Crossroads (Toward Philippine economic and social progress)
Philippine Star, 14 October 2015


Last week, 12 nations in the Asia and Pacific region concluded a major treaty on trade and investment. This agreement is likely to be of far-reaching impact for the member countries of the group known as the Trans-Pacific Partnership.

The agreement still has to be ratified by the respective contracting parties before becoming effective. One uncertainty still looms: the TPP ratification will likely become an important issue in the forthcoming US presidential election.

In the following, I will give a backgrounder on the TPP. I will discuss in a later column how the TPP might affect Philippine trade aspirations as well as those of other Asean countries that are not, for the moment, members of TPP.

WTO and elusive solutions to problems of world trade. Since its founding in 1994, the WTO has succeeded in stabilizing world trade rules. However, it has not been able to solve some outstanding issues of trade that have remained contentious over time and difficult of settlement on a multilateral basis.

A deep divide still exists among different countries on many sensitive questions of trade policy. Later rounds of negotiations to solve these problems of trade have failed. They have left hanging the solutions to these trade issues to bilateral and regional trade agreements.

Perhaps a limited arrangements among fewer members of WTO could work out practical solutions among themselves. This was the logic of taking cognizance of bilateral and regional trade agreements as being part of the WTO system of rules of trade and tariff relations among countries.

The limit of bilateral and regional trade agreements in approaching solutions to trade issues. Asean’s free trade agreement has evolved from an agreement among the member states to reduce tariffs progressively within WTO’s rules of trade. When Asean got established, many trading countries started to notice its significance and had sought means of bilateral agreements as well as dialogues on the facilitation of trade and investment with it.

The Asean plus 1 concept has allowed further progress in expanding concrete moves that include important trading partners. To date, this framework has led to discussions between Asean and, separately, with China, Japan, the United States, Australia-New Zealand, and South Korea.

Also, to pursue their separate interests, some countries on their own initiative undertake to negotiate bilateral trade agreements to enhance mutual trade with other countries.

These arrangements, of course, create additional demands on their own respective trade bureaucracies and complicate the trade rules they work with as more bilateral trade treaties are concluded.

The Asean will remain a viable trade cooperation institution that has promise of sustaining itself toward excellent achievements. But dealing with each and every important economic power and negotiating arrangements might strain its capacity.

There is a limit to these expanding individual country arrangements. They strain individual governments and their own negotiating bureaucracies. Finally, the administrative resources to implement the build-up of extreme trade details impose on their own limited absorptive capacities.

Such limitations would encourage the development of mega trade agreements that are able to include memberships that cut across a wide range of countries with diverse income levels. Also, geographical proximity of countries need no longer be the idea behind regional groupings.

How TPP evolved. Unlike earlier groupings of countries that are tightly knit based on income, the TPP started as a discussion group within a bigger group of countries located along the Asia and Pacific rim.

It began as an informal cluster of academics and former policy makers discussing how to improve economic cooperation among these countries situated along the rim of Asia and the Pacific Ocean.

The meetings were encouraged by the advanced economies of the region, Japan, Australia and the United States. Academics and former policy makers from all interested countries in the region were encouraged to participate.

Later, government policy makers were brought to participate in the exchange of views. Eventually, the most committed countries began working out treaty arrangements involving their officials.

The advanced economies of this region – Japan, Australia, and the United States – were traditionally strong trading nations to the world. The developing economies in the region have progressed within the framework of open economies. This is the area of the East Asian miracle countries. Also, it is the home of Asean economies which are generally open economies on their own.

Under encouragement by the advanced countries especially the United States, four small countries in the region – Brunei, Singapore, New Zealand and Chile – formed themselves in 2006 into the Trans-Pacific Strategic Partnership Agreement.

In 2008, the United States, Australia, Peru and Vietnam joined in and the grouping was renamed Trans-Pacific Partnership (TPP). This group had expanded further to include Malaysia (2010) and Mexico and Canada (2012).

When Japan formally joined to become the 12th member in 2013, TPP’s economic weight gained much clout and strategic significance. These 12 countries represent those that signed the TPP trade treaty.

The TPP expands the nature of trading opportunities among the member countries arising from the reduction of trade barriers among themselves to include the trade in services, certain rules governing labor and environmental standards, and the protection of intellectual property.

These factors might look to benefit only the more highly advanced economies. The poorer trading economies, however, seek market access into these high income economies in order to accelerate their own economic growth, expand their industries and reduce poverty more quickly.

In forging the TPP agreement, the members could not fully satisfy their own economic interests. Even the highly developed countries in the group had their differences in wants and could secure what they wanted.

An element of compromise had to be made whenever critical issues came in the way. In much wider multilateral forums, stalemates and gridlock would have come about.

Some of the unsettled contentious concerns in world trade deal with agricultural protection, the protection of property rights especially stemming from the issue of trade in pharmaceuticals (a very sensitive subject among the highly developed countries), and the trade in services, employment and environmental standards. TPP has been able to address them.

No country could claim triumph in getting all they want in negotiations. There are acceptable compromises to be made. With fewer countries involved in the set, the contentious issues do not reach extreme proportions. It is possible to come to agreement within the spirit of compromise.