Global Trends by Martin Khor

Monday 29 August 2016

What if the US fails to ratify TPP?

The United States may or may not ratify the Trans Pacific Partnership. How should other TPP countries like Malaysia respond when the American political dynamics unfolds?


My last column on the Trans Pacific Partnership being caught up in the United States presidential election dynamics (Global Trends 15 August) received several responses.

I had raised the possibility that the TPP, already signed by 12 countries, might falter at the last stage of ratification by Congress because the TPP has become very unpopular in the US. 

President Barrack Obama must try to get a TPP bill passed during the “lame duck” Congress session between November and January, but there are doubts he will have enough votes.

A good American friend of mine who closely follows Congress politics read my article and had this response:   

“I would say the chances of the TPP being rejected are 50 to 60 per cent.   However, one can never discount what can happen in a lame duck session, especially if a lot of House incumbents lose their seats and so start thinking about their next job rather than being accountable to voters at home who are against the TPP.   But right now they do not have the votes by a good margin.”

Another friend, who is Asian, has another view.   “My take on TPP is that eventually it will get passed by the US Congress, if not now then within a couple of years.”

Yet another colleague seems to share this view.   “It is a mystery why the US President is so keen to have it through against so much opposition. Perhaps the corporate lobby groups are very strong.

“If so, they are likely to prevail upon the dissenting politicians. Thus the US President is likely to have a battery of fighters on his side. Perhaps with some sops thrown here and there, the opposition of the politicians may melt down, particularly after the dust settles post-election.”

Obama is certainly going all out to get the TPP ratified.  A New York Times article on 22 August says the President is preparing one final push for approval and he may yet win because of his alliance with Republicans who control Congress.

According to the article, many of his Cabinet members, including Secretary of State John Kerry and Defence Secretary Ashton Carter, two former Admirals, and many business and farm leaders are geared up to go on road shows throughout the country.

On the other hand, many trade unions, environmental and health organisations, are also planning a big nationwide campaign to get candidates for Congress to pledge they will vote against the TPP.   It will be a fierce fight.

The other countries that have signed the TPPA, Malaysia included, should prepare to respond to what happens in the US.

Most likely, the US will try to persuade some of its TPP partners to take on additional obligations to satisfy the demands of its Congress members.

The US can try to achieve this through introducing new bilateral side agreements on specific issues with specific countries. 

It can also make use of the “certification process” in which the US administration has to certify that each of its TPP partners has taken measures to meet its TPP obligations and is thus eligible to enjoy the TPP benefits provided by US.

In previous FTAs, the US has put pressure on countries to take on extra obligations beyond what their FTA requires.  It can again make use of this certification process to obtain some TPP-plus commitments from its partners. 

It can then show Congress members that what they want from the TPP has been effectively achieved, even if these are not inside the TPP text.

The other TPP countries have already taken on very heavy obligations under the agreed TPPA.  It would be very unfair to ask them to undertake even more obligations, which would adversely affect the balance of costs and benefits of the TPP for them.  

“It will be a real debacle for the other signatory countries if the US insists on additional commitments through bilateral protocols,” says Bhagirath Lal Das, an international trade expert based in India.

“The US has adopted this strategy several times in the past. For example, in its bilateral trade agreement with South Korea, the US Congress insisted on renegotiation of some parts before ratification.

“Thus often we have seen that negotiating with the US is in two layers: once with the negotiators from the Administration and then indirectly with the US Congress.  This is unfair.”

Finally, all the TPP countries are already preparing changes to their domestic laws, regulations and policies, in order to comply with the TPPA.  Malaysia for example will have to make almost 30 changes to its laws.

In many cases, these changes are to the detriment of these countries, especially in the area of intellectual property, which will affect access to affordable medicines, access to information, and the ability of farmers to save seeds.

The TPP countries  agreed to these changes in exchange for the perceived benefits they will obtain from other parts of the TPPA, especially more market access for their exports.

However, if the TPPA does not come into force because of the failure of the US to ratify, it would not make sense to introduce those new policies and laws that are not beneficial. 

Therefore the countries should protect their interests by having these measures come into force only after the TPPA itself comes into force, and not before. 

Even if legislation is prepared and introduced, in order to prepare for compliance with the TPPA, these laws could contain the provision that they will come into force only if and when the TPPA itself comes into force, or upon completion of the implementation period of the TPPA. 

Adopting this strategy is only being pragmatic.  Once a country adopts laws to implement its TPP commitments, it may be difficult to roll them back.  Thus, the country may suffer the adverse effects of the TPP even if the TPP does not come into force, and meanwhile it does not get to enjoy the benefits of more market access.