How FTAs are manoeuvring around a Trump-led US

In September, James Bacchus stood before an international audience in Xian, China, to explain current US trade policy to the Silk Road Business Summit. “No one can explain US trade policy,” he informed the audience. “Certainly, it cannot be explained by those who are making it and pursuing it and changing it in all kinds of contradictory ways from day to day.”

These words, coming from a former chair of the World Trade Organization’s highest court and the chair of international law firm Greenberg Traurig’s global practice, encapsulate the confusion felt around the world by governments, trade negotiators, businessmen and farmers trying to make sense of the US administration’s approach to trade agreements. They also explain why many countries are seeking or speeding up negotiations on free-trade agreements with new partners such as the EU and China.

Cutting ties

“There’s a great deal more wariness about entering into agreements – whether you believe this approach to governance is the new norm or an aberration. Prospective partners of the US will be much more wary and much more careful about the types of agreements they are establishing,” says Bates Gill, a professor at Australia National University in Sydney who focuses on US foreign policy and US-China relations.

On his first day in office, president Donald Trump withdrew the US from the Trans-Pacific Partnership (TPP), a landmark agreement among 12 countries that was negotiated over five years. He followed up by promising to terminate the 25-year old North American Free Trade Agreement (Nafta) with Canada and Mexico, though he later agreed to renegotiate it. Intense three-party discussions are currently under way – a process not helped when in August, as negotiations were going on, Mr Trump said: “Personally, I don’t think we can make a deal. I think we’ll end up probably terminating Nafta at some point.” 

In September, Mr Trump was reported to have decided to pull out of the US-Korea Free Trade Agreement, which he has called “a horrible deal”, after talks between the US trade representative and South Korea’s trade minister ended in deadlock. He was dissuaded from doing so by White House advisers. 

The US trade representative had requested the meeting to “resolve problems regarding market access in South Korea for US exports, and, most importantly, address our significant trade imbalance”. South Korea, however, insisted that “investigation, analysis and evaluation” must precede negotiation. 

Meanwhile, a bipartisan group of US congressmen warned that reneging on the deal would create “devastatingly high barriers” for US business and agriculture. The US Chamber of Commerce pointed out that the trade balance is not the best way to assess the value of an agreement, and perceived shortcomings could be addressed by methods short of withdrawal. Many also questioned Mr Trump’s rationale in antagonising a long-standing ally when South Korea’s help is needed in confronting North Korea.

Partner search

Against this backdrop of American disarray, many countries are showing interest in exploring beneficial and more stable trade agreements with new partners. 

The effort to revive the TPP without the US continues, led by Japan with support from Australia, New Zealand and Thailand. Representatives of the 11 other participating countries continue to meet for negotiations on amending the original agreement. However, countries such as Vietnam and Malaysia are seeking further concessions before agreeing. 

As the trade minister for Malaysia – a TPP signatory – put it, the TPP experience has strengthened his country’s resolve to pursue regional and bilateral agreements with other trading partners. “With the TPP hanging in the balance, the successful conclusion of the Regional Comprehensive Economic Partnership [RCEP] is important for future trade and growth in the region,” he said.

Other countries have reached the same conclusion. Driven by China, the RCEP free-trade agreement would include 16 members – the 10 countries of the Association of South-east Asian Nations (Asean) plus the six countries with which Asean has existing free-trade agreements: Australia, China, India, Japan, South Korea and New Zealand – creating a giant market of 3.4 billion people with a total GDP of $49,500bn, largely thanks to China and India.

However, neither the renegotiated TPP nor RCEP is likely to match initial hopes. “[Asia-Pacific] is still driven by trade, and anything that can facilitate that and lower tariffs and help deepen the trading network is something people will want,” says Mr Gill. “But what is likely to emerge, whether TPP or RCEP, is not going to be the gold standard that was proposed without the US.”

Thinking small

While trying to accomplish a big multilateral deal, the member countries are also pursuing bilateral or smaller regional deals. China, Mexico and other Latin American countries and regional groups are investigating prospects for mutual trade agreements. 

The EU is eagerly pursuing free-trade agreements as well. The biggest prize – the Transatlantic Trade and Investment Partnership, which was being negotiated under the Obama administration – is moribund under Mr Trump. However, according to European Commission president Jean-Claude Juncker in his 2017 State of the Union address: “Partners across the globe are lining up at our doors to conclude trade agreements with us.” 

A free-trade agreement between the EU and Canada is now in effect, and an agreement in principle is signed with Japan. Targeting fast-growing economies in Asia and Latin America, agreements with Singapore and Vietnam are nearing completion, and negotiations with Mexico and the Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – are advancing fast. The EU also plans to open trade negotiations with Australia and New Zealand.

Provisions for workers

As trade agreements proliferate, some governments are also moving to incorporate provisions to minimise the perceived displacement of workers and growing income inequality that has driven popular opposition to trade deals and propelled the rise of Mr Trump. Future trade agreements may well contain strong provisions for worker rights and environmental protection, legal experts noted at a conference on trade agreements at the Dean Rusk International Law Center at the University of Georgia.

If, as one speaker urged, trade agreements address global issues of common concern, and not just trade, they may be less vulnerable to populist messages and have a stronger chance of surviving the next occupant of the White House.