Excluding China in Western-led regional trade talks makes no sense

He Yafei says excluding China from Western-led regional trade negotiations smacks of political gamesmanship, and warns that any move away from a multilateral approach will be detrimental to all

PUBLISHED : Monday, 09 December, 2013, 6:37pm
UPDATED : Tuesday, 10 December, 2013, 2:14am

We are witnessing the balkanisation and fragmentation of traditional multilateralism today, which has resulted in a mushrooming of both bilateral and regional free trade agreements in recent years. On the one hand, this phenomenon of "going regional" has certainly promoted economic growth in different parts of the world and, by extension, benefited the global economy as a whole. But, on the other hand, it has been hijacked to serve the geopolitical purposes of some countries to the detriment of others.

Let's look at the positive side first. By the end of July this year, there were 249 regional free trade agreements registered with the World Trade Organisation, of which about 70 per cent were created in the past 10 years. As far as Asia and China are concerned, the China-Asean free trade agreement was completed in 2010. After that, the "10+3" and Regional Comprehensive Economic Partnership negotiations were launched.

Intra-Asia trade increased from US$800 billion in 2000 to the present US$3 trillion, and Asian trade with the rest of the world grew from US$1.5 trillion to US$4.8 trillion in the same period.

China has signed 12 free trade agreements, with another six being negotiated right now. It is China's economic growth strategy to have a network of such agreements, starting from Asia and eventually covering the world at large.

Three mega negotiations on regional arrangements are going on right now. It is said that these "Big Three", once completed, will redraw the contours of the post-Western world and rebalance the economic order of advanced nations and emerging markets, with China as its leader. It will also determine the future of multi-lateralism as "an open global arrangement" or "competing blocs".

The Big Three are: the Trans-Pacific Partnership of 12 countries led by the US, with annual commodity trade at US$4.3 trillion; the Transatlantic Trade and Investment Partnership between the US and European Union; and the Trade in Services Agreement between the EU and 20-odd economies of both advanced and developing countries, including the US. What are the problems with these three negotiations?

One, they demonstrate that the US and the West has lost interest and trust in the grand multilateralism that defined the post-war era, particularly since the outbreak of the financial crisis in 2008. Over the past few years, developing countries have become the engine of global economic growth. The combined gross domestic product of the BRICS countries has surpassed 20 per cent of the world total. From 2008 to 2012, the export volume of developing countries has grown much faster than that of advanced nations.

Western economies appeared to have concluded that the balance has turned against them in international organisations such as the WTO, and therefore they have turned their back on these organisations and begun to seriously promote regional pacts like the Trans-Pacific Partnership.

Moreover, they are starting to remake trade and investment rules, reaching beyond borders to focus on issues related to regulation - such as intellectual property protection, rules for state-owned enterprises and environmental protection - instead of focusing on tariffs at the border.

Two, all three trade negotiations exclude China. Coincidental? Certainly not! China is the second-largest economy in the world today and its foreign direct investments amounted to US$87.8 billion in 2012, the third largest in the world. China is also the largest trading partner to 124 countries, while the US is the same to 76. So China is excluded for reasons of geopolitics, not economics.

Any regional free trade agreement that excludes China does not make much economic sense unless it is politically biased. The Big Three negotiations no doubt belong in this category. The initiators want to remake trade and investment without China's participation.

They wrongly believe that China has been "a free rider" of the post-war open global trading system and, as such, reaped huge "dividends". They don't want to further arrangements that empower their "rival". Caught between engagement and hedging, they try to rewrite the rules of the game.

Some experts have a name for the American alternative to multilateralism - "mid-multilateralism", halfway between total abandonment of multilateralism and complete embrace of the regional approach. Those who espouse this approach forget that integration is exactly the result of the globalisation they espouse so ardently. That China should be part of the system was something they wanted from the very beginning, wasn't it?

The fragmentation of multilateralism is a fact, no matter how regrettable it is. But we need to remember that interdependence among nations, both advanced and developed, brings benefits for all. Pursuing a path based on a "zero-sum" theory is doomed to failure, especially when it involves a country as large as China. Marginalising China will never work and will only result in further fragmentation of the multilateralism that has served all of us so well for so long.

China is firmly committed to continue implementing reforms in a comprehensive manner, on its chosen road of building socialism with Chinese characteristics, as guided by the blueprint laid out at the Communist Party's third plenum. As it grows, China will make ever bigger contributions to the world and to the global system founded on multilateralism.

He Yafei is deputy director of the Overseas Chinese Affairs Office of the State Council