THE Trans-Pacific Partnership (TPP) seemed to have died when President Donald Trump pulled the United States out of the agreement early last year.
But the remaining 11 members, including Malaysia, have salvaged the situation and kept the deal almost intact. The new agreement will be signed on March 8 in Chile.
Last week, the text of the treaty was released. Originally nicknamed the TPP11, it is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The old TPP had been pushed along most adamantly by the United States before Trump became president, with Japan as the next biggest advocate.
They succeeded in getting controversial chapters and provisions on investment, government procurement, state-owned enterprises (SOEs), intellectual property (IP) and e-commerce into the TPP text.
For the developing countries in TPP such as Malaysia, Vietnam, Singapore, Brunei, Peru and Chile, the attraction was to get more open markets for their exports, especially to the United States.
With the United States now out, the main benefit of being in the partnership is lost.
The developing countries generally disliked the TPP’s other aspects, especially those relating to procurement, SOEs and IP, as these intrude into their domestic arena and seriously restrict what policies they can retain or introduce. But they were willing to swallow these in exchange for more exports to the United States and other TPP countries.
The cost-benefit balance has now shifted. The potential benefits have been reduced, but the costs remain as long as the controversial issues are retained.
The CPTPP text shows that 22 provisions (out of the total of over 1,000) of the TPP have been “suspended”, rather than removed. This is in anticipation that the United States might return. The chances of that are quite good, as Trump announced in Davos that the United States may reconsider its decision to withdraw.
If the United States rejoins, the suspended provisions would make a comeback and the CPTPP would in effect become the TPP again.
The suspensions are mainly in the IP chapter. Some of the extreme clauses that the United States insisted on (but which many others were unhappy over) will not come into effect in the CPTPP.
Among these suspended provisions are some that adversely affect access to medicines. For example, the TPP countries are obliged to allow patents for a second use of a medicine and for new methods for using a medicine. They must also allow an extension of a patent term if there are delays in granting a patent for a new medicine.
But some other TPP provisions on IP remain. In particular, countries must join an international treaty known as UPOV (International Union for the Protection of New Varieties of Plants), under which farmers will not be able to save and exchange seeds that are protected, but have to buy new seeds for new planting of crops.
Most other suspensions are of minor importance, and much of the original TPP has been kept. The most problematic issues retained in the CPTPP include:
> Investment liberalisation: Countries have to open up to other CPTPP members’ companies and investors. They could take over the business of some domestic producers and service providers;
> Investor protection: Foreign investors can bring a host government to an international tribunal for loss of present and future profits or value of assets if the government introduces new economic, social or environmental policies that affect their business or even their business expectations;
> Government procurement: The governments of most developing countries, including Malaysia, give preferential treatment to local companies when granting projects and purchasing materials and services. This boost to the local firms and the economy would be eroded when foreign firms have to be given equal treatment in government procurement under the CPTPP;
> SOEs: In many countries, including Malaysia, SOEs play multiple significant economic and social roles. Under the CPTPP, these roles will be much constrained by new rules that prohibit or make it more difficult for SOEs to obtain financing or preferential treatment from the government, and prevent SOEs from giving preferential treatment (for example in their procurement) to local firms. The aim is to enable foreign companies to better compete with the SOEs; and
> Intellectual property: Despite some provisions being suspended, the CPTPP has remaining clauses that can have negative effects such as higher costs for medicines, educational materials and farm inputs.
Policy makers should have done new cost-benefit analyses of the CPTPP, especially since the main TPP benefit – the opening of the US market – is not in the CPTPP.
Would it really be worthwhile losing so much policy space (that is, the ability and freedom of a country to formulate its own policies in accordance with its own priorities and national goals), to gain new but limited export opportunities?
This question is made more pertinent because of two factors.
One, the new opportunities are limited because of the absence of the biggest player, the United States.
Two, the extra exports are offset by inflow of new imports, so that the gains may be meagre, or even negative if the extra imports exceed the extra exports.
But then, some decisions, including whether to join a trade agreement, are made without careful study. Or if such a study is done, its conclusions may be overridden by other factors, such as geopolitics or something unknown to the public.
Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.
Did you find this article insightful?