One of Donald Trump’s fi rst acts as President of the United States was to pull the US out of the Trans-Pacifi c Partnership. Trump has been openly critical of multilateral agreements. On his 100th day in offi ce, he signed an executive order directing offi cials to review all free trade agreements that the US currently has in force. Trump also plans to renegotiate the NAFTA and has raised prospects of renegotiating the Korea-US Free Trade Agreement as well.

Ironically, it was the US which stood to benefit the most from the TPP in real dollar terms, at USD 131 billion by 2030. In terms of the benefi ts, Vietnam and Malaysia were expected to be the biggest beneficiaries relative to the size of their economies at 8.1 per cent and 7.6 per cent of GDP, respectively. New Zealand stood to gain by 2.2 per cent of GDP while Australia’s estimated gain is a more modest 0.6 per cent of GDP. This is because Australia has an existing FTA with the US, hence its gains come from getting better access to the other countries in the agreement. Not surprisingly, the winners from TPP failure are those countries outside of the agreement. Members within an FTA tend to gain, while those outside it could see trade and investment diverted away, especially if they are in close geographical proximity and have similar economic structures. China, Korea and Thailand stood to lose out if the TPP went ahead. There is uncertainty over whether the remaining eleven member countries who signed up for the TPP will implement the agreement without the US. At present, talks are still ongoing, but it is clear that the benefi ts of any deal are greatly diminished in the absence of the US. Failure to progress with the TPP in whatever form is more of a lost opportunity rather than something that will have a negative impact on trade prospects. This is because the TPP had not been in force and many countries in the TPP have existing FTAs which will continue to operate in the meantime.

The US stance on trade need not mean the end for multilateral agreements. China’s President Xi Jinping championed globalisation in his speech at the World Economic Forum in Davos in January. China looks set to take the lead by pushing ahead with the Regional Comprehensive Economic Partnership (RCEP), which should now be the main focus as a replacement for the TPP. It is somewhat ironic that the US, the heart of global capitalism, is withdrawing from engagement with the rest of the world, while China is promoting the benefits of globalisation and free trade. The RCEP covers the 10 countries that are part of the Association of Southeast Asian Nations (ASEAN), and six of the countries that currently have FTAs with ASEAN, including Australia and New Zealand. While the RCEP will not include the US, it will include the two most populous countries in the world – China and India. Hence, the RCEP covers 48 per cent of the world’s population (compared to just 11 per cent for the TPP), though the GDP of the RCEP members accounts for 32 per cent of global GDP, less than the 38 per cent for TPP. Trade by RCEP members accounts for 29 per cent of global trade, higher than the TPP’s 27 per cent.

The principal aim of the RCEP is to bridge two existing and long-standing proposals by adopting an open ascension scheme: the East Asia Free Trade Agreement which focuses on ASEAN plus China, Japan, and South Korea; and the Comprehensive Economic Partnership which added three economies, Australia, New Zealand, and India to ASEAN. It is relatively easier for smaller groupings of ‘like-minded’ economies to negotiate trade outcomes than a full multilateral trade round, especially when there are already existing agreements in place between members. The RCEP is less ambitious in terms of trade issues covered and utilises a clear step-by-step approach. For instance, one key difference between the RCEP and the TPP is that while the RCEP is expected to cover standard items such as trade in goods and services, investments and dispute settlements, it may not extend to more onerous areas such as the environment and labour and food safety standards - like with the TPP. But one of the benefi ts that RCEP will bring is to harmonise tariff schedules and rules of origin, helping streamline the various existing and overlapping ASEAN FTA rules (commonly known as the “noodle bowl” effect). Furthermore, unlike TPP, which applies the same standards across all countries, RCEP has differential treatment for developing countries, and provides for development assistance through economic and technical cooperation provisions. These make it easier for the developing Frontier Mekong countries to join the RCEP.

In addition, the RCEP is more likely to boost trade given that it is friendly to global supply chains via foreign direct investment (FDI) provisions. The economic benefi ts of RCEP may not be as large in aggregate compared to TPP, but it is likely to be the superior outcome for Asia. The inclusion of China and India, the two most populous countries in the world and two of the fastest growing economies, will help to make up for the loss of the US. For Australia and New Zealand, the immediate benefi ts from RCEP will not be large. This is because both countries already have existing FTAs with China. But there is a longer term benefi t from greater integration with Asia, which is expected to post stronger economic growth compared to the aggregate TPP countries. In addition, Australia and New Zealand stand to gain from being on the ground fl oor as the Mekong economies develop faster under the RCEP, as they stand to benefit from differentiated treatment and technical assistance. Perhaps most importantly is that a successful conclusion to RCEP will send the signal Asia remains committed to multilateralism and the benefi ts of free trade.