TOWARDS A FAIRER AND STRONGER TPP

Transcription

1 TOWARDS A FAIRER AND STRONGER TPP

2 CPTPP: An exceptional opportunity PER CENT OF EXPORTS FACING CHINESE TARIFFS % ALABAMA PER CENT OF EXPORTS THAT GO TO CPTPP MARKET 2 41% 24.4% NEBRASKA 48% 21.9% SOUTH DAKOTA 46% 20.7% IOWA 51% 19.8% LOUISIANA 28% 18.3% KANSAS 46% 18.2% DELAWARE 19% 17.4% SOUTH CAROLINA 30% 14.4% MISSOURI 53% 11.1% COLORADO 47% CANADA JAPAN UNITED STATES MALAYSIA SINGAPORE VIETNAM BRUNEI CPTPP: AN OPPORTUNITY TO ELIMINATE UP TO 18,000 TARIFFS ON MADE-IN-AMERICA EXPORTS MEXICO PERU AUSTRALIA CHILE NEW ZEALAND

3 Executive summary The recently signed Comprehensive and Progressive Agreement for the Trans- Pacific Partnership (CPTPP), the latest version of the Trans-Pacific Partnership (TPP), presents the United States with a tremendous opportunity. Using the CPTPP, the United States can join like-minded partners in establishing rules which limit unfair trade practices by international competitors, including China. The CPTPP could also level the playing field for American workers and businesses, providing unprecedented access to Asian markets by lowering thousands of tariffs levied on US exports to CPTPP member markets, constituting 45 per cent of US merchandise exports. The removal of these tariffs will provide massive growth opportunities to the US economy. The original TPP was projected to grow the US services sector by US$42.3 billion and US agriculture output by US$10 billion following adoption. Joining the CPTPP will both complement the robust turn in US trade policy towards China and potentially offset the consequences of retaliatory tariffs imposed by China against the United States. US membership and leadership of the CPTPP operationalizes the broader strategic agenda laid out in US doctrinal statements such as the National Security Strategy and National Defense Strategy. The CPTPP drops some provisions from the TPP that were included at the insistence of the United States, leading to two challenges: Economic modeling of the TPP benefits to the United States are out of date. With negotiations having concluded among the remaining 11 countries that make up the CPTPP, creativity and flexibility will be required to find a set of amendments that can be considered wins by both the CPTPP signatories and the United States. Ultimately, the United States participating in a living and breathing trade agreement like CPTPP would cement America s status as a leader and rule-maker in the global economy. 1. Brookings Institution analysis 2. The Trade Partnership analysis

4 The economic and strategic opportunities of US inclusion in the CPTPP 1 Unprecedented market access The CPTPP reduces trade tariffs some as high as 100 per cent in a range of important sectors. The 11 countries that currently make up the CPTPP market are the largest single destination for US exports, accounting for 45 per cent of all merchandise exports in These include US$69 billion of agriculture, US$184 billion of services and US$186 billion of high-tech manufacturing. For 17 US states, including Pennsylvania, Wisconsin, and Michigan, around half or more of their exports go to the CPTPP market. The CPTPP offers US firms new market access opportunities in these important markets, particularly Japan. If the United States turns down this opportunity, major competitors will enjoy preferential market access and US exporters could lose current market shares in key CPTPP markets to nations like Australia, Canada, and Mexico. 2 Access to investment protections for US firms operating in CPTPP markets Combining both mature developed markets (Japan, Canada, Singapore, and Australia) with high-growth developing economies (Mexico, Malaysia, and Vietnam), the CPTPP signatories are an attractive group of countries for foreign investment. US firms currently hold US$1 trillion of assets in the CPTPP countries, accounting for 20 per cent of total foreign investment stocks abroad. Only the EU is a larger destination for US foreign investment. The CPTPP includes high-standard investment rules, which protect firms against the sort of sovereign risk that is common in the region. Regulatory provisions covering telecommunications, e-commerce, government procurement, financial services, and intellectual property will also improve the regulatory environment for foreign firms operating in CPTPP markets. US absence from the CPTPP deprives American firms these investment protections and limits growth in some of Asia s fastest growing industrial and consumer markets.

5 3 Institutionalize a set of US-preferred trade and investment rules The CPTPP provisions commit signatories to fair and transparent policy regimes in areas that dramatically improve upon global standards, including: e-commerce, telecommunications, intellectual property, services, state-owned enterprises and environmental and labor standards. These provisions are highly favorable to developed, service- and technology-based economies such as the United States. However, the prospects for the CPTPP to institutionalize these rules into the global economic architecture depend upon the economic weight of its membership. US absence from the CPTPP reduces its potential size from 38 to 13 per cent of global GDP, and from 25 to 16 per cent of global trade. At its present size, the 11 countries that make up the CPTPP lack the heft to have these rules embedded into the global trade architecture. EXPORTS AND JOBS SUPPORTED BY EXPORTS TO THE CPTPP MARKET OR 46% 190k CA 42% 1,900k AK 35% 34k WA 31% 349k NV 30% 139k ID 50% 76k AZ 60% 293k UT 30% 150k MT 40% 53k HI 58% 76k WY 56% 28k NM 49% 85k CO 47% 283k ND 64% 43k SD 46% 49k NE 48% 109k KS 46% 152k TX 55% 1,200k OK 51% 160k MN 46% 304k IA 51% 170k MO 53% 310k AR 37% 131k LA 28% 207k WI 56% 304k IL 55% 647k MS 37% 129k MI 70% 436k IN 55% 300k TN 55% 318k AL 41% 211k KY 45% 196k VT 61% 36k OH 59% 561k GA 37% 488k WV 35% 72k PA 49% 633k VA 38% 427k SC 30% 219k NH 35% 72k FL 22% 942k NY 25% 1,000k NC 42%/478k ME 67% 69k MA 34% 384k RI 39% 53k CT 29% 196k NJ 36% 454k DE 19% 48k MD 31% 307k For each state, the first number indicates per cent of exports bound for CPTPP countries. <30% 30-39% 40-49% >50% The second number indicates number of jobs supported by trade with CPTPP countries. Source: The Trade Partnership analysis

6 4 Shape the future development of the CPTPP The CPTPP is explicitly designed as a living agreement, intended to grow in both membership and regulatory scope. This growth will be driven by the size-pull effect of trade agreements, where the preferential advantages of membership encourage new states to join and new provisions to be added. While the United States remains out of the CPTPP, it cannot influence the direction of this growth. The United States will be unable to use the CPTPP as a platform for further liberalizing reforms (particularly in the knowledge and digital economy spaces); nor support the expansion of the CPTPP to include further key trade partners in Asia (including Korea, Indonesia, and potentially even China). In the absence of US leadership, the CPTPP is less likely to be compatible with US economic interests. US MERCHANDISE EXPORTS BY DESTINATION, 2016 (US$ billions) US OUTWARD FDI STOCKS BY DESTINATION, 2016 (US$ billions) CPTPP countries Europe Other Asia Rest of the world Source: UNCTADStat Database and BEA International Economic Accounts

7 5 Challenge lower-standard, China-led models for economic cooperation China is offering the world a lower-standard model for trade liberalization. While the United States is absent from the CPTPP, it becomes more likely that the China-backed Regional Comprehensive Economic Partnership (RCEP) will become the new model for Asia s regional trade architecture. RCEP offers a lower-ambition approach to trade liberalization and lacks most of the CPTPP s regulatory provisions. Yet RCEP s membership totals 31 per cent of global GDP more than twice the size of the CPTPP group. RCEP negotiations are yet to conclude. But its size-pull effect will be significantly greater than that of the CPTPP. The prospect of a US-led TPP caused senior Chinese officials to openly consider improving its trade practices and joining such a regime in A US-led CPTPP would put significant pressure on China to improve its trade practices. 6 Complement the robust turn in US trade policy with respect to China The Trump administration has announced its intention to levy tariffs on Chinese imports, with significant retaliatory tariffs on US exports to China expected to follow. Many US exporters could bear the cost of operationalizing a more robust strategy targeting Beijing s unfair trade and investment policies, with the currently proposed Chinese retaliatory tariffs on the United States expected to impact 20 per cent or more of exports for states like Alabama, Iowa, and Nebraska. Joining CPTPP would further American strategic goals with respect to China and provide new market opportunities if the Chinese market becomes increasingly difficult for US firms. The CPTPP allows the United States to: offset some of the costs that China-exposed sectors will face in the event of Chinese retaliatory tariffs pressure mercantilist economies like China to play by the rules gain access to unprecedented new markets that have never been open to US exporters grow critical US sectors like agriculture, an industry critical to the American heartland, and services, which is responsible for four out of five American jobs.

8 Potential pathways for US accession to the CPTPP US membership in the CPTPP remains a possibility While the bridging CPTPP agreement suspends the accession mechanism of the original TPP agreement, it replaces it with a simplified accession mechanism of its own. This allows any state to apply for membership, subject to terms negotiated with the other members, following the entry into force of the treaty. Assuming CPTPP ratification proceeds smoothly, the US government could therefore approach the CPTPP group to commence accession negotiations as early as late Encouragingly, the CPTPP retains most of the regulatory provisions from the original agreement Following US withdrawal from the TPP, the remaining 11 members agreed to suspend several regulatory provisions which had been included at the insistence of US negotiators. These suspensions are concentrated in the area of intellectual property (IP), and remove protection for biologics, technological protection mechanisms and digital rights management, the safe harbor framework for internet service providers, and a stronger copyright standard. However, the majority of the TPP s rules that significantly improve upon the global standards including several US-requested provisions for labor standards, state-owned enterprises and ISDS remain in the CPTPP. The minimalist nature of the suspensions lowers the negotiating bar for any US re-admission to the agreement. US EXPORTS BY SECTOR AND DESTINATION, Rest of the world 60 Europe 40 Other APEC China 20 CPTPP countries 0 Agricultural Minerals, energy & chemicals Low-tech manufactures Medium-tech manufactures High-tech manufactures Services Source: UNCTADStat Database

9 A number of factors will complicate prospective US membership: 1. The CPTPP does not include the snapback provision, under which all suspended content would be automatically reinstated upon US readmission. As per CPTPP Article 2, any decision to remove suspensions must be negotiated by consensus amongst the membership. With the United States now an applicant rather than a founding member, it is unlikely the remaining group will return to all of the originally-agreed positions. Additionally, a range of further carve-outs have been implemented through a complex set of bilateral side letters. These will be complex to disentangle, and would not be subject to renegotiation under CPTPP Article The CPTPP accession clause is less detailed than the original TPP s and does not specify procedures by which negotiations should be conducted. Accession negotiations will be doublycomplex, not only over the terms for US membership, but also over the rules of the accession process itself. Negotiating procedural and substantive matters at the same time opens space for vetoes. 3. While less than anticipated, the CPTPP suspensions still touch on core interests for the United States. Key amongst these are the suspended IP provisions, which are a key interest for US corporates and were arguably the most important US negotiating point in the original agreement. It remains to be seen what could be achieved on IP. A weak IP outcome will struggle to gain support through Congress, while a strong IP outcome will be difficult to achieve under circumstances of seeking re-admission. 4. A US accession to the CPTPP is unlikely under the Trump administration s present trade policy orientation. The president s messaging has indicated a better deal would have to be offered before the United States could join the CPTPP. It remains unclear what this might entail; and the CPTPP members are very unlikely to agree to the trade-balancing type measures currently favored by the president and USTR. Creative, outside the box thinking about alternative dimensions on which to negotiate should be encouraged. Are there national security and/ or infrastructure investment arrangements among the CPTPP and the United States on which a mutual win can be engineered?

10 CURRENT MAXIMUM TARIFFS ON US AGRICULTURAL EXPORTS TO THE CPTPP MARKET Agricultural items Value of exports to CPTPP countries Current maximum tariffs on US in CPTPP market Apples $0.6B 17% Beef & beef Citrus fruits & juices $3.9B 50% $0.9B 43% Cotton $1B 10% Corn & corn Dairy & dairy $6.1B 40% $3.6B 35% Feeds and fodder $3.4B 35.8% Fresh fruits $3.1B 40% Fresh & processed vegetables $5B 90% Hides & skins $0.45B 30% Potatoes & potato $1B 34% Pork & pork $4.7B 25% in Vietnam >300% in Japan Poultry $2.7B 40% Rice $0.8B 778% (over quota tariffs) Soybeans & soybean $5.5B 30% Tree nuts $1.8B 30% Wine $0.58B 55% Wheat $2.2B 31%

11 CURRENT MAXIMUM TARIFFS ON US MANUFACTURED GOODS EXPORTS TO THE CPTPP MARKET Manufactured goods Value of exports to CPTPP countries Current maximum tariffs on US in CPTPP market Automotive $88B 70% Building $29B 60% Chemicals $76B 35% Consumer goods $20B 75% Fish & fish $2.1B 35% Footwear $0.37B >100% Forest $17.4B 40% High-tech instruments Infrastructure $10.4B 25% $14.3B 30% ICT technologies $36B 35% Metals & ores $42B 35% Machinery $54B 70% Textiles $10.5B 100% Minerals & fuels $73B 30% Amounts in US$ Source: 2015 USTR data

12 This report was prepared at the request of the American Australian Association Ltd. The Association provides support to both the United States Studies Centre at the University of Sydney and the Perth USAsia Centre at The University of Western Australia. Authors Professor Simon Jackman Chief Executive Officer, United States Studies Centre at the University of Sydney Dr Jeffrey Wilson Head of Research, Perth USAsia Centre at The University of Western Australia United States Studies Centre Institute Building (H03) The University of Sydney NSW 2006 Australia T: E: us-studies@sydney.edu.au W: ussc.edu.au Perth USAsia Centre Old Economics Building (Bldg 351) The University of Western Australia 35 Stirling Highway Crawley WA 6009 Australia T: E: perthusasiacentre@uwa.edu.au W: perthusasia.edu.au