After the Trans-Pacific Partnership: the rise of bilateral free trade agreements

President Trump made it official earlier this week; the TPP is dead.

Article 30.5 of the Trans-Pacific Partnership requires ratification from “at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013.” This provision gives the United States and Japan the ability to kill the agree should either or both not ratify the treaty.

Shortly after President Trump signed the memorandum withdrawing the US from the TPP, the Chilean Ministry of Foreign Relations announced its intent to work on a new agreement. As Reuters reports, Chile invited the ministers from the other 11 TPP countries as well as China and South Korea to discuss what comes next.

One option could be a version of the TPP without the United States. However, there is doubt that the countries involved would be interested in this.

As the BBC reports, Japanese Prime Minister Shinzo Abe described a TPP-like agreement between the 12 signatories minus the US would be “meaningless.” This is due to the role of the US market. Without access to the United States’ 300 million consumers, the other countries have much less incentive to go along with such a wide-ranging trade agreement.

The more likely option for what will come after the TPP are a series of bilateral trade agreements.

The graph below shows existing free trade agreements between the 5 TPP signatories in the western hemisphere and the other TPP signatories. It does not represent all trade liberalization treaties and agreements, e.g. the Trans-Pacific Strategic Economic Partnership Agreement between Brunei, Chile, Singapore, and New Zealand. The graph does show that there is plenty of potential for bilateral and multilateral free trade agreements.

The Green boxes show the date when a free trade agreement went into force between the two corresponding nations, while the red boxes indicate that the two countries do not currently have a free trade agreement. The data are from governments of Canada, Chile, Mexico, Peru, and the United States.

The Trans-Pacific Partnership was not a free trade agreement. Although it would have reduced or eliminated thousands of tariffs, it would not have eliminated them all. Whatever fills the void vacated by the TPP may not be FTAs either. For example, the Trans-Pacific Strategic Economic Partnership Agreement, which was the precursor of the TPP, is not an FTA.

Bilateral agreements are easier to form than multilateral agreements for the simple fact that they are less complex. The TPP took the better part of a decade to negotiate because of its size. The countries in the table above would find it easier to fill in the red gaps through a series of bilateral agreements.

Historically, the United States has pushed for greater economic liberalization throughout the hemisphere and has used free trade agreements as a means to achieve that goal. However, if the United States withdraws from its traditional role under President Trump, other nations in the hemisphere may look outward for other markets to expand. Whether that market is outside the region, e.g. China or Japan, or within, e.g. MERCOSUR, only time will tell.

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