Stuck between major trade deals

Stuck between major trade deals

The global trade system of the future will be determined by two mega-bilateral deals, the Transpacific Trade Partnership (TPP), for which negotiations have basically been completed, and the Transatlantic Trade and Investment Partnership (TTIP) for which several more rounds of talks will be needed to complete the deal.

No longer is the world looking toward Geneva, where the WTO has unsuccessfully tried to further liberalise global trade. The dragging Doha Round negotiations have taught us that global deals seem to be out of reach for the world community because the controversies over the extent and the speed of sector-specific liberalisation measures are too big. Instead, the world is looking towards Washington and Brussels, where the TTP and TTIP are discussed and ultimately decided.

It is valuable for Thailand to become aware of the differing characteristics of the TPP and TTIP. As former WTO director-general Pascal Lamy put it recently, TPP is perhaps the last big "old type" trade deal between rich and poor countries in which the dismantling of trade barriers against labour-intensive manufacturers meets concerns of rich countries about job losses and unfair competition. The TTIP, however, is the first "new type" agreement in which two high-income countries and trading partners on a level playing field negotiate standards of consumer protection, the balance of power between state sovereignty and the rights of foreign investors, rules of cooperation in economic policy between the two partners, and convergence between two different regulatory systems, those of the US and the EU.

In the "old type" negotiations producer interests matter, whereas interests of consumers and civil society matter in the "new type" of talks. This explains why the public debate on TTIP is so heated. Whereas the EU in the TTIP tries to restrict trade if the perceived risk from trade for the environment or the consumers is perceived to be significant ("precautionary principle"), the US already enforced the principle of "good science" in the TPP negotiations: if state-of-the art science does not find damages from trade to the environment or the consumer, trade should be allowed.

So far, Thailand is neither a contracting party of the TPP nor does it contemplate adopting any time in the future TTIP rules. Depending on the outcome of the TTIP negotiations, the adoption of the rules of this partnership is what a number of economists worldwide wish for many countries. Only then would this huge trade deal be applied to more countries than the original signatories. Regarding TPP, several other Asean countries are TPP signatories. This has far-reaching implications: it is possible this trade agreement could drive a wedge into Asean and into its target of being an Economic Community. As China so far is outside the TPP too, rules for cross-border supply chains in East and Southeast Asia may hang in limbo unless TPP standards win the regulatory competition against other standards and, thus, become the "gold standard" for trade in the region.

Things may get more complicated if the EU revitalises talks with Asean to conclude an Asean-EU free trade agreement. So far, region-to-region negotiations were paused in 2009 because of political reasons in favour of bilateral negotiations with individual Asean member states including Thailand (bilateral negotiations with Thailand started in 2013).

It is evident that in these negotiations the EU, next to China and Japan, which is the most important trading partner of Thailand, will try to anchor its standards. They differ from those of the US (and TPP) by higher "precautionary" constraints on trade and by a lower priority given to intellectual property rights for private patent holders, to name just two of the differences. This could have implications for a number of products (and services) exported by Thailand to the EU, from sanitary standards for agricultural products (eg seafood) via safety standards in textiles and clothing to consumer protection in the tourist industry.

If the TPP passes the ratification procedure in the US it is possible it will fully unveil its attractiveness in East Asia to other Asean member states including Thailand. This is especially the case, as the best economic performer in Asean, Singapore, is among the signatories of the TPP. Should Thailand ultimately join the TPP, its standards would prevail and they could clash with European standards. When elephants fight, the grass gets hurt. Depending on what ultimately the outcome of the TTIP negotiations is, Thailand could suffer from this fight between the rules of an "old type" agreement and those of a "new type" agreement which are, however, not yet in place.

Thailand could fall between the cracks with two important markets, the TPP the EU, demanding two different regulations for trade. There is no balance, as the target is moving. Ultimately, the rules will be set by the bigger and more dynamic market and -- for Thailand -- this will probably be the TPP market, especially if China complies with TPP rules.

Thailand is indeed in a challenging situation for another reason. On the one hand, it may be a wise strategy for Thailand to wait and carefully monitor the outcome of the TTIP negotiations. This may also be the case, because the EU, in view of the heated public debate among EU members, could try to win compatriots for its "precautionary" course, perhaps in a bilateral free trade agreement with China, set as a counterweight against the TPP.

On the other hand, waiting to join the TPP may prove difficult, as foreign direct investment may shift to TPP countries like Malaysia and Vietnam. Hence, in the theatre of trade diplomacy, the last Mass has not yet been sung.

Michael Frenkel and Rolf Langhammer are Professors of Economics at WHU–Otto Beisheim School of Management in Germany.

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