What the Trans-Pacific Partnership Means for Southeast Asia

    The trade deal would be a giant step for the four Southeast Asian countries currently in talks.

    By Hunter Marston | July 27, 2015

    The Trans-Pacific Partnership (TPP) made it through its toughest hurdle in the U.S. Congress last month, after the House and Senate both voted in favor of granting President Barack Obama Trade Promotion Authority (TPA), otherwise known as “fast track,” the ability to negotiate the TPP and other trade deals with foreign countries.

    Touted as a “21st century trade agreement,” the TPP would bring together 12 nations, including the United States and Japan, encompassing 40 percent of global trade under a progressive, far-reaching free trade deal.

    Environmental groups, labor unions, and anti-trade activists, have vociferously opposed the “fast track” bill. In contrast, foreign policy analysts in Washington have generally been in favor of the TPP. They argue that failure to reach a free trade agreement with Asian economies would allow China to set the global norms, fearing China’s mercantilist foreign policy would neglect environmental standards, labor rights, and intellectual property rights, and set a low bar for global standards.

    Few have paused to consider what the TPP means for the four Southeast Asian nations in negotiations: Vietnam, Malaysia, Singapore, and Brunei. A range of issues are at stake, from currency manipulation to regulation of state-owned enterprises (SOEs), which have particular relevance for Southeast Asia’s state-centric economies. The TPP could bring about significant financial and social reforms to these countries, opening the playing field to foreign investors while introducing progressive labor standards and environmental protections.

    Many of the rising “tigers,” as Asian economic powers like Singapore came to be known following rapid growth in the last half-century, benefited from protectionist policies and high tariffs reducing foreign competition. Vietnam and Malaysia in particular maintain some of the world’s highest tariffs and non-tariff barriers (NTBs) against foreign businesses. So why would these economies want to open their doors to change now?

    According to a study by Peterson Institute, Vietnam may stand to gain the most under the TPP framework. Jack Sheehan, a partner at DFDL specializing in cross-border legal services, argues the same:

     In 2012, Vietnam exported almost $7bn (£4.2bn) worth of apparel to the US, which accounted for 34% of US apparel imports. Vietnam also exported $2.4bn worth of footwear…The TPP will allow Vietnam to export apparel to the US at a 0% tariff rate, which will make Vietnamese exports even more competitive.

    However, the Communist Party of Vietnam (CPV) will have to continue unrolling privatization of its bloated SOE sector and pass progressive legislation strengthening labor rights in order to meet TPP criteria. SOEs make up roughly one-third of Vietnam’s GDP and are a huge drag on the economy, inflating national debt. Vinatex, a state-owned textile manufacturer, produces 40 percent of Vietnamese apparel and 60 percent of all textiles.

    Tom Malinowski, Assistant Secretary of State for Democracy, Human Rights, and Labor in the U.S. government, has argued that joining the TPP will force Vietnam’s government to continue fundamental political and economic reforms by granting Vietnamese laborers freedom of association and the right to form labor unions.

    Phasing out high tariffs will expose domestic industries to increased competition from overseas investors, but ultimately these structural reforms will set Vietnam’s economy on stronger ground and promote innovation in local firms.

    Malaysia will also have to get its house in order if it is to accede to TPP standards. The U.S. State Department downgraded Malaysia from Tier 2 to Tier 3 on the Trafficking in Persons (TIP) Report last year, having granted Kuala Lumpur waivers in 2012 and 2013 on promises that the country would make serious efforts to combat human trafficking.

    The regime of Najib Razak vowed to tackle sex trafficking and indentured servitude but has made little progress; in fact, things have gotten worse. TPP standards could force Malaysia to comply with global norms of human rights and improve labor conditions and the rule of law. Currently, Malaysia’s Tier 3 status jeopardizes the trade deal.

    While the White House could simply exercise executive authority to reinstate Malaysia’s Tier 2 status, a last-minute provision in TPP legislation introduced by Senator Bob Menendez (D-NJ), former Chairman of the Senate Foreign Relations Committee, aims to hold Malaysia accountable by denying Kuala Lumpur membership if it does not make improvements on human trafficking. (Update: In fact, the U.S. State Department upgraded Malaysia to Tier 2 status on Monday, U.S. time.)

    In April, American Ambassador Joe Yun urged the government of Malaysia to do more to prosecute human traffickers. Yun’s outspoken remarks on the outdated Sedition Act, which criminalizes speech critical of the government, have provoked ire in Kuala Lumpur. In December, the government of Malaysia summoned Yun to explain remarks he made in an interview with an online Malay news site.

    As a city state and a major port, Singapore’s economy is perhaps the most trade-dependent of all. While Singapore already has free trade agreements (FTAs) with the U.S., Japan, Australia, New Zealand, and Peru (all TPP negotiating partners), its market depends on maritime trade and security, particularly cross-border labor, goods, and services exchange with Malaysia, with which it shares a land border, and cross-strait trade with Indonesia. The Malacca Strait, a narrow maritime pass between Malaysia, Singapore, and Indonesia, make Singapore a vital economic and strategic link for Middle East oil imports flowing to the large economies of China and East Asia, as well as a major hub for international exports.

    Not far away to Indonesia’s north, the tiny country of Brunei has recently introduced conservative, Islamic laws clamping down on gay rights and pregnancy outside of marriage. Representative Mark Pocan (D-WI), along with other House members, signed a letter urging U.S. Trade Representative Ambassador Michael Froman and Secretary of State John Kerry to play a heavier hand with regards to Brunei:

        We…insist that Brunei address these human rights violations as a condition of the United States participating with them in any further Trans-Pacific Partnership trade negotiations.

    It remains to be seen whether negotiators wield enough influence to convince the government of Brunei to repeal repressive laws ahead of a final deal. TPP negotiating partners could bar Brunei from membership if it fails to meet certain TPP expectations. Brunei is the smallest economy of the 12 nations in talks (its nominal GDP was $16.11 billion in 2013, according to the World Bank). Therefore the leverage is on the side of the negotiating partners.

    The U.S. government has championed the Trans-Pacific Partnership as “a 21st century trade agreement,” one that will set high standards for international trade, protecting the environment, labor, and human rights worldwide. The TPP is an opportunity to advance progressive reforms in Southeast Asia by making sure that the benefits of preferential trade status are contingent on domestic guarantees of freedom of association, strong environmental protections, and high labor standards. The nations of Brunei, Singapore, Malaysia, and Vietnam have more to gain from membership in this progressive trade deal than from abstaining and stalling modern social and economic reforms.

    Hunter Marston is a Washington, D.C.-based Asia analyst. He holds an MA in Southeast Asia Studies from the University of Washington. He has lived, worked, and traveled in the region for nearly three years and writes on Asian political economy and trade.

    SOURCE thediplomat.com