The Peninsula

What the U.S. Rejection of TPP, Brexit, and a New Trade Agreement May Mean for Korea

By Donald Manzullo

President Donald Trump did not take long in fulfilling his campaign promise to pull out of Trans-Pacific Partnership (TPP).  Just three days into his presidency, he formally withdrew the United States from the TPP and began to honor his pledge to change the way the United States does trade.

The P4 Trade Agreement started the chain reaction that formally led the U.S. to get involved in what became TPP:  Brunei, Chile, New Zealand and Singapore signed a free trade agreement effective 2006 that eventually led to the TPP talks to expand the four nation agreement to 12 or more if nations would adopt the standards and agreements of the final document.  In addition to the original four, eight other nations eventually joined the talks:  Japan, Malaysia, Vietnam, Australia, Mexico, Canada, Peru, and, of course, the United States.   Korea expressed interest but ultimately did not join in time to be a part in this first round of the TPP, though it supported the document and was prepared to join as soon as possible after all the other countries implemented the agreement.  The TPP would have linked together a free trade agreement with countries already responsible for 40 percent of world trade, removing around 18,000 tariffs in services and agricultural and industrial goods.

I was involved in the preliminary TPP advisory discussions, as Chairman of the Subcommittee on Asia and the Pacific of the House Foreign Affairs Committee, when I led what turned out to be the largest delegation of U.S. Members of Congress to visit New Zealand and Australia.  Our delegation joined by principles from around the world discussing the TPP.  As a member of Congress who voted for every free trade agreement presented before the House of Representatives, the TPP was particularly intriguing because of the number of countries involved.  Congress had never debated and passed a plurilateral FTA with that many potential partners.  We were in Christchurch, New Zealand for two days of meetings and discussions.  It is hard to forget the second day:  a few hours after our plane left Christchurch on February 22, 2011, a massive earthquake shook the Christchurch vicinity, killing 185 people.

It should be noted that TPP in its final form had some very serious U.S. detractors, beyond the usual opponents of trade from the labor and environmental communities, including the U.S. pharmaceutical industry, particularly the intellectual property rights concerns among biologics firms.  Biologics drugs substitute biological material in place of the traditional chemicals, which is at the cutting edge of pharmacology and other uses.

Even though Trade Promotion Authority (TPA), which gave the president the ability to submit the final TPP agreement to both houses of Congress without the opportunity to amend the deal, passed Congress, the House narrowly passed this legislation by a vote 218 to 208 (House vote #374, June 18, 2015).   While the Senate passed TPA by a larger margin, by a vote of 68 to 37 (Senate vote #218, June 23, 2015), that preliminary vote for TPA did not guarantee that the TPP would pass Congress when presented.

Meanwhile, the presidential elections and fiercely fought congressional races (such as Ohio Senator Rob Portman’s bid for re-election) resulted with Trump openly campaigning against TPP and Secretary of State Hillary Clinton and others changed their mind after first supporting the agreement.  The policy of free trade is now in retreat.

President Trump says he embraces bilateral trade agreements as opposed to more complex multilateral deal.  That’s encouraging because he could oppose all free trade agreements.  While he has spoken negatively of the Korea-U.S. Free Trade Agreement (KORUS FTA) on the campaign trail as a stalking horse for the TPP, the agreement meets all of President Trump’s criteria for a good FTA.  The KORUS FTA (1) is a bilateral agreement; (2) has increased U.S. jobs; (3) has increased the compensation for U.S. workers; and (4) has helped reduce the merchandise trade deficit.

More particularly, Trump and the new Prime Minister of the United Kingdom, Theresa May, are now discussing a FTA between the U.S. and the U.K. that would lower or eliminate what tariffs exist between the two countries.  In fact, Prime Minister May is scheduled to speak before the normally closed House of Representatives Republican retreat.  That is interesting because the American colonies opposition to Great Britain’s taxes on tea and other products precipitated the Revolutionary War.  Now, it’s the same two countries who are at the beginning of a new paradigm of trade policy.  Great Britain, fresh from the Brexit vote, and the U.S., just days into the anti-free trade Trump Administration – two former enemies which fought a war over the issue of trade – may have each other as partners in each country’s first free trade agreement since their respective seismic change in domestic politics.

Like it or not, welcome to the new world of free trade.  How the Trump administration will handle the talks with the U.K. and the renegotiation of the North American Free Trade Agreement (NAFTA) should provide insight to Korea into what this new world of trade will look like in the coming months and years ahead.

Donald Manzullo is President and CEO of Korea Economic Institute and former Member of U.S. Congress (1993-2013). The views expressed here are the author’s alone.

Photo from Paul B.’s photostream on flickr Creative Commons.