Let China Join the Party

Economic Times, January 07, 2012


Trans-Pacific Partnership should include China as it is a major trading partner of most of the members

A new spaghetti bowl phenomena sans China has started creating a stir in the trans-Pacific region, especially since the recent meeting of Asia Pacific Economic Cooperation (Apec) leaders in Hawaii. This is the much-hyped Trans-Pacific Partnership (TPP) Agreement, formed as a free-trade agreement between Chile, New Zealand, Brunei Darussalam and Singapore in 2005, and currently being negotiated by Australia, Malaysia, Peru, US, Vietnam and Japan.

The TPP has now acquired a more comprehensive and a rather geopolitical connotation with the entry of the US into the negotiation process. However, it cannot be denied that because of the US presence, the TPP has now been able to take lead for a more comprehensive and broad-based engagement among select Apec members. It now envisages cooperation in areas encompassing trade in goods, rules of origin, traditional agriculture, services, investments and competition policy, among others.

Interestingly, the emergence of this congregation raises three critical issues pertinent to both the Asian geoeconomic architecture as well as to the evolution of multilateral trading system. First and foremost, in the wake of the Doha Round impasse, can TPP be seen as a step towards a more transcontinental congregation capable of strengthening multilateralism? Just to make a mention that the evolving global order is already witness to many such efforts such as Apec, the G8, G20 and Brics, to name a few. Most of the newer issues such as ascertaining the role of stateowned enterprises, innovation policies or harmonisation of regulatory norms, which are included as part of this negotiation, seem to build compatible systems to support either American exports or their jobs, and in most cases, both. Importantly, such needs of American economic diplomacy should be taken positively; but concurrently, it also solicits ascertaining the advantages that can emanate for other smaller member-economies.

The members have agreed to have a comprehensive market access in goods, services and investments; and to develop a single-tariff schedule and common rules of origin, which are commendable efforts. However, negotiating a single-tariff schedule amid economic heterogeneity among members may either be a distant reality or can put discriminatory burden on small member-economies considering their participation in international trade. Whereas Brunei’s global exports stand at a mere $8.68 billion as of 2010, the figure for New Zealand is $30.93 billion and for Vietnam $75.60 billion, compared to that of the US that stands at a huge $1,277 billion, thereby accounting for more than 40% of TPP’s global exports.

Also, in order to qualify as a truly multilateral congregation, TPP needs to develop common positions and commitments for least developed countries (LDCs) as well. This is important because bilateral trade between TPP and LDCs stands at close to $32 billion. The second pertinent issue is the question of China joining the TPP. This is a fundamental concern because China is also an Apec member, and for most of the TPP countries, China continues to be a major trading partner. Statistics reveal that whereas TPP’s exports to China account for $388.92 billion; their imports from China stand at a relatively larger figure of $669 billion, suggesting China’s outreach in the trans-Pacific region. Therefore, excluding China will be difficult for most TPP members such as Singapore, Vietnam, Peru, etc, if not the US, which, through its rule-making initiatives based on TRIPS-plus, etc, seems to have made Chinese entry difficult.

Moreover, since the TPP is also focusing on strengthening supply chains, China can play a pivotal role. In the present scenario, benefits may accrue from regional convergences considering the fact that TPP has a geostrategic advantage of hosting linkages to maritime trade routes. But there are possibilities that it will deter the global supply chains that its member countries like Peru or Chile, for instance, have been managing with Asian countries like India and China. Despite geographical problems of lack of contiguity and proximity, Peru’s exports to China, which account for $5.42 billion as of 2010, are relatively closer to Peruvian exports to US of $5.76 billion. Interestingly, Chile’s exports to China, accounting for $17.35 billion, are more than double compared to its exports to the neighbouring US, that stands at $7.04 billion. Thus, with China on board, strengthening supply chains and integrating the constituent value chains will be a relatively easier process.

Finally, the third issue pertains to its geopolitical gravity in Asia. The TPP is also being looked at through the lens of Asian integration and China’s promising region-building efforts therein, along with India, Japan, South Korea and the Association of Southeast Asian Nations (Asean). With a more pessimistic viewpoint, it may be argued to be a parallel congregation that can create a new role for the US in the region that East Asia Forum could not do. However,optimism lies in advocating for its viable composition and institutional framework that is capable of both strengthening multilateral trading system as well as supporting other global or regional efforts toward multilateralism.

Also, it is clearly evident that China’s economic influence is growing across the Asian continent and beyond. And, therefore, without including a geographically-eligible fast-emerging market like China, TPP can neither be a geopolitically stable nor a geo-economically sustainable congregation. In this wake, only a Sino-US rapprochement can essentially normalise this stir, and help multilateralism flourish.

(The author is associate director at CUTS International. Views are personal)

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