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Calls for Asia to Invest in More Bilateral Deals Rather Than the TPP

By Dezan Shira & Associates
Posted: 6th May 2014 08:33
Obama’s Asian failings mean region is more confident about developing by itself

The Asian Development Bank (ADB) has suggested that the time spent on negotiating “mega” trade deals such as the Trans-Pacific Partnership (TPP) would be better spent consolidating more bilateral trade agreements.

Jayant Menon, lead economist for trade and regional co-operation at ADB’s Office of Regional Integration, said that President Obama did not achieved the breakthrough he had hoped for during his recent trip to Asia, while it was clear he would not be granted “fast track” powers by U.S. Congress to approve trade deals. Consequently, repeated delays in achieving a deal on the TPP have put the focus on the need for trade-hungry Asian states to look at bilateral deals as an alternative to getting things done.

The TPP deal, which includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, has already missed three deadlines, with the most recent last December. U.S. president Barack Obama ended a state visit to Japan last week also having failed to secure an agreement with Japan on the TPP.

Menon told the international media, “It’s uncertain whether the other countries will be happy to sign up to highly ambitious reforms if the key proponent isn’t also able to deliver.”

Neither is the TPP agreement, if finally finished, likely to be as all-encompassing as originally intended. Of the 12 countries attempting to negotiate the sweeping agreement, each has a wish list of exemptions and is likely to get them, Menon added. These include:

 - Malaysia being reluctant to accept changes to its government procurement policies;
 - Japan not wanting to fully open its agricultural markets;
 - Australian concerns about higher prices for pharmaceuticals;
 - The U.S. pushing for a currency manipulation clause that other negotiating countries are unlikely to accept.

“And almost all the countries are concerned about the dispute resolution mechanism, which allows corporations to sue governments,” Menon added.

Mega-regional trade agreements are notoriously difficult to finalize, particularly those such as the TPP that involve several countries at radically different stages of development (Singapore and Vietnam, for example). With only 12 countries involved in negotiations, the TPP is not on the same scale as the failed Doha round of World Trade Organization talks, but the countries involved are scarcely less diverse.

The risk of political failure is likely to keep countries pushing for the TPP, but in the meantime there are significantly more feasible measures that could be taken by negotiating countries seeking to take a big step forward towards free trade. Multilateralism may have fallen by the wayside, but countries could — and should — opt to unilaterally harmonize tariffs and non-tariff trade barriers across their existing free trade agreements (FTAs), said Menon. “It gets to a point where a country has signed enough FTAs that it ends up making sense for it to harmonize its trade policy and offer the same preferences to everyone,” he added.

One example is the Regional Comprehensive Economic Partnership (RCEP), which has a deadline of 2015 and involves the 10 ASEAN member states along with Australia, China, India, Japan, South Korea and New Zealand.
As more than three quarters of imports in most of the RCEP countries are already covered, or about to be covered, by an FTA, there is little point in waiting to try to negotiate reciprocal agreements with the remaining countries, Menon said. Whether or not countries wish to pursue mega-regional agreements, in the meantime they should simply pick the lowest tariff among their myriad agreements and adopt this single measure. This solution would also apply to many non-tariff barriers, and would have clear economic benefits in addition to furthering the cause of global free trade.

Countries would avoid the administrative costs that come with implementing multiple rules regarding where goods originate. They would no longer risk having to choose more costly or less efficient exporters because of trade restrictions and, though the idea that countries would unilateraly opt to offer the same trade preferences on a multilateral level might seem ambitious, it has history on its side. “This is not a pie in the sky idea,” said Menon, “In the two decades leading up to 2003 over two-thirds of trade liberalization in developing countries occurred through unilateral actions like this.”

Chris Devonshire-Ellis of Dezan Shira & Associates comments, “The feeling in Asia is that the United States missed the occasion to make significant progress with the TPP when President Obama was obliged to stay at home in Washington to deal with the U.S. fiscal cliff issue and did not attend APEC. That was the window of opportunity. Ever since then there has been a cooling of attitudes towards the TPP, which anyway does not include China. Asian nations are instead more upbeat about the RCEP deal. I suspect what will happen is some sort of merger between the RCEP and TPP deals in some manner.”

“Meanwhile much remains to be done both in Asia, and especially in the United States concerning bilateral trade and double tax agreements,” Chris further stated. “The United States has been especially tardy in updating many of its own bilateral agreements. Its DTA with India, for example, is 25 years old and does not account for any IT or communications developments since then — written prior to the use of email and the internet, yet nothing has been done to update it. These sorts of occurrences are making Asian countries go cold on the concept of dealing with the United States on trade deals, and a collapse of the proposed TPP agreement should be a wake-up call to America to start to revamp its position as regards both its bilateral and multilateral trade agreements. U.S. foreign and trade policy on both seems politically and administratively confused and disorganized.”
This article was first published on Asia Briefing.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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