On October 5, 2015 in Atlanta, trade negotiators from the US and eleven of its allies in the Pacific Rim reached final agreement on the Trans-Pacific Partnership (TPP), sending the trade agreement back to their national legislatures for final ratification. Once ratified, the TPP will constitute a trade bloc with a share of 40% of the global economy. The TPP region spans North and Latin America (Canada, the US, Mexico, Chile, and Peru), Anglo-Oceania (Australia and New Zealand), and East and Southeast Asia (Japan, Brunei, Malaysia, Singapore, and Vietnam). The TPP is one of three major regional trade agreements (RTAs) that the US has been negotiating; the other two are the Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU), and the Trade in Services Agreement (TiSA), also with the EU and other key US allies. In the Asia-Pacific region, the TPP and a separate RTA, the Regional Comprehensive Economic Partnership (RCEP), are envisioned to eventually be superseded by the Free Trade Area of the Asia-Pacific (FTAAP), which is a long-term project of the Asia-Pacific Economic Cooperation (APEC) (Calmes, 2015; Hamanaka, 2014, pp. 15-16; Singh, 2015; “Beijing says,” 2015).
China and the TPP
While China is not party to the TPP, it has welcomed the successful conclusion of the negotiations, noting that the TPP will accelerate the economic integration of the region and bring higher economic growth to the Asia-Pacific (“Beijing says,” 2015). While China has expressed interest in joining the TPP and TiSA, the US feels that China is not ready to meet the high regulatory standards expected of these trade regimes (Beattie, 2015; European Commission, 2014). However, econometric modelling predicts that the exclusion of China from the TPP will carry significant economic costs. While the model calculates that China will suffer a loss of 46 billion USD over the next decade due to its exclusion from the TPP, the TPP countries themselves will too suffer a serious opportunity cost of lower growth. The model calculates that the inclusion of China, South Korea and the ASEAN states of Indonesia, Thailand, and the Philippines in the TPP will generate a threefold increase in global economic growth, with China earning over 800 billion USD, and the US earning 330 billion USD — a fivefold increase in income — over the next decade. The significant opportunity costs of excluding China from the TPP should hence prompt the US to reconsider its present policy (Caro & Tang, 2015; Meltzer, 2015; “China Belongs,” 2015).
The exclusion of China and the EU from the TPP may prompt both to accelerate their existing efforts to reach a Sino-EU Free Trade Area (FTA). China is the EU’s largest trading partner after the US, and Sino-EU trade reached €467 billion in 2014. The Sino-EU FTA promises to significantly increase this volume of trade. The Bilateral Investment Treaty (BIT) which China and the EU are scheduled to complete negotiations for in 2016 could increase the scale of bilateral investment flows between China and the EU to match the scale of their trade, and also be a step towards the FTA (Chandran, 2015; Kynge & Oliver, 2015; Lim, 2015g; Zhang, Li, & Wu, 2015). Likewise, despite China’s exclusion from the US’ TPP and TiSA initiatives, China and the US remain keen on completing their BIT, especially since their bilateral investment flows at present do not match the scale of their trade (Lim, 2015i).
In the meantime, China is pushing for the early completion of the RCEP negotiations, which some see as a rival trade bloc to the TPP. While seven of the RCEP states are also party to the TPP (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam), RCEP also includes ASEAN states which are not party to the TPP (Cambodia, Indonesia, Laos, Myanmar, Thailand, and the Philippines) as well as the high-growth Asian economies of China, India, and South Korea. As some have noted, while it is true that the TPP countries carry a 40% share of global GDP and the RCEP countries only have a 29% share, in terms of GDP growth RCEP covers a faster growing region than the TPP. In terms of global trade, the TPP and RCEP capture approximately equivalent shares of global trade: 13% for TPP and 12% for RCEP. However, in terms of human population, with its inclusion of China and India, RCEP captures approximately half the world’s population, compared to the TPP’s capture of just 10% (Macauley, 2015). As China transitions to a consumer-based economy, and as India accelerates its economic development, their importance as global destinations for consumer goods and services will continue to strengthen. Indeed, some analysts note that China’s economy is probably larger than currently estimated because of the difficulties in fully accounting for activity in the services sector (Scott, 2015). Should both the TPP and RCEP be ratified and come into effect, the seven countries that belong to both trade blocs will enjoy the privileged status of being gateways between the TPP and RCEP, especially for the transit of high-value goods and services from the US and Japan into the key consumer markets of China and India. These gateways will allow manufacturers in the TPP region overcome the problem of the TPP’s exclusion of the massive markets of China and India (Kumar, 2015; See, 2015; “RCEP negotiations,” 2015; “TPP without China,” 2015). This future division of the Asia-Pacific into two trading blocs is expected to end when APEC’s FTAAP comes into effect and supersedes both the TPP and RCEP.
Apart from RCEP, China’s One Belt One Road (OBOR) initiatives will also help it develop its economic linkages outside of the TPP framework. OBOR consists of two distinct but interconnected development frameworks: the Silk Road Economic Belt (SREB) and the 21st Century Maritime Silk Road (MSR). In the countries along the SREB and MSR, China has signed a series of bilateral agreements for the construction of infrastructure megaprojects and other economic cooperation projects. In Pakistan, for instance, China will be developing the Arabian Sea port of Gwadar and will also construct the China-Pakistan Economic Corridor: a transportation, energy, and communications megaproject that promises to accelerate Pakistan’s economic development (Lim, 2015d). In Southeast Asia, China will be constructing medium- and high-speed rail lines in Laos, Thailand, and Indonesia, along with other infrastructure projects like energy and port development (Chung, 2015; Lim, 2015e; “China, Indonesia,” 2015; “Port Laem Chabang,” 2015; “Railway to connect,” 2015). In Central Asia and Eurasia, China’s SREB projects include energy pipelines and industrial parks (Lim, 2015b). In Latin America and the US — which could eventually come under the MSR framework — China will be constructing transportation megaprojects including a high-speed rail line linking Los Angeles with Las Vegas, and the proposed Transcontinental Railway linking the Atlantic and Pacific Oceans through Brazil and Peru (Lim, 2015f; Lim, 2015i). In Africa, China’s MSR projects include the development of a series of deepwater ports as well as a regional rail corridor connecting Kenya with Uganda, Burundi, and South Sudan (Lim, 2015a). These projects of practical cooperation not only manifest what Chinese President Xi Jinping has described as a “new type of international relations” that is based on win-win cooperation, they also function as one of China’s new engines of growth during this transitional period of China’s economic deceleration to a “new normal” of sustainable single-digit growth (Lim, 2015c; “Chinese president,” 2015). Indeed, the Pan-Asian Railway from Kunming to Singapore, one of the SREB’s Southeast Asian flagship megaprojects, is estimated to have the potential to add 375 billion USD in additional growth to China and its partner countries. Globally, even with China’s exclusion from the TPP framework, OBOR is projected to increase the volume of trade for China and its economic cooperation partners by up to 2.5 trillion USD over the next decade (Lehmacher & Padilla-Taylor, 2015; Guo, 2015).
This paper was originally published in Eurasia Review (Lim, 2015h). Since that time of writing, representatives from the 12 member states met to sign the TPP on February 4, 2016, formally concluding the treaty’s negotiation phase. The member states now have two years to ratify the treaty (Chia, 2016). The TPP could be derailed during this phase, especially if ratification fails in the US. As the Harvard economist Lawrence Summers has observed, all 4 of the leading presidential candidates in the 2016 US general elections — Hilary Clinton, Bernie Sanders, Ted Cruz, and Donald Trump — currently oppose the TPP, though of course this could change once the eventual winner assumes the presidency (Haass & Summers, 2016). In the meantime, the Chinese foreign ministry has expressed its disquiet with the Obama administration’s continued politicization of the TPP, especially its characterization of the TPP as an opportunity for the US rather than China to set the rules for global trade. As the foreign ministry spokesperson observed, China sees the setting of the rules of global trade as being the responsibility of the World Trade Organization rather than any single country (Aneja, 2016). As noted earlier, the TPP has encouraged China to accelerate the formation of its own global free trade network, in particular RCEP (Wu, 2016).
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