Eyeing the Expansion of the TPP: Too Soon?

October 30, 2015 5:00 PM

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With the conclusion of the Trans-Pacific Partnership (TPP) in early October 2015, between the United States and 11 trading partners, many are looking beyond the agreement’s ratification—what could be a long and arduous process—to prospects for the agreement’s expansion to new members. But how and when new members will be able to join is an open question.

By nature, trade agreements are preferential, which creates concerns among nonmembers about the costs of trade and investment diversion if they are left out. But the TPP has always been envisioned as a pathway to greater integration in the region—indeed, its very beginnings started with just the "P4" countries—Brunei, Chile, New Zealand, and Singapore—and trade officials have been clear that the pact will be open to new members. As US Trade Representative Michael Froman recalled in recent remarks, “TPP was designed to be an open platform that will grow over time and help raise standards across the region and around the world,” adding that “since negotiations concluded three weeks ago, we’ve already been contacted by a number of economies expressing interest in potentially joining TPP.”

Countries like Korea, Taiwan, the Philippines, Thailand, and more recently Indonesia have expressed their strong interest in joining the TPP, while the remaining members of the Pacific Alliance, like Colombia and soon-to-be members Costa Rica and Panama, may also want to join. Notably absent from the Asia-Pacific pact is China, but even China has been closely following the TPP and will study its requisite trade reforms. The growing interest is evidence that the real success of the TPP could very well be a story of competitive liberalization. Certainly efforts to broaden the membership would be welcome by those concerned that megaregionals like the TPP will undermine multilateral efforts, which by nature are more inclusive and thus less discriminatory.

The attraction to the TPP comes as no surprise. The megaregional agreement covers almost 40 percent of the global economy and will open new markets for trade and investment in goods, agriculture, and services, and allow for better integration of regional and global value chains. It will help standardize some rulemaking in areas like state-owned enterprises, labor and the environment, and the digital economy, which should help level the playing field for competing firms. Moreover, trade agreements can serve as conduits for important domestic reforms—as will be the case for Japan and Vietnam in particular. Estimates by Peter Petri et al. show that the benefits from the agreement would grow significantly if TPP rules were adopted more widely—expanding the 12-member pact to a TPP-16 that includes Korea, Indonesia, the Philippines, and Thailand would increase the collective benefits by 50 percent.

Of the countries that have expressed serious interest in potentially joining the TPP in the near-term, Korea and Indonesia are the largest economies.

In late 2013, Korea began consultations with the TPP-12 on the possible terms of entry but has not officially requested to join. If Korea does, it would likely be at the top of the queue of new members, since it is perhaps best poised to take on TPP commitments, given its high-standard agreements with the United States (the KORUS FTA) and European Union (see Schott and Cimino 2014). Though Korea already has agreements with the majority of TPP countries, most of its FTAs would be substantially upgraded by TPP obligations because those pacts are “KORUS-minus.” Korea would benefit from harmonizing rules and standards and pursuing greater services and investment liberalization through the TPP. Major issues for Korean participation will be resolving residual frictions with Japan, given the stalled bilateral talks of several years ago, as well as addressing sensitive political issues that could hold over from the implementation of the KORUS FTA (Schott 2015).

During a state visit to the United States this week, Indonesia’s President Joko Widodo made a strong statement that the country intends to join the deal—a distinct departure from the past several years where Indonesian officials have been largely skeptical of the TPP because it would impose a heavy reform burden. As the largest economy of the Association of Southeast Asian Nations (ASEAN) in terms of GDP ($888.6 billion) and population (254 million), Indonesia’s participation in the TPP would be significant. Indonesian trade policy has lagged behind compared to its peers, with initiatives mainly restricted to regional agreements through ASEAN—which in general are built on softer liberalization commitments—and only two bilateral agreements—with Japan and Pakistan. Concerns have grown over some retrenchment toward protectionism in recent years, with the growth of nontariff barriers such as import licensing, local content requirements, and restrictions on investment. This highlights both the challenges to participating in the TPP, given the realignment of domestic policies that will be required to meet TPP standards, but also the potential for a major payoff.

When and how could new members join? The final provisions of the TPP will spell out the accession procedures, but they have not yet been made public. The procedures will likely be similar to precedents set in the World Trade Organization (WTO)—though to be sure, the WTO process can be quite complex. In simple terms, this would essentially involve a country formally requesting to join and engaging in intensive consultations with the TPP members or a standing council, which would then assess the country’s ability to comply with TPP rules and disciplines and would negotiate the terms of entry. It is clear however, that any accession process is only likely to start once the pact enters into force—possibly 2017 or much later. The remaining question is whether new members will negotiate entry on a by-country basis or grouped together in a larger second round of negotiations. All that said, would-be members must first have a deal to join: The original TPP-12 must get the deal officially signed and ratified before others can be welcomed to the party.

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