Is the Trans-Pacific Partnership foundering?

U.S. Trade Representative Ron Kirk was here in Singapore yesterday and told an audience at the Singapore Management University that prospects are good for completion of talks by the end of July to establish a Trans-Pacific Partnership (TPP) free trade agreement among the United State, Singapore, Chile, Peru, New Zealand, Australia, Brunei, Malaysia, and Vietnam.

Since Singapore has been the brains and driving force from the beginning behind the TPP, it was only fitting that Kirk should give his status report here. However, it is the nature of these things that the truth is usually pretty much the opposite of what is publicly stated. Certainly that is the case with the TPP.

While Kirk was addressing students, I was speaking with several of Singapore’s diplomats, journalists, and academics. Their views were much less sanguine than those of Kirk. Indeed, they sounded somewhat scared.

As originally planned by the strategists at Singapore’s Ministry of Foreign Affairs, the deal was to be part of a grand scheme to reaffirm and revitalize the U.S. presence in Asia and to keep Washington engaged as a counterweight to Beijing in the region. The idea was to build on existing free trade arrangements between Singapore, the U.S., Australia, Chile, Peru, and others to create a high quality, so called 21^st century, agreement that would serve as a core around which others could be gathered to eventually encompass most of the major trading countries in the Pacific basin.  As a start, it was considered necessary to include key members of the Association of Southeast Asian Nations (ASEAN) such as Malaysia and Vietnam in addition to Singapore. Vietnam was particularly important because it represents a country that is at earlier stages of development and is coming out of a centralized communist environment.

Singapore also reckoned that the United States would quickly act to bring in Mexico and Canada with whom it, of course, shares the North American Free Trade Agreement. In addition, it seemed obvious that any free trade deal in the Pacific could not ignore the world’s third largest economy — Japan. Singapore thought the U.S. would manage to persuade Japan to sign up as well.

Well, we know the best laid plans often don’t work out. Washington shied away from including Canada and Mexico until discussions had already gotten fairly far advanced and inclusion of the two other NAFTA members would have complicated matters for meeting the Obama administration’s self-imposed deadline of completing the first deal before the U.S. election season. Moreover, Mexico had its own elections and free trade deal ideas. As for Japan, Washington was actually ambivalent. It knew that Japan’s powerful agriculture lobby would be a problem and that that would slow down achieving any fast positive results. Of course, the White House wanted Japan in eventually, but just not quite now. But then Japanese Prime Minister Noda began talking like he was going to make a real effort to bring Japan in. Washington could not say no out loud and so welcomed the Noda initiative. The Japanese agriculture lobby had an entirely different reaction and geared up big time to stop all this dangerous talk of market opening in agriculture.

However, Noda’s biggest problem was his own priority of getting an increase in the Japanese consumption tax. This is badly needed in order to keep the Japanese public debt from going too far beyond the 200 percent of GDP mark. (Yup, you got that right. Japan makes Greece look parsimonious). To get the consumption tax, which is opposed by many in his own party, Noda may have to play ball with the Liberal Democratic Party which looks like it is willing to play but only if Noda forgets about TPP and agrees to dissolve the Diet and call for new elections.  

Of even more concern, however , is the sudden questioning by the Chileans of the value of the deal as presently being constituted. Chile had been considered a slam dunk supporter. So its raising of questions is a red flag danger signal. Beyond that it seems that the Malaysians are also questioning whether any benefits they may be getting are worth the trouble of further liberalization of their domestic economy. And just to put the icing on the cake, it is becoming ever clearer that the Vietnamese, whose economy resembles that of China with large segments controlled by state owned companies, are going to have great difficulty in actually meeting the high standards being proposed.

So even as Kirk talked success, the platform was trembling beneath his feet.

This is the problem with trying to use trade deals as tools of diplomacy. It may sound nice and positive for two countries to say they are tightening their relationship by doing a free trade deal. But eventually at some point, someone has to count the jobs and the balances of trade and financial flows. Typically, deals done primarily for geo-political purposes don’t add up, and when they don’t, all the "strengthening of commitments " in the world often doesn’t save them.

We’ll have to wait and see about the TPP, but things are not getting easier for it.