Forbes | 13 October 2015
TPP: the path to global fragmentation
The Trans-Pacific Partnership trade deal is another nail in the coffin of a multilateral global trade system that brought the world together in the past six decades
In my column last month for The Straits Times (“When there’s no happily ever after to trade talks”; Sept 11), I quoted from a 1996 speech by the former director-general of the World Trade Organisation (WTO) Renato Ruggiero, who said we had gone from a divided world to an integrated world and that an integrated world is much more difficult to manage.
Well, we seem to be mismanaging the integration pretty badly.
In fact disintegration – or fragmentation – better describes the times we live in.
The process of the disintegration of world trade has been going on for some time. In 1999, after the WTO ministerial Seattle debacle, the then director-general Mike Moore said he feared the WTO would become the “League of Nations of the 21st Century World Economy”, that is impotent and irrelevant.
It has intensified since 2008, following not only the Great Financial Crisis, but also the year the WTO Doha Development Round effectively died.
The just-concluded Trans-Pacific Partnership – despite its hype – will hammer another nail in the coffin of integration and multilateral global trade.
GOOD AND BAD NEWS ABOUT WORLD TRADE
Mr Mike Moore’s reference to the League of Nations has become increasingly and alarmingly apposite. In the 1930s, with the depression and the consequent rise of trade wars, the League of Nations convened meetings, the communiques of which sound eerily similar to the rhetoric emanating from today’s global governance summits, be they the Group of 20, the WTO ministerials, the United Nations Framework Convention on Climate Change and so on.
The parallels with the 1930s become more a matter of concern with the world economy, as the IMF has warned, entering a probably prolonged low-growth era.
This is happening at a time when global youth unemployment is at dizzying heights across the globe, even in developed Europe and industrialised Asia, not to speak of the millions in South Asia and Africa coming on the labour market every year with futile hopes of gainful employment.
The trend is set to continue for at least the next decade.
The whole objective of the post-World War II global trading order was that it should depoliticise trade.
In the famous words of the late American secretary of state Cordell Hull written in 1937: “I have never faltered, and I will never falter, in my belief that enduring peace and the welfare of nations are indissolubly connected with friendliness, fairness, equality and the maximum practicable degree of freedom in international trade.”
Though far from perfect, the post-war multilateral trade system (MTS) brought trade wars to an end and generated prosperity and peace among its members. The success of the MTS was one of the major forces driving victory in the Cold War and the collapse of the Soviet empire and its ideology.
That in turn led to an avalanche of nations joining the MTS, and thus membership to the WTO, resulting not only in an integrated world, but also a vastly expanded one.
Rough calculations estimate that the number of people living in the globalised market economy rose from one billion to six billion in the course of the last 20 years.
This is the great news. The bad news is that while the MTS for five decades (1945-1995) was dominated by a cosy club – the Quad of the United States, the European Union, Canada and Japan – it has not been able to adjust to new actors and the new paradigm.
The failure of the WTO’s Doha Round is only one of several illustrations of the forces of fragmentation.
Failure on the part of the existing international financial institutions to adjust to the transformative global changes, new actors and consequent challenges, especially when it comes to the emerging global power China, led Beijing to create the Asian Infrastructure Investment Bank (AIIB).
Membership was inclusive and open. While virtually all relevant nations joined, Japan and the US refused, with Washington quite overtly seeking to discourage, ultimately to no avail, its allies from being involved.
Though much is ballyhooed about the fact that membership of the TPP accounts for 40 per cent of global gross domestic product, two economies represent half of that 40 per cent: US and Japan.
Thus the TPP, in essence, is a US-Japan bilateral pact, with 10 other medium to small economies providing the cosmetic legitimacy for calling it a “mega-regional”.
RIVALS AT WORK
The TPP is positioned and perceived as a rival to the AIIB.
It is no surprise that the TPP, which Washington positions as a critical part of its “pivot” to Asia, should be viewed as a potential US-Japan anti-China bloc, given the significant geopolitical tension in the Asia-Pacific region, especially in the highly fraught China-Japan relationship, and as the Shinzo Abe government reinterprets the Japanese Constitution to enhance Japan’s regional military role.
I would go even further and say that the TPP is blatantly geopolitical and overtly, indeed triumphantly, confrontational towards China.
For US President Barack Obama, the TPP is about who will write the rules of trade in the 21st century: “If we do not shape the rules so that our businesses and our workers can compete in those markets, then China will set up rules that advantage Chinese workers and Chinese businesses.”
Instead of being treated as a partner, China is being attacked as a rival. This is unnecessary.
Instead, the sustainable, dynamic and peaceful integration of the world economy should require that China, the US and all other responsible nations sit down to craft trade rules for the 21st century together, rules that would correspond to the spirit so eloquently articulated in 1937 by Cordell Hull.
From a more regional perspective, one must also ask what will be the consequences when (at present) only four of Asean’s 10 members have joined the TPP.
To what extent will the TPP become an issue in which US-China rivalry might impinge on Asean unity? What impact will the TPP have on the proposed Asean Economic Community (AEC) that would seem to be a much higher priority?
This may appear to some as unduly alarmist. But global signals – economic, political, environmental, social and geopolitical – are alarming. Among the 10 most likely risks, according to the World Economic Forum 2015 Global Risks Report, the first is “interstate conflict”.
It is better to be alarmist and be proved wrong than to be complacent and proved wrong.
To defuse the alarm, all efforts and policy choices should be aimed at deeper and more sustainable global integration and not divisive fragmentation.