases only a certain percentage of debts were repaid and over a period of time, or creditors took equity in the shipping company.

Given the state of world shipping, that outcome may occur here. The shipping industry suffers from an inherent inflexibility in responding to changing economic conditions. There may be a decline in demand for certain goods, leading to a drop in shipping rates.

A shipper taking delivery of a new vessel some long time after it was first commissioned may be left high and dry in finding that there is a much reduced demand for its services. On the other hand, a shipping company’s leaner world fleet may find that it does not have sufficient capacity when trade conditions quickly change.

While ships will always be needed, shipping is finding increased competition from air freight services, transporting many goods – food for one, and technology consumables – unsuitable for longer shipping delivery times. Demand for the latest iPhone 7s, or fresh fruit, would call for overnight air freight, rather than weeks. Pirate incursions are another current risk.

Still, the huge capacity of ships will never be offered by flight and this remains a major advantage. Ship design and technology is also improving – computer guided “crewless” ships are on the horizon. However, shipping remains a business subject to the vagaries of international trade and economic conditions.

Explainer: why Hanjin’s ships are stranded around the globe is republished with permission from The Conversation

The post Hanjin’s Ships are Stranded, but Why? appeared first on Economy Watch.

It seems that the world has become unsafe for trade agreements. In particular, the Trans-Pacific Partnership (TPP), a major new trade deal among the United States and 11 other Pacific Rim nations, has become a political lightning rod for both the left and the right.

It seems that the world has become unsafe for trade agreements. In particular, the Trans-Pacific Partnership (TPP), a major new trade deal among the United States and 11 other Pacific Rim nations, has become a political lightning rod for both the left and the right.

As if to highlight that fact once again, Senate Majority Leader Mitch McConnell said recently that he would not bring the TPP to a vote until after the new president takes office in January.

That’s bad news for the trade agreement – and for President Barack Obama, who sees its passage as the final plank in his foreign policy legacy and who is pushing hard for a vote during Congress’ post-election lame duck session.

However, the controversial Asian pact is not the only trade agreement potentially on the chopping block. Last month, the European Union’s trade commissioner, Cecilia Malmström, decided not to fast track the EU-Canada Comprehensive Economic and Trade Agreement (CETA) due to the anti-trade climate prevailing on the continent.

In addition, France’s President François Hollande just declared that his country would not support moving forward with the gigantic Trans-Atlantic Trade and Investment Partnership (TTIP) being negotiated between the U.S. and the EU. His announcement came on the heels of a statement by Germany’s vice chancellor that TTIP “has failed.”

It seems that every time we get closer to the conclusion and ratification of a trade deal, a new barrier emerges to block any progress. What, then, are we to make of the tremendous obstacles confronting these three major agreements?

McConnell, second from right, has endorsed Trump, who has made anti-trade rhetoric a big part of his campaign. Jim Young/Reuters

The times they are a-changin’

First and foremost, opposition to trade is a sign of the times. The Great Recession, among other events, has generated strong pushback against globalization and liberal exchange, something that seems to have caught political elites around the world off guard.

The Doha Round of the World Trade Organization (WTO) had already come apart well before the recession. Its failure meant that a multilateral deal, one that would have committed nearly all of the world’s countries to the same trade agenda, was no longer possible.

At the heart of Doha’s collapse were the interests of the newly rising BRICS – Brazil, Russia, India, China and South Africa – which could not be reconciled with those of the U.S. and the EU. The failure of the WTO, in its turn, gave new impetus to regional agreements such as TTIP and TPP.

Initially, these regional agreements, along with their more modest bilateral cousins (deals between only two nations), were treated with suspicion by free traders, who feared that they would carve up the global trading system into inefficient blocs. However, in time, such agreements presented themselves as the best, and only, way forward in a more complex, multipolar economic environment.

Still, TTIP and TPP are more than just victims of the general skepticism for globalization that has arisen in the past few years. They are also the collateral damage from political events in the world’s major trading countries.

European Union Trade Commissioner Cecilia Malmström worries about the public opposition to CETA and TTIP. Jason Lee/Reuters

Illiberalism on the rise

First among these is the U.K.’s Brexit vote, which is likely to result in the country’s withdrawal from the EU. Brexit, which is itself the fruit of growing illiberalism in England and Wales, has distracted European leaders to such a degree that TTIP and CETA have moved onto the back burner.

Moreover, in the United States, the success of Donald Trump in mobilizing the anti-globalization working class has made Republicans in Congress, who typically support trade as good for business, wary of trade deals. It has also led Hillary Clinton to distance herself from previous statements supporting TPP made during her tenure at secretary of state.

Another problem facing TPP and TTIP is their unprecedented scope. Not only do these agreements create free trade blocs that encompass much of the world’s economic output, but they also touch on a variety of issues from internet freedom to generic drug prices to the right of private investors to sue states for compensation. Many of the most controversial elements of the agreements relate to these issues rather than to the traditional components of trade protection.

What happens next?

What would be the consequences if these agreements fail?

Economically, the U.S. is already tightly linked with both Asia and Europe. The TPP agreement would essentially expand the Pacific trade bloc beyond NAFTA to include nine additional countries, most significantly Japan. Similarly, TTIP would deepen the already significant economic interdependence that traverses the Atlantic.

The loss of these agreements would certainly have negative economic effects on all sides, as least in the aggregate (since some jobs would be saved by the reduced competition). Agreements this large cannot be jettisoned without consequences.

That said, given the deep connections that already exist among Asia, North America and Europe, the purely economic results of killing the agreements are likely to be important, but not enormous. More serious would be the geostrategic implications.

A rejection of TTIP by either side could signal a reduced U.S. presence in Europe, a particular concern in the face of increasing Russian assertiveness.

Meanwhile, an end to TPP could encourage a number of Asian countries, unsure of America’s future in the region, to move into China’s growing sphere of influence. It is no surprise that this last argument is the one being made most aggressively by the Obama administration.

Long live free trade?

If TTIP and TPP are not likely to be approved any time soon, does this mean that they are already dead?

A President Trump would certainly kill the agreements. If, however, Hillary Clinton becomes the next president, as the polls seem to indicate, their future is harder to predict. Clinton seems to be, at heart, a believer in open markets, but the current political situation makes it hard for her to say so directly.

If elected, Clinton’s statements during the campaign would make it difficult for her to support TPP out of the gate, especially with strong opposition from Bernie Sanders supporters. As envisioned by Cato trade analyst Simon Lester, she may well try to renegotiate a portion of the agreement as political cover and then resubmit it to Congress for approval.

By this point, if Trumpism has been defeated, Republicans may have a greater appetite for foreign trade. The question, of course, is whether the other TPP signatory countries will be willing to reopen portions of the agreement that have already been concluded.

Similarly, in Europe, it seems unlikely that much progress will be made until the Brexit issue is resolved and growth starts to pick up.

Despite all the obstacles, however, I believe that it is important to keep moving forward on free trade. The rejection of these important agreements could risk becoming merely the first step in a gradual erosion of support for the global economic architecture.

This architecture, so carefully created and maintained by the United States after 1945, has contributed mightily to international prosperity and peace. Maintaining it is of critical importance.

Does TPP’s slow death mean the world is now unsafe for trade deals? is republished with permission from The Conversation

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Over the last few years, negotiations for the Trans-Pacific Partnership (TPP) have provoked waves of criticism and suspicion in the Asia Pacific. Today, the kinds of criticism that burdened the TPP — that the negotiations were slow and tedious, and that the agreement needs more transparency and accountability — are being applied to the Regional Comprehensive Economic Partnership (RCEP).

Over the last few years, negotiations for the Trans-Pacific Partnership (TPP) have provoked waves of criticism and suspicion in the Asia Pacific. Today, the kinds of criticism that burdened the TPP — that the negotiations were slow and tedious, and that the agreement needs more transparency and accountability — are being applied to the Regional Comprehensive Economic Partnership (RCEP).

RCEP negotiations missed their initial deadline at the end of 2015. There is a high probability that a second deadline will be missed this year. Little up-to-date information on RCEP has been disclosed, making the agreement seem more and more like a black box. More importantly, the negotiation process and the ambition of RCEP’s clauses appear to be far from satisfactory.

In the case of the TPP, negotiations were accelerated desperately after repeated deadline extensions and an agreement was eventually reached at the last minute. It is difficult to feel that sense of urgency in RCEP negotiations today. Given the lack of progress, or at least the lack of first-hand information, observers have little choice but to doubt the prospects of a timely conclusion.

To speed up the negotiation, RCEP members need to take into serious consideration the following three relationships.

The first is the relationship between seeking an agreement for its name and pursuing it for its substance. What do the 16 RCEP members really want from this ‘comprehensive partnership’? In addition, what could they possibly get from an ideal agreement?

Given the difficulty the RCEP negotiations face, some commentators have suggested that it may be a good idea to create an ‘express edition’ or ‘light version’ of RCEP, before it reaches its maturity in the future. For instance, some scholars suggest that RCEP may include a robust review mechanism in the agreement as a mitigating tool. In this scenario, the deal could be upgraded after the signing stage to include additional products.

On the other hand, some officials and scholars argue that ‘RCEP should be an attempt to build a community like the ASEAN Economic Community and the European Union’. A few scholars go even further, referring to Pan-Asian integration and advocating that other South Asian and Pacific countries join RCEP as well. While these voices express goodwill for expanding regional integration, it is unclear whether such arguments are really conducive to the current negotiation process. There is a danger of adding greater burden to the agreement’s already stooped shoulders.

It is imperative for all 16 members to reach a comparatively high-level agreement first, as part of a phased achievement rather than a measure of expediency. This would serve to build confidence and maintain the negotiations’ momentum.

The second key relationship is that between comforting losers and encouraging winners. RCEP’s Guiding Principles and Objectives have long included a ‘provision for special and differential treatment plus additional flexibility’ for participating countries.

Yet the marginal utility of adding another low-level free trade agreement (FTA), not to mention a preferential trade agreement, into the existing regional network is limited at best. In order to change the long-held protectionist atmosphere in certain countries, it is far from enough to simply maintain or increase compensation for disadvantageous industries.

As the experience of industrialised democracies has demonstrated, special interest groups, which stand to benefit from the forthcoming deals, need to play a more active role, with a louder voice in pushing for trade liberalisation and domestic transformations. A squeakier wheel will get the oil.

Last but not least is the relationship between maintaining multilateral momentum and speeding up the regional process.

So far, at least ostensibly, the official position of many Asian countries is to push the Doha Round negotiations. To be fair, some countries in the region, like India, have been playing a positive role in pursuing the balanced development of the multilateral trading system and in striving for special and differential treatment for less-developed countries.

At the multilateral level, a consensus among some 163 WTO members is needed. At the regional level, however, there is a relatively limited number of negotiating parties. In this context, member states’ blind adherence to their own immediate interests can lead to protracted talks, and even to a full replay of the gridlocked Doha Round negotiations.

Last year was a crucial year for Asia-Pacific FTAs, the biggest event being the eventual conclusion of TPP negotiations. This year may be even bigger for world trade politics. Besides RCEP, the Transatlantic Trade and Investment Partnership between the United States and the EU, as well as the Economic Integration Agreement between Japan and their European counterparts, are all due at the end of 2016.

With these mega-FTAs, the power balance of global trade and rule-making is undergoing a fundamental transformation. The approach of world trade negotiations is also changing significantly.

Time is running out. Without a substantial outcome, will RCEP be ‘much ado about nothing’? We can only hope for the best.

Three relationships for RCEP members to ponder is republished with permission from East Asia Forum

The post RCEP: So Far, a Tale of Missed Deadlines appeared first on Economy Watch.

No issue better illustrates the agony and self-inflicted wounds in the Republican Party than the Trump-inspired clashes over the future of US trade policy.  While the Democratic Party has been wracked by deep divisions over trade for three decades — fuelled by opposition from key constituents such as labour and environmentalist organisations — Republicans have been fairly united in the belief that international trade agreements represented an extension of domestic doctrines of deregulation and market competition to the international level.

No issue better illustrates the agony and self-inflicted wounds in the Republican Party than the Trump-inspired clashes over the future of US trade policy.  While the Democratic Party has been wracked by deep divisions over trade for three decades — fuelled by opposition from key constituents such as labour and environmentalist organisations — Republicans have been fairly united in the belief that international trade agreements represented an extension of domestic doctrines of deregulation and market competition to the international level.

Added to this was a strong aversion to the crony capitalism that inevitably accompanied the protectionist impulse — as even good Republican businessmen vied to curry favours from government and undercut competition from foreign competitors.

Enter Donald Trump and Trumpism. Though the Republican nominee’s political beliefs are often little more than personal rants, he has established a forceful and destructive anti-trade agenda.

In many interviews and speeches, he has argued: ‘Globalization has made the financial elite, who donate to politicians, very wealthy. … However, it has left millions of our workers with nothing but poverty and heartache. … Trillions of our dollars and millions of our jobs flowed overseas. … Today, we import nearly [US] $800 billion more in goods than we export. We can’t continue to do that.’

The direct culprits, according to Trump, are trade deals signed or supported by presidents Bill Clinton, George W Bush and Barack Obama: ‘[First], the disaster called NAFTA [the North Atlantic Free Trade Agreement]. Second, China’s entry into the World Trade Organization. Finally, ‘The Trans-Pacific Partnership is the greatest danger yet. The TPP, as it is known, would be the death blow for American manufacturing’.

This essay is not the place to lay out the full economic rebuttal to the allegations of Trump and other anti-trade advocates’ (usually Democrats) case against US trade agreements. Suffice it to note that the US trade deficit/surplus is not related to trade policy.

It is derived from a simple rule: if your public and private savings don’t match your consumption and investment, you will inevitably run a trade deficit with the rest of the world; if the reverse is true, you will run a surplus. Bilateral surpluses or deficits are meaningless.

On jobs, in the years after NAFTA under the Clinton administration, the United States created some 20 million additional jobs. In the years since China entered the WTO in 2001, and the United States went on to sign 17 bilateral trade pacts, US manufacturing production has increased by 40 percent.

Yet some key Republican leaders have either caved to Trump’s anti-trade onslaught or thrown up misleading or evasive responses. (House Speaker Paul Ryan is a conspicuous holdout.) Unfortunately, two leading Republicans in the campaign illustrate this point: vice-presidential nominee Governor Mike Pence and former speaker of the house, Newt Gingrich.

Pence, a decent, traditional Midwestern conservative, has always approached trade in a pragmatic, transactional mode. In Congress, he supported NAFTA and backed all of the 17 bilateral free trade agreements negotiated under George W. Bush. On the TPP, he has argued, ‘Trade means jobs, but trade also means security. The time has come for all of us to urge the swift adoption of the Trans-Pacific Partnership’.

Yet when trade came up in a joint 60 Minutes interview with Trump, Pence refused to defend his longstanding position. Rather, he evaded the substance of the free trade debate, merely stating that NAFTA had cause for periodic updating and ignoring Trump’s claim that the TPP is a ‘rape of our country’.

With Gingrich, the apostasy on free trade and trade agreements is even less defensible, not least because of the former speaker’s formidable intellectual acumen when tackling public policy issues. Thus, his earlier defence of free trade/open markets was laced with references to the giants of market liberalism: Adam Smith and David Ricardo, Milton Friedman and Friedrich Hayek.

In interviews some years ago, Gingrich set his support for free markets in a broader historical context: ‘If you are talking about the ability of the average person to create wealth, to live in prosperity, to have safety and freedom, then free trade has been…for almost 300 years, one of the most powerful forces of expanding human life, human freedom, and human quality of life on the planet’.

On bringing China into the world trading system, Gingrich stated: ‘The more the Chinese and Americans [sit] down together to create more wealth, the happier they’ll be with each other [and] the less likely we’ll have conflict’.

Recently, he has affirmed support for Trump’s destructive tirades against current US trade policy, telling Politico: ‘I basically agree with Trump’s speech on trade’. In defending his stunning volte-face, the former speaker merely asserted that ‘we are in a different era’. However, he cited only China’s huge theft of US intellectual property as evidence of the ‘new’ era.

This won’t do for a number of reasons. Besides the fact that existing trade tools can — and are — being utilised to rein in China’s intellectual property violations, Trump’s agenda encompasses — as Gingrich well knows — a much broader protectionist and economic nationalist agenda. This agenda includes huge tariff increases for Mexico and China with attendant trade wars, ripping up existing free trade agreements with major trading nations and withdrawing from the TPP and the European negotiations.

The speaker has opined: ‘I think conservatives can be very tough-minded [on] trade [and] not automatically yell “Free Trade!” when you get ripped off’. This is all true. However, are the campaign rants of a talented demagogue worth kicking over three centuries of accumulated free market wisdom? In addition, does the speaker really think Smith or Friedman or Hayek would also follow this path?

How Trump’s trade policy is dividing Republicans is republished with permission from East Asia Forum

The post Trump Leads the Republicans to Splitsville on Trade appeared first on Economy Watch.

Since trade started being emphasized as a locomotive of growth, export promotion trade policies have become a popular option for countries in search of higher economic growth rates. East Asian countries in particular have witnessed a distinct success in terms of rapid economic growth after the adoption of outward-looking trade policies.

Since trade started being emphasized as a locomotive of growth, export promotion trade policies have become a popular option for countries in search of higher economic growth rates. East Asian countries in particular have witnessed a distinct success in terms of rapid economic growth after the adoption of outward-looking trade policies.

There are two main hypotheses regarding the relationship between trade and economic growth.  One is the export-led growth (ELG) hypothesis that postulates countries can attain rapid economic growth through adoption of outward-oriented trade policies (see Golub and Hsieh 2000) and the import-led growth (ILG) hypothesis, which instead accentuates the role of imports in increasing economic growth.  The other is in channeling technology and innovations, supplying capital and intermediate goods, and improving competition to enhance efficient resource allocation (Thangavelu and Rajaguru 2004).

The Republic of Korea adopted different trade policies at different times, ranging from the inward-looking to the outward-oriented outlook. Looking deeper into the growth–trade nexus in the case of the Republic of Korea can shed more light on this ongoing debate.

Trade and growth nexus in the Republic of Korea

The history of the country before the 1960s is marked by two key episodes: independence from Japanese annexation (1949) and the Korean War (1950–1953). Both events have an important place in the history of the Republic of Korea, a country that has transformed itself from one of the poorest countries in the world to a high-income country (and from an aid recipient to a donor) within a very short period of time. Krueger (1997) correctly argues that, compared with the other “three tigers” (Hong Kong, China; Singapore; and Taipei, China), the economic miracle recorded in the Republic of Korea has been at once extraordinary and exceptional, for two main reasons.

First, the economic implications of the Japanese occupation and the Korean War were devastating; political turmoil, social unrest, and low initial capital were rampant. Additionally, the size of the country’s economy relative to other East Asian countries was smaller, and the size alone could hardly guarantee promising economic development prospects.

Trade played a significant role in this scenario, despite the contentious views among scholars on whether it promotes economic growth in general. As can be seen from the figure below, trade openness (exports and imports in sum as a share of gross domestic product) was only 4% in 1961, but reached about 50% in 1995, jumping over 100% in 2010. In addition, the share of imports in total trade had also been higher than that of exports, up until early 2000, which indicates the considerable dependence of the Republic of Korea on imported raw material.

Interestingly, the share of exports to total trade overtook those of imports in the post-2000 period, and this might be attributable to increased exports of value-added products and/or the world commodity price hike. Although the evidence regarding causality between trade and economic growth is debated, the irrefutable fact is that trade has a significant share in the economy and has played a vital role in the rapid economic growth achieved in the Republic of Korea. This is true even if authors who credit the collective efforts of the government in designing appropriate policy, and the people of the Republic of Korea, who have worked hard to overthrow the yoke of poverty, are correct in their arguments (Krueger 1997; Connolly and Yi 2009).

Gross Domestic Product, Exports, Imports, and Trade Openness

TO = trade openness.
Source: Author’s illustration, based on data collected from World Bank (2012) and International Monetary Fund (2009, 2012).

Empirical Evidences

In a recent study, we estimated a vector error correction (VEC) model for cointegrated variables based on annual data from 1960 to 2010 to examine the short-run and long-run causal relationship between cointegrating variables. According to table below, we find that the long-run relationship, as verified by the significance of the error correction (EC) term, unidirectional causality between exports and economic growth, running from exports to economic growth, while it is bi-directional for imports.

In addition, exports, imports, and economic growth in Korea display unidirectional short-run causal relationships. The direction of causality runs from exports and imports to economic growth both in the long and in the short run, which signals the validity of both ELG and ILG hypothesis for Korea. Remarkably, the absence of long-run causality from GDP to exports has an important implication: enhanced export growth in Korea did not track increased economic growth.

Estimates of Vector Error Correction Model

Notes: Values in the table are summed regression coefficients and F-statistic in parenthesis. R2 is the coefficient of determination, S.D. is the standard error of the dependent variable, σ is the standard error of regression, and D.W. is the Durbin Watson statistic. *, **, and *** show significance at the 10%, 5%, and 1% level, respectively.
Source: Author’s computation, based on data collected from World Bank (2012) and International Monetary Fund (2009, 2012).

Moreover, according to the Granger causality test and based on the VEC model in the Republic of Korea, both the exports and imports show unidirectional causal relationships with economic growth in the short run. The unidirectional causality that runs from exports to GDP—thus, absence of reverse causality—might be attributable to the fact that the Republic of Korea diverted exportable items toward its domestic market and away from export markets.

This assertion could be conceivable because of the fact that economic growth, which is ultimately followed by expansion of the industrial sector, but not necessarily, might be expected to lead towards improved performance of the export sector. However, this causality from economic growth to exports has not been evident in this study.

Policy implications

Interestingly, the results imply that a singular trade policy that focuses only on exports might not be effective to enhance economic growth. The absence of causality between economic growth and exports in the Republic of Korea is a consequential finding. Perhaps a major policy lesson stemming from the Republic of Korea’s trade and growth experience is the importance of production for domestic consumption and partial absorption of exports in the domestic market.

This assertion is plausible because we might expect that the industrial expansion associated with economic growth would improve export performance. However, this study does not show any causality from economic growth to exports, thus conforming to “vent-for-surplus” theory. As a consequence of the ensuing increase in aggregate demand, growth may create a situation whereby more national output is absorbed domestically leaving relatively less for exports (Dolado 1993).

The underlying implications are far-reaching: as an economy booms, domestic markets play a vital role in sustaining growth. The outward-oriented trade policy adopted in the early 1960s, together with infrastructure development, laid the foundation for the “miracle” economy recorded in the Republic of Korea. Furthermore, the import-substitution policy in the 1950s contributed to a twofold higher economic growth than what the export promotion policy contributed during the same period in the Republic of Korea (Kim and Roemer 1979, as cited in Kim 1991).

Similarly, the authors found that the export promotion policy between the periods from 1963 to 1973 contributed threefold to economic growth over what import substitution contributed during the same period. This evidence also reinforces the fact that both the import substitution and export promotion policies implemented from the early 1950s to 1970s played an important role in boosting economic growth. Most importantly, it appears that there was a feedback effect from import substitution to export promotion that augmented the total gains from trade in the Republic of Korea.

What can we learn from the trade and growth nexus in the Republic of Korea? is republished with permission from Asia Pathways

The post The Link between Outward-Looking Trade Policies and Rapid Economic Growth appeared first on Economy Watch.

Tanzania’s refusal to sign a new trade deal between the East African Community (EAC) and the European Union (EU) has generated anxious reactions. If news reports are to be believed, plans had been made for a signing ceremony to take place during the just-concluded United Nations international conference on trade in Nairobi.

Tanzania’s refusal to sign a new trade deal between the East African Community (EAC) and the European Union (EU) has generated anxious reactions. If news reports are to be believed, plans had been made for a signing ceremony to take place during the just-concluded United Nations international conference on trade in Nairobi. In the event, the Kenyan foreign minister said more time would be required to rally all the countries around the trade deal.

While opting out of the joint EU-EAC Economic Partnership Agreement, Tanzania cited the economic and constitutional uncertainties arising from British voters’ decision to leave the EU. Tanzania argued that, with the exit of its core market from the EU, it had little to gain from the partnership agreement negotiations, and that signing up would harm its “national interest”.

As much as Kenya may feel short-changed by Tanzania’s last-minute decision, it is probably an opportunity to get things right. It is important that the EAC member states take time to reflect afresh on the Economic Partnership Agreement negotiations to come out with a better deal.

The Economic Partnership Agreements are trade pacts between the EU and other regional economic blocs across Africa, the Caribbean and the Pacific (ACP). These negotiations are viewed as a build-up from the Cotonou agreement, signed in 2000 as a comprehensive engagement between the EU and the ACP. The aim was mainly to facilitate the integration of the least developed countries across these regions into the global economic network. It was also aimed at promoting regional integration, economic cooperation and good governance.

Once signed and ratified, the Economic Partnership Agreement on goods will provide the EU with free access to the EAC market for its goods in exchange for lowering tariffs on EAC exports to the EU market.

Tanzania’s move was no surprise

Tanzania’s last-minute pull-out did not come as a surprise. It appears it has been a dead weight all along in the negotiation process, which started in 2007. Brexit was merely a scapegoat to quit the negotiations, which its past regimes have approached halfheartedly.

Tanzania historically has been more inclined towards the need to , a trend from which incumbent President John Magufuli seems unwilling to break away. The most outspoken opponent of the Economic Partnership Agreement negotiations has been Benjamin Mkapa, Tanzania’s former president. Mkapa views the negotiations as potential measures of killing Tanzania’s – and by extension the EAC’s – infant industries.

However, Tanzania’s concerns are legitimate and should be taken into consideration. It’s important to note that the EU-EAC deal is basically primed on trade in goods and not services. EAC exports are mostly primary, unprocessed agricultural products and minerals. The EU, on the other hand, exports highly manufactured products and machinery into the EAC market.

Massive trade imbalance

The disadvantage of this relationship is that EAC exports to the EU are generally of low value. The foreign exchange earned is unlikely to improve the trade imbalance between the two regions, which is currently overwhelmingly in favour of the EU. In the long run the EU exports have the potential to not only undermine the manufacturing industries across the EAC region, but may also lead to the dumping of EU agricultural products in the region.

EAC agricultural products are unlikely to compete favourably given the heavy European government subsidies, coupled with highly modernised European agricultural technology. This could result in untold harm for EAC farmers and the agricultural sector, which is the backbone of EAC member states’ economies. It could also derail the manufacturing industries across the region, which depends on agricultural produce.

The Economic Partnership Agreement sounds like a raw deal for Tanzania and the EAC compared with a  that seeks to establish and nurture agro-processing and mineral industries. In contrast with the Economic Partnership Agreement, the China-brokered industrialisation programme could lead to value addition on EAC exports, making them more competitive.

Nevertheless, the EU remains an important trade partner with EAC member states. This is illustrated by the fact that in the past three years, in spite of the existing trade imbalance still in favour of the EU, the EAC export volume to the EU market has steadily been on the rise. The export trade in goods from the EAC to the EU increased from €2.2 billion in 2013 to €2.3 billion in 2014 and €2.6 billion in 2015.

Impact on future integration efforts

In the short run, Kenya will be the biggest loser if Tanzania makes good its threat not to sign the partnership agreement by October 1, 2016. Unlike its partners in the EAC, Kenya is considered a lower-middle-income country. Without the agreement, Kenyan exports would therefore be subject to at least 25% taxation across the EU market. However, exports from other EAC member states would continue enjoying the “Everything But Arms” trade arrangement with the EU.

However, in the long run the major detriment due to Tanzania’s action is likely to be the very viability of the EAC integration process. The distrust and inconsistency in the general application of agreed trade rules, norms and other agreements by member states is likely to subvert and derail efforts towards integration. As a single customs union, the EAC should require that all member states negotiate multilateral trade deals as a single bloc.

Tanzania, expected to attain middle-income status by 2025, could also lose in the long run once its nascent manufacturing industries have picked up. As a middle-income nation, it would be required to negotiate new trade deals for its exports to the EU market, just like Kenya.

Tanzania should therefore find a way to balance its current protectionist policies with the interests of its partners. This fosters continued integration and erases the notion that it is overly hell bent on undercutting Kenya’s economic dominance in the region, as some pundits in the region suggest.

Kenya may yet escape punishing tariffs in trade with the EU. A member of the EU delegation to the 14th United Nations Trade and Development Conference in Nairobi suggested new measures to offer Nairobi temporary relief. That gives the EAC member states time to negotiate and agree to a deal as a bloc.

Tanzania’s refusal to sign EU trade pact gives East Africa time to rethink is republished with permission from The Conversation

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With Brexit on the horizon, the UK must decide what kind of trade relationship it should craft with the European Union. The cases of Norway, Switzerland, Canada and other members of the WTO offer inspiration. All have varying degrees of access to the single European market, and particular rights and obligations. So how do they differ?

1. Norway

Fishing freedom. samot from www.shutterstock.com

With Brexit on the horizon, the UK must decide what kind of trade relationship it should craft with the European Union. The cases of Norway, Switzerland, Canada and other members of the WTO offer inspiration. All have varying degrees of access to the single European market, and particular rights and obligations. So how do they differ?

1. Norway

Fishing freedom. samot from www.shutterstock.com

Single market access? Yes.

Freedom of movement? Yes.

EU budget contributions? Yes: around €512m each year.

Norway is a member of the European Economic Area, which comprises EU member states, plus Iceland and Lichtenstein. Within the EEA, Norway participates in the EU’s single market, and, as such, adopts around 70 to 75% of EU legislation. This means all single market legislation other than that pertaining to fisheries and agriculture.

Such access to the single market excludes participation in the political union and in the institutional mechanisms of the EU – including the policymaking process.

Participating in the single market also means accepting the EU principles of the freedom of movement of goods, services, capital and labour. As such, EU citizens can move freely to Norway and vice-versa.

Norway has also chosen to participate in the Schengen area of passport-free movement and the EU’s “Dublin rules” for dealing with asylum claims. This is not a requirement of EEA membership, however.

In order to participate in the single market and various other EU programmes, Norway makes a contribution based on a proportion of its GDP (in the same way that EU member states do). This amounts to €447m annually for the 2014-2020 period.

The EEA agreement also includes a commitment to improving cohesion within the EEA, which are directed at the group’s poorest states. In accordance with this, Norway makes a contribution of €391m in total over the 2014-2020 period.

2. Switzerland

Swiss Fedor Selivanov from www.shutterstock.com

Single market access? Partial – subject to the agreements in place.

Freedom of movement? Yes.

EU budget contributions? Yes: around €420m a year.

In a referendum in 2014, the Swiss electorate opted not to become part of the EEA. Switzerland’s relationship with the EU is therefore not regulated by the EEA agreement, but by a complex web of more than a hundred agreements. These have been negotiated since 1972.

A bundle of agreements in 1999 guaranteed Switzerland access to the single market. This meant free trade in agriculture, removed technical trade barriers, and gave it access to public procurement projects. It also includes the free movement of people – so any EU citizen can move to Switzerland.

Another bundle of agreements in 2004 guaranteed Switzerland participation in more EU programmes, covering the media, the environment and efforts to combat fraud and tax evasion. It also included Swiss participation in the Schengen area. In 2010, another agreement was signed to guarantee Swiss participation in EU education, youth and professional training programmes.

One area where Switzerland lacks full access is in the financial services. Swiss banks lack the passporting rights that authorise them to offer services across the single market. To operate within the EU, they need to open a subsidiary in an EU member state.

For the access it does have and to participate in various EU programmes, Switzerland pays contributions to the EU budget. It also contributes to the EU’s cohesion funds to reduce economic and social disparities in new EU member states.

As well as taking a long time to negotiate, Switzerland’s bilateral agreements with the EU are subject to change. As and when the EU makes changes to its rules and regulations, new agreements are required to keep up with them.

Or the Swiss may decide they want to change one aspect of one of their agreements. In a 2014 referendum, for example, the Swiss electorate voted to restrict immigration into the country. This calls into question the existing agreement on the free movement of people between the EU and Switzerland, which will have a knock-on effect on other areas of Swiss-EU relations.

3. WTO-only

WTO. World Trade Organisation, CC BY-SA

Single market access? No.

Freedom of movement? No.

EU budget contributions? None.

Trading according to the rules of the World Trade Organisation (WTO) is the UK’s default option, if it does not secure a trade deal with the EU.

The WTO has done a great deal to lower the use of tariffs on goods across the globe through its multilateral deals. However, some are still in place.

Countries trading with the EU under WTO rules will face tariffs for agricultural products and for vehicles. For instance, motor vehicles exported from the UK to the EU would be subject to a 9.8% tariff, increasing their price. Aluminium would face a 6% tariff, and agricultural products an average of over 10%.

Non-tariff barriers also obstruct trade. These are essentially standards and regulations. They can be anything from the forms needed to export goods, to rules about what pesticides are allowed on fruits and which are not. In order to sell goods and services in a state, exporters and service providers must conform to its rules.

Therefore, under a WTO-only trade model, you have to demonstrate compliance with EU regulations for products entering the EU (unless you have an agreement recognising your standards and practices).

In a WTO-only relationship with the EU, the UK’s finance industry would lose its passporting rights, meaning banks would need to open branches in the EU to operate there. There will also be no provision for mutual recognition of professional qualifications (for example for architects, lawyers, accountants) or of each other’s regulatory bodies.

Access to the market of government procurement (such as big infrastructure construction projects) will also be more restricted. This is a significant market, with public authorities in the EU spending around 14% of GDP on the purchase of services, works and supplies.

4. Canada

Canada and the EU, in agreement. EPA/Olivier Hoslet

Single market access? No. But better than WTO-only access.

Freedom of movement? No.

EU budget contributions? None.

Over decades, the EU has built a network of preferential trade agreements with states around the world. Canada recently signed one called a Comprehensive Economic and Trade Agreement (CETA).

Once ratified, Canada will gain better access to the EU market than when it simply had a WTO relationship with the union. However, it will not have full access to the single market and so will not have full freedom of movement, nor does it contribute to the EU budget.

CETA will eliminate tariffs on most goods being traded between the EU and Canada. This includes 100% of tariffs on industrial and fisheries products, and just over 90% of tariffs on agricultural products. Products still subject to tariffs include dairy, eggs, chicken and turkey meat, however.

The agreement does not include financial passporting rights, though. In addition, while it is more open to facilitating the recognition qualifications to facilitate movement of professionals providing services across borders, it does not provide the automatic recognition that the single market does. However, increasingly trade agreements include arrangements to help the movement of service providers – including people – across borders to provide a service on a temporary basis.

The real benefit will come from a reduction of non-tariff barriers (such as simplified customs procedures), and improved access to each other’s public procurement and services markets (legal, environmental and financial services).

In terms of dealing with regulatory blocks to trade in new preferential trade agreements, this is done by each side agreeing to recognise the other’s standards or one side adopting the other’s, adopting international standards, or jointly creating new ones. For example, the ongoing negotiations between the EU and the US for a free trade agreement (TTIP), explicitly aim at regulatory convergence between the parties. This is largely why it is taking so long.

Agreements, as Canada’s does, can also include rules regulating investment, market access for foreign investors and mechanisms to resolve disputes between investors and states. All of this can have a significant impact on domestic regulation and will require a significant amount of negotiating.

Four options for UK trade after Brexit is republished with permission from The Conversation

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This weekend G20 trade ministers shall meet in Shanghai. It is an opportunity for China to pave the way for the G20 Summit in Hangzhou in September.  Led by China, G20 economies could refocus global attention to world trade and investment, even amid rising economic uncertainty, market volatility and political risk.

Indeed, one of the greatest risks the global economy is currently facing is world trade. It has not just slowed down. It has nearly collapsed. What world trade needs is aggressive, multi-front acceleration.

World trade is falling

This weekend G20 trade ministers shall meet in Shanghai. It is an opportunity for China to pave the way for the G20 Summit in Hangzhou in September.  Led by China, G20 economies could refocus global attention to world trade and investment, even amid rising economic uncertainty, market volatility and political risk.

Indeed, one of the greatest risks the global economy is currently facing is world trade. It has not just slowed down. It has nearly collapsed. What world trade needs is aggressive, multi-front acceleration.

World trade is falling

The writing has been on the wall for some time. Let’s start with the Baltic Dry Index (BDI), which provides a crude estimate of the price of moving major commodities by sea. It peaked with globalization at 11,793 points in May 2008, plunging 94 percent to just 663 points amid the global crisis. Today, it remains around 690 points.

Unfortunately, broader world trade indicators, too, suggest that world trade is barely breathing.  Last year, world trade contracted in both volume and value terms. When the G20 nations met in Antalya Turkey, last November, they had no choice but to bury the benign view that the trade slowdown was just a combination of the rising US dollar, falling commodity prices and retrenchment of supply chains involving China.

In reality, world export volumes are not just growing more slowly, but have been falling for half a decade. Manufactured exports have been declining in price since 2011.  After recovering in 2010 and early 2011, world trade ceased to grow in total value, flattened and began to fall in nominal terms after late 2014.

In part, the trend reflects the collapse of oil prices; but it is also self-induced.  The fall in the total value of global trade is concentrated in a small number of product categories, which happen to be the very same products in which the G20 has imposed proportionally more trade restrictions since early 2014.

Foreign direct investment (FDI) has been more encouraging but not immune to new headwinds. Last year, global FDI climbed 38 percent year-on-year basis to $1.8 trillion. However, it is still behind the high reached before the global financial crisis.

When these trends – rising protectionism in trade, reduced international investment, lingering migrant crises – escalated in the 1930s, the consequences were grave.

G20 could reverse risky trends of world trade

In the coming months, China is likely to encourage other G20 members to ratify the World Trade Organization’s (WTO) trade facilitation agreement by the year-end to propel world trade. As Vice-Minister of Commerce Wang Shouwen said last week, that would improve global trade environment, reduce costs of world trade, foster coordination between trade and investment policies, reinforce services trade, generate global trade indexes and foster e-commerce, and introducing trade financing.

According to the WTO, the implementation of the trade facilitation agreement has the potential to increase global merchandise exports by up to $1 trillion per year, while developing countries could capture over half of the available gains. That requires ratification by Argentina, Canada, Indonesia, Mexico, Saudi Arabia and South Africa.

From the burst of the Dotcom bubble at the turn of the 2000s to the global financial crisis in 2008-9 and the Euro crisis in early 2010, recent periods of acute financial stress have witnessed the collapse of world trade. Consequently, trade financing is vital after the UK’s Brexit referendum because, if financial markets witness new selloff periods, world trade would be hit by reduction in trade finance.

In the past few years, major central banks in advanced economies have sought to defuse these pressures by deploying record-low rates and quantitative easing (QE). However, as some are now resorting to negative rates and QE effects are diminishing, the potential for collateral damage is rising. As a result, G20’s success in energizing world trade might prove far more consequential over time.

How G20 Meeting Could Defuse the World Trade Risk is republished with permission from The Difference Group

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Talks just concluded in Auckland, New Zealand on Saturday show that plans for the Regional Comprehensive Economic Partnership (RCEP) are advancing. Just as both Hillary Clinton and Donald Trump, the next potential leaders of the Trans-Pacific Partnership’s (TPP) biggest partner—the US—have distanced themselves from the agreement. Some even suggest that the US Congress won’t ratify the TPP agreement, and warn that the world economy risks US isolationism.

Talks just concluded in Auckland, New Zealand on Saturday show that plans for the Regional Comprehensive Economic Partnership (RCEP) are advancing. Just as both Hillary Clinton and Donald Trump, the next potential leaders of the Trans-Pacific Partnership’s (TPP) biggest partner—the US—have distanced themselves from the agreement. Some even suggest that the US Congress won’t ratify the TPP agreement, and warn that the world economy risks US isolationism.

Issues still being debated at the latest RCEP talks reportedly include dispute settlement clauses, which could permit foreign investors to sue governments, opening markets for services, intellectual property, and the movement of Indian professionals within RCEP countries. Nonetheless, negotiators are still hoping to finalize the RCEP agreement in 2016.

Score one for RCEP—and its biggest partner, the People’s Republic of China (PRC)—some might say. However, the truth is that it is not a zero-sum game. The two trading blocs actually complement each other, and could end up with similar players and with similar goals in mind.

First, some Asian economies enjoy certain advantages by being party to both trading blocs. These so-called ‘overlapping members’ include four ASEAN members (Brunei, Malaysia, Singapore, and Viet Nam) as well as Japan. For instance, their companies could enjoy TPP tariff preferences when selling to the US, and from RCEP tariff preferences when buying parts and components from the PRC or India. As the tariffs are eliminated and business regulations are streamlined, the more real cost advantages there are for companies in global value chains. Moreover, if one agreement were to be derailed for some reason, the other could still be available. Asian countries thus benefit from being a party to both agreements.

Open accession characterizes both agreements, which opens the door to more overlapping members. For the RCEP, any ASEAN Free Trade Agreement (FTA) partner that was not a member of the initial negotiations could join later, provided it meets terms agreed with other participating economies. Although politically difficult, the US might even conclude an FTA with ASEAN and initiate US membership of RCEP. From Asia, the Republic of Korea, Indonesia, the Philippines, and Thailand have said they want to join the TPP.

Hope is high that the PRC and possibly India might eventually join the TPP too. In addition, this would strengthen the coverage and economic benefits of the US-led agreement, not least because PRC and India are gradually implementing long-overdue structural reforms that could further fuel economic growth. The PRC has begun reforming its state-owned enterprises by allowing mixed ownership and improving their corporate governance. Meanwhile, India is loosening its regulations on equity limits for foreign investors.

Second, there is a prospect, however slim it may seem right now, that the TPP and RCEP could be merged to form a Free Trade Agreement of Asia and the Pacific (FTAAP). At the Asia-Pacific Economic Cooperation (APEC) summit in Beijing in November 2014, leaders launched a joint study on the realization of the mooted region-wide FTA; the results of the exercise will be reported at the APEC Summit in Peru in November.

Interestingly, this collective study is being co-chaired by the PRC and the US, which bodes well for the future of Asia-Pacific trade. Negotiations for a PRC-US bilateral investment treaty are also reportedly making progress, suggesting there is common ground between the two sides on many economic issues.

The most desirable outcome would be an FTAAP that combines the TPP’s high-standard liberalization, RCEP’s special and differential treatment for developing countries , and the open accession that both have.

Of course, complementary national policies—including social safety nets, retraining workers, finance for small business, tax reform and rural infrastructure investment—are needed to help the losers from liberalized losers and create domestic support for more open market. However, if designed well, and with supporting national action, a rationalization of the region’s trade rules and effectively renders the separate TPP and RCEP redundant. This would be a good outcome for the entire world.

TPP and RCEP are not perfect, but they can unlock Asian trade liberalization and growth. Supporting open accession, an eventual Asia-Pacific FTA and complementary national policies will help achieve this end.

The imaginary campaign trail bluster on the TPP will likely diminish once a new US president takes office and the reality of continuing with a strong economic and political relationship with Asia sinks in. It is thus better that Asia thinks of TPP and RCEP as friends and not foes.

TPP and RCEP – friends not foes is republished with permission from Asia Pathways

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