The Trans-Pacific Partnership (TPP) was hailed as a visionary trade deal — connecting economies across the world as far as Japan and Chile, and pushing forward high standards on labour and the environment and removal of non-tariff barriers to trade. Yet political developments have meant the TPP as agreed cannot be implemented. President Trump announced the withdrawal of the United States from the TPP in January 2017. As currently drafted, the TPP requires 85% of the parties’ GDP for implementation and the 85% threshold cannot be met without the United States.

The United States withdrawal from the TPP has left a vacuum in global trade leadership. However, Asia Pacific is not standing still and waiting for the United States to implement its “free but fair trade” trade policy agenda. There have been significant movements forward for free trade in Asia Pacific without the United States.

TPP-11

Among other things in the region, a TPP-11 deal appears to be on the horizon. However, New Zealand’s recent domestic political change may have a large impact on whether the TPP-11 will be successful.

The TPP-11 economies (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) are due to meet in Da Nang, Vietnam, in early November 2017 to attend the Asia-Pacific Economic Cooperation (APEC) Summit. There, they are expected to release an announcement on the status of the deal. In previous meetings, with Japanese support, Vietnamese officials raised the prospect of changes to labour rights and IP provisions. Japan hopes that by passing the TPP-11, the United States will return and re-join the deal.

New Zealand’s recently formed coalition government led by Prime Minister Jacinda Ardern initially raised doubts on New Zealand’s participation in TPP-11. During the election campaign, Ardern argued that the deal had insufficient limits on foreign ownership of housing and land. Yet, since Ardern took office, she has softened her stance — citing the importance of New Zealand’s dairy industry enjoying greater access to global markets. The prospect of a TPP-11 has certainly brightened.

RCEP and China

The TPP is most commonly compared to the Regional Comprehensive Economic Partnership (RCEP) because there are many overlapping economies between both trade deals. The RCEP was originally an ASEAN (Association of Southeast Asian Nations) led initiative and driven by the ASEAN trade bloc. The ten ASEAN member states are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. China has now leveraged the deal to demonstrate its growing leadership in the region. Yet policymakers opine that both agreements, the TPP and the RCEP, are in fact two complementary pathways towards realising the larger vision of the Free Trade Area Of Asia Pacific (FTAAP). The FTAAP is a long-term goal to connect countries on the Pacific Rim — from China, Chile, and all the way to the United States, into one big free trade area that would generate economic growth at rates larger than the sum of each agreement on its own.

RCEP largely focusses on consolidating the existing trade agreements that ASEAN has with its partners, aka ASEAN +1 — Australia, China, India, Japan, New Zealand, and the Republic of Korea. However, the RCEP negotiations have been slow to progress, with India resisting pressure to meet tariff elimination targets. Negotiators have announced that they will abandon their initial end of 2017 deadline to reach an agreement on the trade pact. Yet the convergence of interests amongst ASEAN member states, along with a few partners, constitute a strong core committed to realising this agreement and it is known as the alternative to the TPP in the region.

ASEAN-Hong Kong FTA

Among ASEAN nations and the other Asia Pacific nations, there are numerous Free Trade Agreements (FTAs). One of the latest is between Hong Kong and ASEAN, due to be signed at the next ASEAN Summit in Manilla, Philippines in November 2017.

While ASEAN has had an FTA with China since 2010, Hong Kong is not a party to that agreement. Sitting as a separate customs jurisdiction, Hong Kong is an independent member of the World Trade Organisation (WTO), and concludes international trade agreements in its own right. The ASEAN – Hong Kong FTA will be Hong Kong’s fifth the others being with Chile, New Zealand, the EU, as well as an independent agreement with the Chinese Mainland.

The ASEAN-Hong Kong FTA will likely cover elements related to trade in goods and related issues such as tariffs, rules of origin, non-tariff measures, customs procedures, trade facilitation, trade remedies, as well as technical barriers to trade. It will also be accompanied by an investment agreement. Specific details of the agreements have not been released.

The FTA will be a welcome boost in facilitating trade between Hong Kong and the various ASEAN member states. Since Hong Kong is already a free port, the FTA will be a boost to Hong Kong businesses exporting goods and services to ASEAN. According to the Hong Kong Government’s Trade and Industry Department’s website, ASEAN was Hong Kong’s second largest trading partner in merchandise trade in 2016 and the fourth largest in services trade in 2015. ASEAN was also ranked the sixth among Hong Kong’s destinations of outward direct investment, and ranked the sixth among Hong Kong’s sources of inward direct investment.

JEEPA

Europe and Japan are also not waiting to fill in the gap created by the United States’ withdraw from the TPP. Japan and the European Union (EU) recently concluded the Japan-EU Economic Partnership Agreement (JEEPA) with an in-principle agreement. JEEPA aims to boost trade in goods and services and open up investment between the EU and Japan. Important aspects of JEEPA include a reduction in tariffs on goods such as, but not limited to, agricultural food products including cheese, pork, beef, processed agriculture products, textiles, and shoes imported from the EU into Japan as well as a reduction on tariffs on Japanese cars imported into EU.

Another important aspect of the deal is the elimination of non-tariff barriers such as the alignment of product safety and environmental standards applicable to motor vehicles, quality standards applicable to medical devices, textile labelling and more. As many of today’s restraints on free trade come from non-tariff barriers, JEEPA provides a step forward to opening trade between two significant economies that make up nearly 30 percent of the global economy, 10 percent of the world’s population and 40 percent of global trade.

Vietnam-EU

Negotiations on the EU-Vietnam FTA have been concluded and both parties are now reviewing the legal text, with subsequent translation into Vietnamese and all official EU languages. Parties are expecting the agreement to be ratified by all member countries by early 2018, with the agreement coming into force in 2019. This is the second FTA the EU will have with an ASEAN country, the other being the EU-Singapore agreement. The agreement covers a wide range of subject matter, ranging from decreasing tariffs for trade in goods, customs and trade facilitation, rules of origin, and intellectual property rights. The FTA seeks to enlarge Vietnam as a market for, amongst others, car exports, pharmaceutical products, and alcoholic beverages.

TFA and AEC

The WTO’s Trade Facilitation Agreement (TFA), signed by more than two thirds of WTO member states came into effect in February 2017, and aims to improve cross-border trade processes, such as, but not limited to, advance customs rulings procedures, publication of customs rulings, and expedited clearance of goods.

In line with the WTO’s efforts, alongside efforts in building upon the ASEAN Economic Community (AEC), ASEAN has placed trade facilitation at the very core of its commitment to market integration as well as the establishment of the ASEAN Economic Community. In March 2017 this year, ASEAN Economic Ministers set the target to reduce 10% of trade transaction costs by 2020. Web-based platforms have been put in place, with the ASEAN Trade Repository (ATR) as a one-stop online database on ASEAN trade and customs-related information. Linked to the ATR is the ASEAN Tariff Finder, a cost-free search engine for tariff and tariff related information under ASEAN and ASEAN +1 free trade agreements (FTAs). Another initiative is the ASEAN Solutions for Investments, Services and Trade (ASSIST), which is now fully operational. ASSIST is a non-binding and consultative mechanism for expedited solutions to operational problems on cross-border issues related to the implementation of ASEAN economic agreements.

Continuing on with FTAs

Progress continues to be made on negotiating several other bilateral and multilateral trade agreements with parties in the region. Notably this includes the Trade in Services Agreement (TiSA) which reflects the growing importance to economies of trade in services and in particular market access. The TiSA parties comprise Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, EU, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Republic of Korea, Switzerland, Turkey and the United States.

Despite all the drama with the TPP and current obstacles to its implementation, parties in the region continue to show interest in generating growth opportunities by concluding FTAs with each other. For example in May 2017 Australia and Hong Kong launched negotiations for an FTA.

So while the United States has most recently committed to engagement in the region as demonstrated by President Trump’s visit to the November 2017 APEC meeting in Vietnam and other Asia Pacific nations, the progress with these other multilateral free trade deals may create some hurdles for the United States’ free and fair trade policy agenda. We will be watching closely to see how these trade deals will impact businesses operating in Asia.