Reimagining the TPP - Revisions that could facilitate U.S. reentry

The US political dynamic and changes since 2017

Amid growing skepticism towards international frameworks and disappointment in the United States' role in them during the Trump administration, the US departed from TPP talks in 2017. Since then, the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) was formed, the Regional Comprehensive Economic Partnership (RCEP) was concluded, and the United States-Mexico-Canada Agreement (USMCA) was passed. In the United States, concern about China has intensified, with calls to diversify supply chains away from China and provide its partners in the Indo-Pacific with a counterweight to China. Politically, there is stronger bipartisan support in the United States to rejoin the Trans Pacific Partnership (TPP), within the US Trade Representatives’ office, the Senate, and the Select Committee on China, among others.

The Biden administration also has shown support for the region in the Indo-Pacific Economic Framework (IPEF) which covers some similar areas as CPTPP but differs slightly in membership and in its approach to market access, tariffs, dispute settlement, supply chains, clean energy, anti-corruption, and tax. However, the similarities mean that successful completion of IPEF would pave the way for more economic engagement in CPTPP.

In light of this, Cutler and Willems formed a bipartisan working group of ten trade experts from the Obama administration, the Trump administration, the nation security apparatus and labor unions, to clarify the US strategic objectives and economic objectives, considering national security, the geopolitical landscape, and how to counter China.

The proposal aims for increasing supply chain resiliency and diversifying supply chains away from China. It also aims to gather domestic support for US priorities while keeping the positions of Japan and other parties of CPTPP in mind. The report has also sought input from experts in industry, labor, the environment, agriculture, and services, and former and current US officials. Some of the 22 provisions that were suspended after the United States left the negotiations for TPP are included in the proposal and consideration is given to features of IPEF and USMCA. The working group also investigated bilateral agreements such as the US-Japan Digital Trade Agreement for its digital recommendations, the EU-New Zealand Trade Agreement for its environmental chapter, and the Digital Economy Partnership Agreement between Singapore and Australia for its text on green economy.

Consideration of rules of origin and labor

Regarding Japanese concerns on market access, including tariffs, quotas, services, commitments, et cetera, the report does not propose changes. The United States recognizes that renegotiating market access commitments in the CPTPP would require proportional US concessions. However, the report does suggest stronger rules of origin for automobiles, by proposing higher regional value content, bilateral cases of raising of rules of origin that Japan does not have to participate in or removing contentious industries such as automobiles from the agreement on rules of origin, removing additional market access from that sector. If this is not undertaken, non-participants to CPTPP may get duty-free access, which is unacceptable. Rules of origin beyond automotive could be considered in a CPTPP committee if necessary at a later date.

In terms of labor conditions, the United States sees bipartisan support for the need for higher levels of labor standards. The report suggests updating the agreement with the US side agreements with Vietnam, Malaysia, and Brunei, which would have been in place if the US had originally joined, to strengthen labor commitments and make them enforceable. It also suggests linking the tariff phase-outs under the side agreements to compliance with the obligations. It would also consider mechanisms similar to the USMCA Rapid Response Mechanism to allow for targeted enforcement of labor commitments on a facility basis.

As there have been problems enforcing labor commitments in other agreements, the United States would seek modification of the need to show a link between labor violations and effect on trade, as per USMCA. And the United States also seeks strengthened commitments on forced labor.

Regarding environment and climate, the working group noted the improvements made in this regard in CPTPP and suggested strengthening provisions to address marine debris, environmental impact statements, fishery commitments, and harmonized energy performance standards, as per USMCA.

Recommendations on the environment

The report also suggests removing tariff and non-tariff barriers in trade in environmental goods and services. To the extent that tariff cuts have already been made, it would call for their acceleration in cases that are still above zero. Likewise, as in labor, the working group called for strengthened enforceability of environmental provisions. The report also identified the need to assess issues surrounding carbon emissions and carbon border adjustment mechanisms (CBAMs), noting the advances that the European Union has made in this regard. Also, as the circular economy is becoming more important, the report notes that CPTPP should establish principles and best practices to shape the development of rules on the international front.

Provisions on non-market economies

The United States sees room for continued cooperation with Japan on addressing concerns, including those about China. Thus, the report seeks to clarify the definition of state-owned enterprises to be comprehensive and deal with edge cases where the government may not own 50% of an entity but still wields control over it. This is in an effort to discipline activity in China and create an international standard that can be used in other trade agreements to that effect. The working group also aims for including provisions to address excess capacity, such as in the steel and aluminum industries.

As per the US-China Phase One negotiations, the United States would seek to prevent forced technology transfer and forced joint ventures as conditions of market entry. The working group suggested deriving wording from the text of the US-China Phase One negotiations with the aim of creating an international standard condemning the practice.

The United States would also seek to strengthen its own domestic trade remedy laws in the absence of stronger trade remedies in CPTTP.

The United States has also harbored long-time concerns on currency manipulation and would seek to adopt language from USMCA, which included enforceable provisions on currency manipulation and promoting transparency, and the IMF, both of which require countries to refrain from competitive devaluations.

How to negotiate dispute mechanisms

With respect to investor-state dispute settlements (ISDS), the issue is controversial in the United States as well as in some CPTPP member states. The report suggests, in the event of US accession to CPTPP, that existing members retain their investor state dispute settlements, but that the United States would conclude separate side letters with individual CPTPP members seeking non-application of CPTPP provisions, as per New Zealand's approach. For developing-country CPTPP members, in light of their rudimentary domestic legal systems, the United States would look to include investor state dispute settlements, but limiting the application to certain sectors or problematic behavior, on a case-by-case basis, so that CPTTP does not need to be amended.

Government procurement is another area where US opinion has changed since it left TPP negotiations. The working group suggested that for the CPTPP members which are also party to the WTO government procurement agreement, the United States would limit its reciprocal government procurement obligations to the WTO obligations. And for those countries that are CPTPP members but are not WTO government procurement agreement members, it would look to negotiate some kind of satisfactory balance of coverage specific to each country. The United States would, however, keep the provisions on transparency, fairness, and objective and open bidding, in government procurement, as per the existing CPTPP agreement.

Respecting the digital economy and intellectual property

Regarding digital trade, the report states that the United States would be looking to include the enhancements made in the agreement subsequent to the CPTPP, such as USMCA, particularly on provisions such as data flow and localization issues and algorithms and source code protections and removing exemptions for different sectors that currently exist in CPTTP. The ongoing IPEF negotiations on digital inclusivity and provisions for small and medium-sized businesses and the upcoming G7 discussions are also of interest for provisions to be considered for inclusion.

The report also proposes reinserting the provisions on intellectual property rights that were suspended when the United States left the TPP negotiations, particularly provisions on the issues of pharmaceutical patent protection of biologics. The United States would seek agreement and negotiation with CPTPP members on which particular provisions are worthy of inclusion.

Supply chain strategy and working group

Given how supply chain issues have risen to prominence in recent times, the report suggests establishing a new chapter on the topic to explore providing procedural mechanisms for dealing with disruptions and crises, establishment of fast lanes for trade of essential goods, as lessons learnt from COVID, and limitations on the scope and duration of export restrictions. The report also proposes the possibility of discussions on developing sector or product specific supply chains, either among all CPTPP countries or a subset, and the United States would want to establish a supply chain working group to promote sustainability in supply chains, including cooperation on critical minerals and other essential and strategic goods.

Also, the report suggests adding provisions on economic coercion and tools that can be used on a case-by-case basis to act against countries that are exercising economic coercion, and to assist members that are targeted by such action.

Conditions for entry, review, and withdrawal

Domestically speaking, the United States could not join the CPTPP if China also accedes to the CPTPP, and legislation related to CPTTP would clearly indicate that condition. Also, the United States would seek a sunset provision, as per USMCA, in order to create an incentive to review the agreement over time and to look for ways to improve it. This would be a domestic mechanism that would require the president to present a report to congress regarding how the agreement continues to meet US objectives, creating a process through the US would seek improvements over time.

Q&A

YOSHIDA Yasuhiko:
In today's economic and security environment in Asia, there is a maximum desire for the United States to be involved in maintaining and strengthening a rule-based, free and open regime in the region. In this context, the proposal is quite relevant and valuable.

Q:
Considering the large and increasing bilateral trade between the US and China, in your view, what is a desirable trade and economic relationship between the US and China?

Clete WILLEMS:
We don't see China and the United States both being parties to an agreement like CPTPP, as it is not realistic at this moment in time. We would hope to use this agreement to work with our partners and allies to create standards that can put pressure on China to engage in more market-oriented behavior. However, I do think the United States and China need to continue to engage bilaterally and figure out some of their differences. The United States is likely to crack down on national-security sensitive trade, but there is a path to continue doing business in less secure, less sensitive areas, such as commodities and trade. The United States could also work together with Japan to pressure China to be more open in areas where we want continued trade.

YOSHIDA Yasuhiko:
So, I would like to expand our discussion a little bit by looking at the stakeholders in US and in the international community. I think your recommendations are quite helpful to mitigate opposition and remove obstacles for US reentry to the TPP from the viewpoint of US political processes. To realize US reentry to the TPP, I suppose there needs to be an additional powerful engine to push this agenda, perhaps related to geopolitical concerns in the region. This would require, economic and trade policy experts, but also security policy expertise.

Q:
Your group includes representatives of the security apparatus, but how is this topic gaining attention and interest from security people in the US, and how can their involvement be strengthened domestically?

Q:
Internationally speaking, what is the response from developing countries in Asia on these initiatives? Are they willing to cooperate with the United States in this direction?

Q:
Concerning the possible role of India in the US' rejoining the TPP, how would you describe those stakeholders’ positions domestically and internationally?

Wendy CUTLER:
First, with respect to developing countries' reactions, to be quite frank, we have not had detailed discussions with the developing country members of CPTPP, only high-level discussions. However, IPEF participation has exceeded all expectations, with many countries in Southeast Asia and India (excluding the trade pillar) signing up. I think that's a good sign and a signal that these countries very much want US economic engagement in the region and are eager to work with the United States on most of the areas in this initiative.

Second, in our view of CPTPP, we would be providing market access to developing countries as an incentive. So, I think that would change the dynamic and make developing-country members of CPTPP even more interested in the United States joining.

And I think we would be relying on Japan to help us, given their close and extensive relations with Southeast Asian members, to urge them to support our reentry, and to work with us as a bridge to help facilitate our reentry with the revisions that we'd be seeking.

And with respect to domestic security people, it's the security-minded, foreign-policy minded folks in the United States, whether from the administration or congress, that are strong supporters of stepped-up US economic engagement in the Indo-Pacific or reentry into CPTPP.

It's more the trade people who have strong concerns, based on their view that, from an economic point of view, these trade agreements no longer work in our interest.

Clete WILLEMS:
Look, in the interest of time, I think you answered the question well. I think most of the security folks that I talked to are strong proponents of TPP. They think it's necessary for the US to counter China's growing economic influence, and that it's necessary for the US to help diversify supply chains away from China. And so, that really is the reason why they generally support this initiative.

YOSHIDA Yasuhiko:
There are a number of questions coming in touching upon the digital aspects of the agreement. And there are several questions related to environment issues and climate change.

Q:
What kind of digital elements are to be included in the future agreements, such as a revised TPP?

Q:
How can we touch on the issues related to electric vehicles in the agreement?

Q:
What would be the impact of the semiconductor war on the future of the CPTPP or the revision of the TPP?

Clete WILLEMS:
First, I think that the UK joining the TPP would help the United States' accession, as there is a lot of support in the United States for a trade agreement with the UK.

I don't think the semiconductor situation has a direct bearing. But tension with China and interest in moving supply chains out of China can help facilitate a trade agreement. Our semiconductor companies would need alternatives to China. And the best alternative is for them to link their supply chains more closely with countries like Japan and other TPP members.

Wendy CUTLER:
I think that there's a lot of elements that we can pull from the US-Japan digital agreement. But, also, the provisions in IPEF, with respect to consumer protection, worker concerns, and trade facilitation that will benefit small and medium-sized enterprises should be included.

The climate issue is still a little partisan in the United States and would need further domestic discussion, particularly on enforcement aspects that could be put into CPTPP. However, I don't think that would preclude us having a very strong environment chapter.

YOSHIDA Yasuhiko:
Thank you, Ms. Cutler and Mr. Willems. I appreciate their contribution to the trade policy discussion in Washington in the direction of more substantial US engagement in Asia. Through today's seminar, I think we now better understand how stimulating their proposal is in providing a basis for serious policy discussion in the US and Asia.