Are we ready for TPP?

Last month, the Trans-Pacific Partnership formally came into being with the signing on Feb. 4 of the TPP Agreement by the 12 countries now making up the trade grouping. It all began when four small economies across the Pacific, known initially as the Pacific Four (P4)—Brunei, Chile, New Zealand and Singapore—signed an agreement in 2005 forming the Trans-Pacific Strategic Economic Partnership. It called for 90-percent reduction of all import tariffs among themselves by 2006, eventually going down to zero by 2015. The P4 agreement also covered trade in services, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, intellectual property, government procurement and competition policy. It thus moved well beyond the content of traditional free trade agreements (FTAs), opening up more areas for liberalization in subjects on which the World Trade Organization (WTO) had been having great difficulty reaching multilateral consensus.

By 2008, four additional countries—Australia, Peru, the United States and Vietnam—had joined talks with the P4, starting what was to take seven years of negotiations to eventually establish the TPP. Malaysia came on board in 2010, followed by Canada and Mexico in 2012, and Japan in 2013. Although all 12 belong to the Asia-Pacific Economic Cooperation, the TPP itself is not an initiative of the 21-member Apec, which has set the goal of establishing a free trade area of the Asia-Pacific across its member-economies.

It was the WTO’s inability to move further forward that had led countries worldwide to seek smaller FTAs, including bilateral ones, in the effort to find next-best alternatives to the multilateral trade deal. This has led to the “spaghetti bowl” (or, in the Asian context, “noodle bowl”) characterization of the way regional and bilateral trade agreements have proliferated across the globe, somewhat in lament of the WTO’s failure to achieve a comprehensive, consolidated agreement.

For its part, the Philippines sought a bilateral agreement with top trading partner Japan, and signed the Philippines-Japan Economic Partnership Agreement in 2008. More aggressive neighbors actively sought more of such bilateral agreements with other major economies, especially the United States. Subsequently, the United States declared that it was no longer entering any further bilateral trade deals, but would focus instead on the TPP (and on a similar Transatlantic Trade and Investment Partnership on its Atlantic side).

The TPP brings together a combined population of 800 million, with an aggregate GDP (gross domestic product) of $28 trillion, or 40 percent of global GDP. Together, the group accounts for $9 trillion in merchandise trade and $2 trillion in services trade, all together accounting for 30 percent of world trade, making it the world’s largest trade grouping to date. For its members, it’s a viable alternative to the seemingly unwieldy WTO, where agreement on any further advancement of the world trade agenda has remained elusive since its Doha Round of negotiations began in 2001.

For the Philippines, the TPP now represents its only opportunity to have an FTA with the United States, its other top trading partner. While it enjoys some preferential access to the US market through the GSP (Generalized System of Preferences) program, its coverage is limited and will last only until next year. The 12 TPP countries already account for half of all Philippine exports, and TPP membership would provide us the opportunity to penetrate other promising and heretofore largely untapped markets on the other side of the Pacific. I have long lamented how more aggressive Asean neighbors have outdone us in establishing stronger trade and investment presence in Latin America, where we could have long capitalized on our shared Hispanic colonial history with those countries. For us, the trade and investment creation potentials of being in the TPP will be substantial.

On the other hand, being out of the TPP poses the very real threat of losing significant business from our traditional major trade and investment partners in the TPP, especially America and Japan, to like neighbors who are already in it. Already, we hear of certain firms planning to pull out to transfer potentially thousands of jobs to Vietnam, eyeing the advantage that country would henceforth have over us in its free access to the TPP markets. Similarly, importers of our products in the major TPP markets will predictably look to shifting their sourcing of those imports to fellow TPP members. Such adverse trade and investment diversion effects will inevitably happen if we remain out of the TPP, which we must be prepared to face if we opt out of it.

But TPP membership will not be without significant challenges. Even the current members have found need to append hundreds of “side letters” to the TPP Agreement, reserving specific exceptions, mostly time-bound, from drastic policy changes it would require. Vietnam is not quite ready to allow free labor unions, for example, or Malaysia to give up its Bumiputra policy of preferential treatment to ethnic Malays. For us, constitutional barriers to foreign investments remain, and laws and rules on generic drugs, telecommunications and government procurement, among others, will be tested by TPP membership. Some will be easy to let go, as doing so would actually do us good (like opening up telecoms). But others will impinge on public welfare (like access to cheaper drugs), and will require more serious consideration.

Now is the time for a national discourse on whether we want to be a full participant in the TPP, or content ourselves with being a mere bystander.

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