A return to the TPP, now known as the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), would provide an immediate boost to U.S. economic competitiveness and geopolitical influence. It would also help ensure that the United States features prominently in regional supply chain decisions. However, many concerns about the original TPP are legitimate and U.S. trade policy views have shifted since the agreement was concluded. This calls into question whether the United States could ever muster the political support necessary to join the current agreement.

In light of this dynamic, this paper attempts to shift the conversation away from a binary choice between rejoining the agreement as it exists or staying away. Rather, we focus on whether it is possible to modify the CPTPP to meet our economic interests and facilitate potential U.S. reentry. To develop our recommendations, we engaged in extensive consultations over the past year with a broad range of trade experts, domestic stakeholders, and CPTPP members. We were also inspired by the bipartisan support for the United States–Mexico–Canada Agreement (USMCA), which was itself a renegotiation of a previously unpopular agreement, as well as the important work underway on the U.S.-led IndoPacific Economic Framework (IPEF).

To help start a meaningful conversation about potential CPTPP reentry, we suggest 12 areas for potential updates or improvements:

1. Improve CPTPP rules of origin, especially on autos and trucks.
2. Strengthen labor provisions to ensure a level playing field.
3. Bolster provisions to better protect the environment.
4. Modernize rules to address anticompetitive behavior from non market economies.
5. Strengthen provisions to combat currency manipulation.
6. Adopt a targeted approach to investor-state dispute settlement obligations..
7. Apply a flexible approach to government procurement rules.
8. Modernize rules to reflect advancements in digital trade and promote digital inclusiveness.
9. Enhance fairness in intellectual property rights protection and enforcement.
10. Embed supply chain security and resilience into the agreement as a new chapter.
11. Adopt collective approaches to address economic coercion.
12. Incentivize members to review and improve the agreement over time.

We believe that a revised CPTPP that includes these changes is worth considering as a means to bolster our international competitiveness, protect our economic and national security interests, promote our values and norms, and shape the rules that will govern trade and investment for years to come.

To read the full report, please click here.

To watch the discussion, please click here.

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The Obama administration had followed in the steps of past Republican and Democratic administrations by embracing free trade. At the time of the 2016 election, the administration was simultaneously negotiating two of the largest trade agreements in history, one among a dozen Pacific Rim economies (the Trans-Pacific Partnership or “TPP”) and another among the U.S. and EU (the Trans-Atlantic Trade and Investment Partnership or “TTIP”).

When one of the trade skeptics (Donald Trump) ultimately won, he immediately pulled the plug on the TPP and put the TTIP negotiations on indefinite hold. His successor, Joe Biden, has done nothing to revive either agreement and, in many respects, has embraced the free trade skepticism of his predecessor.

This bipartisan surge in anti-trade sentiment, though fueled by the largely inaccurate notion that free trade kills jobs, seems unlikely to dissipate anytime soon. That the TPP and TTIP would fall victim to anti-trade backlash is both unfortunate and largely unjustified because, like many modern free trade agreements, their chief focus was largely on removing unnecessary trade barriers by promoting the alignment of regulations in participant countries rather than reducing tariffs. Regulatory alignment streamlines regulatory compliance by eliminating the need to adhere to a patchwork of different national regulatory approaches. An economic populist who argues for high tariffs to save American manufacturing jobs seems less likely to argue for maintaining divergent U.S. regulations, which is a highly inefficient approach to staving off foreign competition.

Nevertheless, these recent setbacks may yet create new opportunities for advocates of international regulatory cooperation. Achieving regulatory alignment through a trade agreement is the most ambitious and also likely the most challenging possible approach. There are, however, a number of far less controversial or burdensome approaches regulators might take to promote regulatory learning and, ultimately, regulatory alignment. This report explores what those options are and how they might help advocates of regulatory cooperation chart a more sustainable path forward.

To read the full report from Brookings, please click here.

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One important key to the future shape of the world trading system is America’s trade policy. What can be discerned of it for the Biden Administration?

To read the full report from The Peterson Institute for International Economics, please click here.

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The TAAF program targets those firms impacted specifically by import competition and not by other forms of trade or market disruption. Other federal programs provide assistance for other forms of economic disruption. A 2019 GAO analysis identifies multiple potential causes of disruption, including trade agreements, defense or energy policy changes, emerging technologies, and shifting business models. The report provides an inventory of economic adjustment assistance programs that respond to economic disruptions, including TAAF. While TAAF is solely focused on assisting businesses, other programs target a mix of individuals, businesses, communities, and other beneficiaries (e.g., coal communities, health tax credits).

TAAF is not intended to address all potential disruptions that confront firms involved in international trade. Such disruptions can include an economic downturn that leads to suppressed demand by foreign customers; increased costs or lowered demand due to tariffs and trade disputes; or supply chains affected by protectionism or other policy shifts. In the 116th Congress, some Members have introduced bills to expand the scope of TAAF to address additional trade related elements of economic disruption. For example, one bill introduced (H.R. 6124) would extend TAAF to cover firms whose exports declined because of foreign retaliatory measures adopted in repose to tariffs imposed under the Trump Administration. Other proposals focus on the TAA for Workers program to assist workers whose jobs are eliminated through automation (see S. 3034) or those adversely affected by disruptions in global supply chains from the Coronavirus Disease (COVID–19) (see H.R. 6205).

Trade adjustment assistance can play a role in helping companies adapt to a changing environment. Enabling firms to adopt greater digitization or automation, target new markets, or develop business continuity plans to increase resilience may lead the firm to need a different workforce with different skills. Upskilling the workforce of a single TAAF company or helping that firm recruit and possibly relocate new trained workers could be part of a business recovery plan under TAAF. However, broader government or private sector programs are likely needed to address broader educational and training needs of entire industries or sectors.

Issues for Congress

As Congress considers trade liberalization agreements and ongoing trade negotiations, it may wish to further examine the TAAF in light of the current debate of its effectiveness and the impact of international trade on the U.S. economy and recent trends. An implementing bill for a new trade agreement and upcoming expiration of TPA may provide Congress an opportunity to reexamine and potentially revise the TAA programs. In addition to adjusting appropriations levels, Congress could examine changing the current program or EDA’s administration of it.

Potential options for Congress to consider on TAAF may include:

• determining if the program should be limited to assisting firms who face competition from imports or if it should be expanded to assist firms who face increased costs or decreased demand due to changes in domestic or foreign tariffs or other trade-related policies;
• determining if current funding levels are appropriate;  further refining the performance metrics to measure the employment or economic impact of TAAF programs;
• placing a stronger emphasis on assisting SMEs to utilize technology to improve operational efficiency, expand into new markets, including through e-commerce, and take fuller advantage of an increasingly digitally driven economy;
• facilitating partnerships with large multinational companies to support SME integration into GVCs;
• facilitating partnerships with educational institutions or programs to train workers for digital or other skills needed by the TAAF firm or other employers;
• aligning Federal programs by linking qualified workers of a TAAF firm with the TAA for Workers program under the Department of Labor; or
• consolidating or streamlining TAAF with other federal programs that assist troubled SMEs such as those operated by the Small Business Administration (SBA).

While TAAF has traditionally focused on firms who can demonstrate they have been harmed by import competition, Congress could also explore the feasibility and possible steps that could or should be taken before firms are harmed. Congress might consider requiring EDA to conduct outreach and education on pending trade liberalization agreements. The analysis of each proposed trade agreement by the USITC may help identify industries or regions as potentially vulnerable or likely to experience a negative impact as a result of proposed trade liberalizing measures. For example, the USITC economic impact assessment report for the Trans-Pacific Partnership (TPP), before the United States withdrew from the negotiations, contended that U.S. demand for business services would outstrip supply, presenting opportunities for growth, while employment could decline in certain manufacturing and transport sectors. Congress could, for example, consider requiring EDA to prepare a capacity building plan to assist those industries or regions that the USITC identifies as potentially vulnerable or likely to experience a negative impact from implementation of a proposed trade agreement.

To download the full report, please click here. 

Rachel F. Fefer is an Analyst in International Trade and Finance at the Congressional Research Service. 

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In recent years, the case for U.S. participation in the TPP has only become more compelling as the political and economic importance of the Asia-Pacific region has grown and concerns about Beijing’s economic model have mounted. East Asia is bouncing back from the COVID-19 pandemic before the rest of the world, and deepening economic ties with the engines of global growth will be an even more valuable proposition in the midst of a deep recession. Moreover, the pandemic has revealed serious vulnerabilities in supply chain networks, and the common standards and rules of the TPP can serve as the basis for establishing trusted supply chains in the region. But is there a path for the United States to return to the TPP or to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the 11 remaining countries finalized without the United States?

This report examines four options that the next administration would have for reengaging the CPTPP countries on trade: returning to the original TPP agreement, formally acceding to the CPTPP, seeking a broader renegotiation with the CPTPP as a baseline, or working on a narrower sectoral deal as an immediate, interim step. It then assesses the feasibility of each option based on domestic considerations and developments, as well as input from the CPTPP countries.

Domestically, a policy window may be opening for CPTPP reentry. Whereas trade was seen as toxic only four years ago, recent polls have found growing bipartisan public support for trade. At the same time, however, the views of the political parties on trade appear to be shifting. Some observers have gone so far as to suggest that the United States is on the precipice of a new trade order, with Republicans more protectionist and Democrats friendlier toward trade. This makes the domestic landscape and the outcome of a congressional trade vote uncertain. The strong bipartisan congressional vote in favor of the United States-Mexico-Canada Agreement (USMCA) led many to conclude that this agreement should be the new U.S. template for trade agreements. However, there may be factors unique to the USMCA that would not be in play in a negotiation with Asian countries. Another complicating factor is the fate of Trade Promotion Authority, set to expire in July 2021, which is a prerequisite for negotiations in the view of U.S. trading partners.

The prospect of CPTPP reentry also depends on the extent to which its members would be open to revisions proposed by the United States. To take the temperature of capitals in Asia, the Asia Society Policy Institute spoke with a dozen current and former trade officials from a diverse set of CPTPP countries. Those interviewed unanimously affirmed that they would welcome the United States back, but not at any cost. They are wary of being asked to make extensive revisions, having been scarred by the U.S. withdrawal after expending significant political capital during the TPP negotiations. Those countries  were accustomed to the uncertainties of the congressional approval process, but they now also worry about the presidential election cycle.

With the foregoing considerations in mind, the report offers a road map for the next administration to reengage with the CPTPP countries. Recommended steps include the following:

• Launch an interim sectoral agreement: As a first step, pursue a limited, sector-specific Asia-Pacific trade deal with the CPTPP members, and perhaps other countries, to set high standards, rebuild trust, and build momentum. Promising topics include:
  • Digital trade, an area that represents more and more of overall trade, particularly now that the COVID-19 pandemic has accelerated the digitalization of the global economy.
  • Trade in medical and other essential products, a sector in which COVID-19 has focused attention on trade restrictions and vulnerabilities in global supply chains.
  • Trade and the environment/climate, which may be of particular interest to a Democratic White House.
• Invest in competitiveness and adjustment at home: Build support for trade agreements generally and the CPTPP specifically at home by investing in competitiveness and adjustment policies and programs. Doing so would take the pressure off trade agreements to achieve goals they are not designed to tackle, such as ensuring more equitable income distribution.
• Make the case for trade: Explain to the American public that deeper U.S. trade engagement with Asia-Pacific partners is integral to building an alternative economic model to Chinese state capitalism, diversifying U.S. trade beyond China and, ideally, promoting reforms within China.
• Prioritize negotiating proposals: Develop and prioritize concrete proposals for U.S. reengagement with the CPTPP based on input from business, labor, and civil society groups throughout the country, as well as Congress.
• Consult with trading partners: Consult with the CPTPP members to understand their limits, priorities, and concerns around U.S. reengagement.

These steps would pave the way for U.S. reentry into the CPTPP. Even then, CPTPP reengagement would be a heavy lift that would require flexibility and creativity from both the United States and the CPTPP countries. Returning to the original TPP by signing on to a five-year-old agreement that faced considerable opposition at home is not a realistic proposition in 2021. The approach with the best odds of success would likely fall between formal CPTPP accession and a more extensive renegotiation. For that to work, the United States would need to focus on the most important changes and modernizations needed, while the CPTPP countries would need to be more open to changes than during a typical accession.

Given the domestic and international challenges outlined in this report, it is understandable that many would question whether returning to the CPTPP is worth all the trouble. Despite those concerns, rejoining the CPTPP is one of the most impactful ways in which the United States can work with likeminded countries in the region to promote an alternative economic model to state-led capitalism and help shape the economic future of a region that is increasingly the engine of global growth and innovation.

Wendy Cutler is the Vice President and Managing Director of Washington DC Office of the Asia Society Policy Institute and former Deputy USTR.

To download the full report, please click here.

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The Canada-United States-Mexico Agreement (CUSMA), originally agreed in November 2018, and amended in Mexico City last December, represents a significant step back from the three-decade partnership in North America launched with the 1989 Canada-United States Free Trade Agreement (CUSFTA) and further developed with the addition of Mexico in the NAFTA.

The CUSMA signals this clearly: the words “North America”, and “free trade” have vanished. Unusually for a modern trade agreement, it has little traditional market access liberalization. Moreover, its modernizing elements, based largely on the Trans-Pacific Partnership (TPP) text, contribute little to reducing trade costs or border frictions.

At the same time, the CUSMA introduces more restrictive rules of origin and increases uncertainty about future market access by leaving unchecked protectionist measures dusted off by the Trump administration, including the Section 232 tariff measures that have been used against Canadian steel and aluminum exports and threatened against Canadian exports of automotive products.

While side agreements provide some assurance against the further use of these measures on these products, there is no such guarantee for other products. And the introduction of a sunset clause coupled with rhetorical signals of the intent to use this to revise the deal in favour of the United States, send a warning signal to business: curb your enthusiasm about investing in Canada to make hay in the US market. The new institutional environment works to effectively raise non-tariff barriers to the US market.

The protectionist focus of the agreement comes with a net cost to all three parties. These costs are, however, more severe for Canada and Mexico since North American trade makes a proportionately much larger contribution to our economies. We estimate that the Agreement will lower Canada’s real gross domestic production (GDP) by -0.4 percent and Mexico’s by -0.8 percent on an ongoing basis.

For the United States, the estimated impact is -0.1 percent. The only comparable published study of the agreement – by the United States International Trade Commission (USITC) – arrives at a similar estimate for the United States of -0.12 percent but does not provide estimates for Canada or Mexico.

One element of the USITC study warrants explicit comment: it introduces a large positive impact for reduction of uncertainty about future cross-border data flows and data localization requirements. These uncertainty effects flip the -0.12-percent impact into a 0.35-percent gain or even as much as a 1.21 percent gain. We decline to introduce such an effect into our evaluation for three major reasons which call into question the additional effect of the CUSMA in this area:

• Canada and Mexico have already signed onto similar provisions in the CPTPP and the USMCA changes matters comparatively little.
• The future regulatory regime for data flows in areas ranging from privacy, to competition policy, to taxation, to protection of democratic processes is being actively pursued worldwide; outcomes are highly uncertain and there is little empirical evidence on what restrictions will ultimately be deemed as legitimate as opposed to barriers to digital trade that would be prevented by CUSMA disciplines.
• The United States has articulated an extraordinarily expansive scope for national security, in particular for the emerging Internet of Things (IoT) area, which suggests all three parties will have considerable latitude to develop regulations on data flow to ensure national security in the backbone services sectors (communications, transportation, power, and finance) at least.

To view full report, click here.

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A bold decision by China to join the CPTPP could address many challenges that the continuing trade war created. By adopting CPTPP trade rules, China could ease tensions with the US and other countries. By joining a dynamic regional trade network, China could accelerate its economic growth and diversify its markets. And by committing itself to high international policy standards, China could energize its own reforms in building a modern, open economy.

Let’s begin with the economics. The CPTPP would lend momentum to China’s “opening up” policy, which is widely seen as crucial to China’s growth. China already has robust trade and investment relations with other CPTPP members, yet the agreement could reduce some high barriers that still saddle this trade. Trade would increase in Asia-Pacific networks, making manufacturing supply chains even more productive and diversifying the region’s dependence on North America.

In a forthcoming study for the Peterson Institute for International Economics, we estimate that the CPTPP, in its present form, will add US$147 billion annually to global incomes. This is a large sum, but it could grow to US$632 billion annually if China joined, surpassing the benefits that the earlier TPP would have generated with US participation. Chinese exports to the region would grow especially fast in electronics and machinery, and Chinese imports would result in new inflows of advanced components, non-durable goods and agricultural products.

In addition to reducing conventional barriers to trade, such as tariffs and quotas, the CPTPP offers an ambitious and wide-ranging rule book for modern economic relationships. By adopting this rule book, China would in effect commit to aligning its policies – including those criticized by the US – with global norms.

For example, CPTPP rules would require China to make its state-owned companies more transparent, and to let commercial goals rather than government drive their decisions. Trade secrets and patents would be better protected, foreign investors would be subject to fewer restrictions, and companies would be freer to engage in electronic commerce and cross-border data transfers.

None of this would be easy to do. Aligning Chinese practices with the CPTPP would require major reforms. But as policymakers often say, no serious crisis should go to waste. Canada, Japan, Vietnam and other countries are already using CPTPP rules to motivate reforms that are politically difficult, and China itself benefited greatly from its economic reforms upon joining the World Trade Organization. The CPTPP would make reforms more credible at home and abroad because it includes meaningful enforcement clauses.

CPTPP rules, if properly enforced, are likely to be credible to the US also, since key parts of the agreement have already been included in the new US-Mexico-Canada Agreement. Even if the US remains outside the CPTPP, China could commit, in bilateral negotiations, to make the same rules apply to US trade and investment, subject to US enforcement.

From a political viewpoint, the CPTPP would help to reduce trade tensions and strengthen China’s economic diplomacy. In effect, China would be working with Asian and Latin American countries to build an open regional system. Some of these CPTPP partners could be concerned about competition from China, but most would welcome its immense markets and increased market orientation.

Economic and political ties among China, Japan, South Korea and Southeast Asia would also benefit. Deeper regional cooperation would boost East Asia’s political clout and influence in the world. And from a global perspective, China and the region would be offering essential support for a rules-based trading system, at a time when the US seems to be walking away from it.

To be sure, even if China committed itself to joining the CPTPP, its accession may not happen smoothly or rapidly. Chinese membership could be resisted by other CPTPP members who are concerned about competition from China, and possibly by the US. But even if the agreement does not happen right away, China’s focus on CPTPP rules would send a powerful signal to the world about its commitment to international norms in a wide range of policies.

In the end, Chinese membership in the CPTPP would not make tensions evaporate. Despite decades of cooperation on everything from defense to international organizations, the US, European Union, and Japan regularly have serious trade spats. As China develops, such conflict will also continue and intensify from time to time. But joining the CPTPP would mitigate the risk that trade conflict, which can lead to constructive agreements, becomes trade war, which is always destructive.

Alexander Bell’s quotation in the first paragraph is followed by a warning: “Often [we] look so long and so regretfully upon the closed door, that we do not see the ones which open for us.” By turning the challenge of the trade war into an opportunity for leadership, China could make large contributions to the global economy. This prospect deserves serious consideration by its leaders.

To view the original posting of this paper on Peterson Institute for International Economic’s website, click here. 

Copyright © 2019 South China Morning Post’s This Week in Asia. All Rights Reserved.

Peter A. Petri is the Carl J. Shapiro Professor of International Finance, International Business School, Brandeis University. Michael G. Plummer is Director of the European campus of the School of Advanced International Studies, and the Eni Professor of International Economics, Johns Hopkins University.

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