After the United States’ recent diplomatic effort of trying to prevent
general adherence to China’s Asian Infrastructure Investment Bank
(AIIB), U.S. officials and policy makers have been under immense
pressure to strengthen their presence in the huge Asian region on the
trade and economic fronts, By concluding the Trans-Pacific Partnership
(TPP), a potentially historic trade agreement linking the U.S, Japan and
ten other rim countries, China would see its goal of reducing
Washington’s presence in its neighborhood severely thwarted. Moreover,
the TPP would connect the United States to the economic center of the
21st century, one of the fastest-growing regions of the world, and
cement its relationship to Japan, its key ally. It would be the first
real manifestation of Obama’s pivot to Asia, which so far consisted of
mere rhetoric.
China, which is excluded from the countries negotiating the TPP, has
responded by promoting the Regional Comprehensive Economic Partnership
(RCEP), which excludes the United States, and which would promote
rapprochement between Beijing and Tokyo. The tussle for regional
influence between the United States and China has thus also taken hold
of the debate about trade agreements. Just like the TPP, the RCEP, whose
negotiations were launched at the Association of Southeast Asian Nations
(ASEAN) Summit in Phnom Penh in November 2012, would connect a large
chunk of the global economy, placing China and Japan at the center, and
harmonize trade-related rules, investment and competition regimes. The
RCEP includes a vast array of rules about investment, economic and
technical cooperation, intellectual property, competition, dispute
settlement and government regulation. Notably, India, set to play key
economic role in Asia in the coming decades, is also part of the
grouping.
With TPP spearheaded by the U.S. and RCEP led by China, there has been a
lot of attention lately on how the two countries are using the Free
Trade Agreements to benefit themselves and keep each other out of their
respective regional economic arrangements. Meanwhile, the ASEAN and its
member states are also playing an important role in the future of trade
arrangements within Asia-Pacific. As its economic cooperation and
integration efforts have reached a crucial stage, ASEAN is concerned not
only about the welfare effects of TPP and RCEP on its member states, but
also about their impact on the development of ASEAN as an economic
community.
The RCEP bloc is being negotiated between the ten countries that form the
ASEAN and their six biggest trading partners in the region: Australia,
China, India, Japan, New Zealand and South Korea.
THE CLOCK IS TICKING
There are various deadlocks on reaching out the comprehensive trade deal
among the RCEP nations and the bloc is facing immense hurdles similar to
TPP, yet the RCEP governments have little room for further unnecessary
delays. The pact is to integrate and improve upon the separate trade
agreements between ASEAN and individual countries including China, Japan
and India, creating a 16-nation preferential trade area and a parallel
platform of trade liberalization for non-TPP states.
RCEP includes more than 3 billion people, has a combined GDP of about
$17 trillion, and accounts for about 40 percent of world trade. If
negotiated successfully, RCEP would create the world’s largest trading
bloc and have major implications for Asian countries and the global
economy in the coming decades.
Seven nations are participating in both the TPP and RCEP — Australia,
Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam. For others,
accession to the TPP may not be an option due to an inability to meet
commitments or liberalize their markets to the extent required. And for
them, the conclusion of the RCEP is becoming increasingly critical to
mitigate the risk of trade diversion or relocation of foreign
investment.
In the recent round of negotiations to settle RCEP, China and India have
shown reluctance to lower tariffs on agricultural products, and both are
working to limit the ratio of tariff-free items, in stark contrast to
Japan and ASEAN members. Japan however, seeks to liberalize a large
swath of goods under the RCEP, much like the TPP would.
Fortunately, RCEP governments get a reprieve, as the TPP still faces
numerous political and procedural hurdles. It is unlikely that the TPP
will be implemented at least until 2017, with U.S. ratification doubtful
to progress amid campaigning for next November’s elections.
More importantly, the RCEP can play a crucial role in building up the
capacity of developing economies, such as those of Cambodia, Laos, and
Myanmar, and possibly build toward the proposed wider Free Trade Area of
the Asia-Pacific. Countries like Singapore and Malaysia have made it
clear they see the TPP and RCEP as mutually reinforcing platforms for
regional integration and possible pathways to the FTAAP.
With TPP members having agreed on ambitious trade commitments, the
opportunity has arisen for the RCEP parties to implement economic and
technical cooperation programs with the aim of upgrading their trade
regimes. The ASEAN-Australia-New Zealand trade pact is a notable example
that could be used for the RCEP.
Recently, India is facing trouble at the on-going negotiations for the
RCEP, China has demanded that New Delhi eliminate duties on almost all
categories of items, including sensitive ones such as steel, electronics
and chemicals, despite the initial decision taken by the two countries
to keep ambitions low.
The RCEP has prescribed a deadline of June 1 for all members to give
their first round of requests to other members, based on the initial
offers made by each, as efforts are on to wrap up the pact this year.
“While there are a number of items including agriculture products,
pharmaceuticals, auto components, marine products and metals where our
industry has aggressive interests in China, we are apprehensive about
asking for too much as it may lead to China justifying its own high
demands placed before us,” Said an Indian official.
Though, in the first round of offers, India agreed to eliminate tariffs
on 42.5 per cent of items for China, Australia and New Zealand, 65 per
cent for Japan and South Korea and 80 per cent for the ASEAN. It is
important for India to be a part of the proposed pact to counter bigger
blocs like the TPP and also retain its competitiveness in the region.
CHINA-U.S. ECONOMIC RIVALRY
The US and China are increasingly rivals on the world stage, competing
over resources, policy and influence. Various economic experts and think
tanks foresee China seeking to quicken the pace of its free-trade
negotiations with other Asia-Pacific economies to counter a mammoth
Washington-led trade pact in the region.
However, recently, the TPP has focused on forging openings in areas
where the developed nations have advantages, such as services and
intellectual property, while the RCEP is focused on goods manufacturing.
This is “consistent with their comparative advantages”, according to
trade experts Peter Petri and Michael Plummer, who have deeply
researched both initiatives, in some cases teaming up with Fan Zhai of
China Investment Corporation.
President Obama in his recent visit to Japan and Vietnam has praised the
TPP and role of these two countries in the TPP accord. As both these
countries are also members of the China-led RCEP, so the purpose of the
his visit could be to urge their leadership to tilt towards the U.S. in the
economic rivalry with China. But it is too early to say before the
reaching out to an agreement on the RCEP bloc.
Meanwhile, Chinese President Xi Jinping delivered a speech on China-Vietnam
relations at the Vietnamese National Assembly in Hanoi, Vietnam, on
November 6, 2015. He referred to how relations have assumed “strategic
importance.” China is Vietnam’s largest trading partner. These
communist countries are not enemies. They are friends.
In an opinion piece published on the website of the Washington Post
earlier this month, Obama said he understood voter skepticism but that
“building walls to isolate ourselves from the global economy” would
backfire on the American economy.
“China is negotiating a trade deal that would carve up some of the
fastest-growing markets in the world at our expense, putting American
jobs, businesses and goods at risk,” Obama said in the piece.
Obama was referring to the 16-member Regional Comprehensive Economic
Partnership, or RCEP, and noted that China was seeking to finalize the
deal by the end of the year.
“That trade deal won’t prevent unfair competition among
government-subsidized, state-owned enterprises. It won’t protect a free
and open Internet,” Obama said, also criticizing the RCEP’s lack of
protections for intellectual property, labor standards and the
environment.
RCEP and the TPP are critical and arguably indispensable steps towards
FTAAP, but will not guarantee its realization. They will promote
economic integration among members, but will not offer comprehensive
regional coverage or, at first, broadly acceptable rules. Since neither
negotiation includes both China and the United States, much of the
economic and political benefits of regional economic integration would
be still unrealized. At worst, the two agreements could establish
conflicting standards that are difficult to reconcile and would make the
“noodle bowl” of overlapping trade agreements more intractable.
Intensified discussions of FTAAP could help to turn the current
negotiations into stepping stones rather than stumbling blocks on the
path toward it.