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TPP countries: Time to move on without U.S.

From Japan to New Zealand, the governments of the 11 other countries that negotiated TPP are considering their next move in the era of President Donald Trump, and most scenarios don't envision a future with the United States.

Foreign leaders and officials made clear last week they are are still clinging to the dream of TPP and may seem less inclined to Trump's proposed alternative to the massive Asia-Pacific deal — a raft of bilateral trade deals.

The big question is whether countries now under the spell of regional trade cooperation in the age of global supply chains would be willing to deal with a U.S. administration that seems intent on negotiating one-sided trade agreements steeped in economic nationalism.

Even “when you’re the biggest player in town you gotta sort of recognize you have to leave something on the table for the other party,” Australian Ambassador to the U.S. Joe Hockey said last week. “American exceptionalism is based on a certain amount of humility.”

During the five-plus years it was being negotiated, the Obama administration promoted the 12-country trade deal as a market opening agreement that would set a high bar on trade rules and directly counter China's economic and strategic hegemony in the region. But angst over globalism and the spread of populist rhetoric during the presidential campaign killed any chances Congress might ratify the deal.

Trump blasted the deal as "horrible" and signed an executive order his first full day in office, announcing that the TPP no longer had U.S. support.

Now the 11 other countries in the pact are searching for a new direction for the beleaguered agreement, which they could find as soon as next month in the Chilean beach resort town of Vina del Mar. Chile has invited the entire TPP group there to talk about the future of trade in the Asia-Pacific with the fate of the agreement high on the agenda.

“It’s the moment they look around the room and ask: Are we serious about moving forward with TPP or are we going to stuff it in a drawer?” said Deborah Elms, the director of the Singapore-based Asian Trade Center, which consults governments and businesses on trade matters.

The gathering started as a meeting of the Pacific Alliance, a trade bloc consisting of Chile, Peru, Mexico and Colombia, and its many observer countries. But after Trump pulled the U.S. out of TPP, it was expanded into a more important opportunity to consider the next steps for the region. Chile has also invited South Korea and China to the meeting.

Mexico, Colombia, Peru, Australia, New Zealand, Canada, Japan, South Korea, Malaysia, Singapore and China have all confirmed their attendance at the meeting.

The prospect of China showing up at the meeting could complicate things.

Chinese President Xi Jinping has stepped into the breach left by the U.S.' departure from TPP, claiming to assume the mantle of globalism. And with the U.S. now out as the shepherd of rules-based trade in the Asia Pacific, countries may view China as an important option for expanded trade. Beyond any benefits a revived TPP might provide, countries in the region are surely viewing China’s 1.3 billion population and rising middle class as a key destination for exports of more milk powder from New Zealand, palm oil from Malaysia and beef from Australia.

The White House also hasn’t replied to queries on whether it will send a representative.

Regardless of China's role, experts say that the other countries involved in the TPP could find a way to move forward with the deal without the U.S. in a way that provides some economic gains and delivers on a promise to establish a new template for trade rules in the region.

“We are certainly proceeding after discussions with the other countries to have a 12-minus-1 TPP and go ahead without the United States and we still certainly encourage others to join,” Hockey said last Wednesday at the Chicago Council on Global Affairs.

He added that trade in the Asia-Pacific should be about American and Australian standards "being the benchmark for commerce in the fastest growing region not only in the world but in the history of humanity."

Australian Prime Minister Malcolm Turnbull and New Zealand Prime Minister Bill English reinforced that message during a summit hosted by New Zealand last Friday in which both leaders agreed to move the TPP forward without the U.S.

"We've agreed it's important to reach out to our TPP partners to continue to work to secure the significant economic and strategic benefits that TPP would deliver," English said.

Mexico, which will soon be caught up in a contentious renegotiation of NAFTA demanded by Trump, also wants to see TPP survive in some form.

“In the Asia-Pacific, we’re looking to work with the other members of the TPP to look how we can take forward, either as a group of countries or bilaterally,” Kenneth Smith Ramos, head of the Mexican embassy’s trade office, said last Thursday at an event hosted by the Washington International Trade Association.

Mexico is also looking beyond TPP toward a "strategy of diversification” that would expand trade with Brazil, Argentina and the European Union, Ramos said.

Malaysia also is looking at TPP without the U.S. as an option, but Mustapa Mohamed, the country's trade minister, acknowledged that keeping the deal alive in its current form "will be tough."

“It will be time consuming, and we would have to renegotiate," he said last Thursday on the sidelines of a conference in Kuala Lumpur. "We struck a balance during the TPP negotiations and without the United States, which is so big, that is one major motivation removed.”

Mohamed said Malaysia, like Mexico, is also considering a strategy of diversification and eyeing potential trade deals with Canada, Mexico and Peru. He said there were no plans yet to engage with the U.S. on a trade deal.

The comments make clear that countries still view the TPP as a platform for trade expansion. With its high standards and strict rules, it may be seen by some nations as the best option for challenging the behavior of China and other countries in the region on everything from intellectual property theft to the unfair advantages of state-owned enterprises

There is no reason why the deal shouldn’t move ahead without the U.S., the Asian Trade Center's Elms argued. The countries still in the TPP will gain market access advantages with each other for exports of goods and services as well as greater access to government procurement contracts.

The loss of any extra access to the U.S. market won’t be too significant. American tariffs are already low and for goods that TPP countries saw value in exporting to the U.S., such as cars from Japan and dairy products from New Zealand, Washington guarded against those imports with quotas, safeguards and tariffs that would only go away after periods of up to 30 years, Elms said.

Still, a new TPP deal may be more complicated to pursue. Many countries agreed to rules they might not have otherwise signed up to if they weren’t being pressured by the U.S.

Peru, for example, may demand that it not be required to adopt the TPP’s strict patent standards for pharmaceuticals. Malaysia could demand that TPP's rules prohibiting preferential treatment of ethnic Malays in government contracts be eliminated.

Those changes and others could threaten to unravel the agreement, and it's uncertain whether they could be made through "side letters" that wouldn't change the underlying text of the deal.

Meanwhile, the Trump administration's plan to pursue bilateral deals and abandon TPP altogether is facing skepticism.

Proponents of the TPP deny Trump's view that it was horrible deal and maintain that the carefully calibrated negotiating strategy would've resulted in Washington giving away very few concessions and reaching a final deal requiring almost no changes to domestic U.S. laws or regulations.

“Both the TPP critique is flawed and the bilateral strategy to replace is doomed to failure,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics. “The strategy is just not a position to bear fruit.”

“Why would other countries want to offer more concessions for less when they already have good access to the U.S. market?” he said during a presentation last Thursday. “The answer is the Trump administration is making threats to withdraw that access or rescind U.S. commitments.”

U.S. exporters, particularly farmers and ranchers, are nervously waiting to see how Trump’s bilateral strategy pans out, too.

A number of TPP countries that are major agriculture exporters are already in position to displace U.S. products in lucrative markets like Japan. Australian beef producers currently have access to Japan’s market at a lower tariff rate through a 2015 trade deal. The TPP would have recaptured that market for U.S. beef producers with Japan agreeing to lower its beef tariff even lower for American producers.

The U.S. and Japan agreed to undertake a broader economic dialogue when Japanese Prime Minister Shinzo Abe visited Washington earlier this month. The administration has targeted Japan as an early opportunity to strike a bilateral deal, even though Tokyo has little to gain economically from an agreement.

Many observers viewed the establishment of the dialogue as an attempt to slow walk Trump's drive to start bilateral trade negotiations with Tokyo.

“I don’t think it’s going to happen anytime soon,” said a Japanese official.

As a result, anxiety is high on Capitol Hill, where farm-state lawmakers eagerly await the president to move forward with his bilateral promise.

“I think the message a lot of us conveyed is the sense of urgency,” said Sen. John Thune (R-S.D.) after a Tuesday meeting with Peter Navarro, the chairman of Trump’s new National Trade Council. “If we’re not going to do a multilateral trade deal with Asia then we’ve got to start getting bilaterals right away.”

GOP lawmakers may not disagree with the bilateral approach, but confidence is low in the administration actually carrying out its promise.

"How long is it going to take?” Senate Agriculture Chairman Pat Roberts asked reporters last week. “Every trade agreement I’ve been involved is oversold and overcriticized, but it takes time and we don’t have much time out in farm country before we get in trouble and we’re the people that brought him [Trump] to the dance.”