CHINA
22 March 2014
China and the TPP
China has not been invited to participate in the negotiation of the Trans-Pacific Partnership (TPP) trade agreement. Why?
China has not been invited to participate in the negotiation of the Trans-Pacific Partnership (TPP) trade agreement. Why?
Fred Bergsten and Jeffrey Schott argue bravely that this is not about the US trying to "contain" China's economic and political influence or providing a peaceful counterweight that siphons off some of China's neighbors to a "counter-coalition."
But does this argument really hold water?
First things first, what is the TPP? The TPP is billed as a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues that will boost the competitiveness of TPP countries in the global economy.
The TPP negotiations cover all aspects of commercial relations among the TPP countries, things like competition policy, cross-border services, customs, e-commerce, environment, financial services, government procurement, intellectual property, investment, investment, labor, legal issues, market access for goods, rules of origin, sanitary and phytosanitary standards, technical barriers to trade, telecommunications, temporary entry of business persons, textiles and apparel, trade remedies, and cooperation and capacity building to support developing countries’ ability to implement and take advantage of the agreement.
The TPP is currently being negotiated by the following nine countries -- Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States. Canada and Mexico have recently been invited to join the negotiations. Japan and Korea have not yet decided whether to get on board.
In short, everyone who counts in the Asia-Pacific region is part of the TPP negotiations, or on the sidelines, except for China -- even though China is the most important trading partner of virtually every TPP country.
Bergsten and Schott attempt to reassure that China's exclusion does not represent a US containment policy, citing two specific reasons. "First, US officials need a cooperative China to confront the myriad problems facing the world economy and the security challenges posed by new and aspiring nuclear nations in Asia. ... Second, no one else in Asia wants to contain China either. The trade and investment integration in the Asia-Pacific region achieved over the past few decades benefits all the TPP participants ..."
At the same time, they do concede that domestic politics stop the US inviting China into the TPP -- "What US politician would talk about negotiating a free trade deal with China given the current contentious debate about Chinese exchange rate and industrial policies?".
According to Bergsten and Schott, "China is not ready to undertake TPP requirements with regard to the transparency of government policies that affect trade and investment; its opaque and often discriminatory domestic policies and regulations, its distortive production subsidies, and its manipulative exchange rate policies are clear barriers to TPP entry. ... China's participation in the talks is not of immediate interest to Chinese officials. What Chinese official would consider undertaking such far-ranging commitments regarding domestic economic policies until their new political leaders are in place and have set Chinese commercial priorities?"
From a US perspective, they tell us that the TPP addresses both offensive and defensive interests: expanding exports to Asia and confronting discrimination that could undercut US competitiveness and sales in those markets. And for most countries in Asia, the TPP is about keeping the US in the region, rather than keeping China out.
As courageous as their argumentation is, it is hard to believe that Vietnam (now a close US ally) is any more ready to negotiate the TPP than China. Sure, Vietnamese leaders may have implicitly agreed to a framework of economic reform, over a lengthy time period, as a condition for entering the TPP negotiations. But Vietnam's level economic and institutional development is way behind China's, and also China has a much more open and participative society.
The TPP may seek to be a 21st century trade agreement. But quite clearly, the method of its negotiation is very much 20th century. That is, the US sets the rules based on what its Congress and corporations want, and everyone else has to swallow that. And the TPP, with its lineup of small countries, most of which already have some trade agreement with the US, enable the US to bulldozer through the agreement it wants, and then force all the newcomers to fall in line.
In short, it seems that the US is playing hard-ball, or at least cat-and-mouse with China. Is this fair? Does it make sense?
In an ideal world, there should be an inclusive approach, with everyone on board, for the TPP negotiations. But we don't live in an ideal world.
If China were involved in the TPP discussions now, it would do its best to water them down. And the only way to get respect from China is to play hard ball.
A decade ago, China used its membership World Trade Organisation as a means to launch a new phase of reform. The hope is that when China new leadership is settled into place, it might similarly use membership of a high quality TPP to launch yet another phase of reform. And this hope may not be in vain -- because China desperately needs a new big dose of reform to maintain its high growth.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Fred Bergsten and Jeffrey Schott argue bravely that this is not about the US trying to "contain" China's economic and political influence or providing a peaceful counterweight that siphons off some of China's neighbors to a "counter-coalition."
But does this argument really hold water?
First things first, what is the TPP? The TPP is billed as a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues that will boost the competitiveness of TPP countries in the global economy.
The TPP negotiations cover all aspects of commercial relations among the TPP countries, things like competition policy, cross-border services, customs, e-commerce, environment, financial services, government procurement, intellectual property, investment, investment, labor, legal issues, market access for goods, rules of origin, sanitary and phytosanitary standards, technical barriers to trade, telecommunications, temporary entry of business persons, textiles and apparel, trade remedies, and cooperation and capacity building to support developing countries’ ability to implement and take advantage of the agreement.
The TPP is currently being negotiated by the following nine countries -- Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam, and the United States. Canada and Mexico have recently been invited to join the negotiations. Japan and Korea have not yet decided whether to get on board.
In short, everyone who counts in the Asia-Pacific region is part of the TPP negotiations, or on the sidelines, except for China -- even though China is the most important trading partner of virtually every TPP country.
Bergsten and Schott attempt to reassure that China's exclusion does not represent a US containment policy, citing two specific reasons. "First, US officials need a cooperative China to confront the myriad problems facing the world economy and the security challenges posed by new and aspiring nuclear nations in Asia. ... Second, no one else in Asia wants to contain China either. The trade and investment integration in the Asia-Pacific region achieved over the past few decades benefits all the TPP participants ..."
At the same time, they do concede that domestic politics stop the US inviting China into the TPP -- "What US politician would talk about negotiating a free trade deal with China given the current contentious debate about Chinese exchange rate and industrial policies?".
According to Bergsten and Schott, "China is not ready to undertake TPP requirements with regard to the transparency of government policies that affect trade and investment; its opaque and often discriminatory domestic policies and regulations, its distortive production subsidies, and its manipulative exchange rate policies are clear barriers to TPP entry. ... China's participation in the talks is not of immediate interest to Chinese officials. What Chinese official would consider undertaking such far-ranging commitments regarding domestic economic policies until their new political leaders are in place and have set Chinese commercial priorities?"
From a US perspective, they tell us that the TPP addresses both offensive and defensive interests: expanding exports to Asia and confronting discrimination that could undercut US competitiveness and sales in those markets. And for most countries in Asia, the TPP is about keeping the US in the region, rather than keeping China out.
As courageous as their argumentation is, it is hard to believe that Vietnam (now a close US ally) is any more ready to negotiate the TPP than China. Sure, Vietnamese leaders may have implicitly agreed to a framework of economic reform, over a lengthy time period, as a condition for entering the TPP negotiations. But Vietnam's level economic and institutional development is way behind China's, and also China has a much more open and participative society.
The TPP may seek to be a 21st century trade agreement. But quite clearly, the method of its negotiation is very much 20th century. That is, the US sets the rules based on what its Congress and corporations want, and everyone else has to swallow that. And the TPP, with its lineup of small countries, most of which already have some trade agreement with the US, enable the US to bulldozer through the agreement it wants, and then force all the newcomers to fall in line.
In short, it seems that the US is playing hard-ball, or at least cat-and-mouse with China. Is this fair? Does it make sense?
In an ideal world, there should be an inclusive approach, with everyone on board, for the TPP negotiations. But we don't live in an ideal world.
If China were involved in the TPP discussions now, it would do its best to water them down. And the only way to get respect from China is to play hard ball.
A decade ago, China used its membership World Trade Organisation as a means to launch a new phase of reform. The hope is that when China new leadership is settled into place, it might similarly use membership of a high quality TPP to launch yet another phase of reform. And this hope may not be in vain -- because China desperately needs a new big dose of reform to maintain its high growth.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com