US-led TPP trade pact can help spur economic reforms in China

PUBLISHED : Friday, 09 October, 2015, 1:30am
UPDATED : Friday, 09 October, 2015, 1:30am

The saying two is company, three is a crowd could have been coined for trade negotiations. It can be difficult to reconcile competing interests, even between two parties. The three years it took China and South Korea to seal a free-trade agreement signed recently was not unusual. How much more complex must it have been for the US to get Japan and 10 other Asia-Pacific countries - not including China - to sign up to a free-trade deal covering 40 per cent of the global economy. Talks on the Trans-Pacific Partnership initiative that began in 2010 ended in broad agreement this week.

But that is only the beginning. A deal setting rules for trade including commodities, that also covers investment and intellectual property, remains subject to fine-tuning of detail and approval by a dozen legislatures. Thorny issues dogged the talks, such as market access for farm products and how long new drug patents should be protected, a key issue for the US.

So the way ahead is far from certain, especially with the US heading into a presidential election year. Democratic Party presidential hopeful Hillary Clinton has dealt a blow to hopes of congressional backing, saying she does not support the TPP because she is not convinced it will create jobs and raise wages - a reflection of protectionist sentiment in Congress. In Japan, one of the big challenges for Prime Minister Shinzo Abe's reshuffled government will be to secure parliamentary backing for the deal in the face of opposition from the farm lobby.

President Barack Obama can be expected to lobby Congress with all the prestige of his office to secure another pillar of his legacy. It is a core element of the so-called US pivot towards Asia to counter the rising influence of China and deny it the opportunity to write the rules of regional trade and investment.

As a result, Beijing is expected to speed up the pace of negotiations on the Regional Comprehensive Economic Partnership (RCEP), a rival free-trade agreement linking the 10 Asean member countries with China, South Korea, Japan, India, Australia and New Zealand. Any major regional trading bloc without China cannot be seen as complete. In this respect, however, the TPP can also be seen in a positive light, raising the pressure on China to push back by accelerating the opening up of its economy and reforming bloated state enterprises, which could pave the way for eventually joining the TPP. Indeed, the TPP includes restrictions on the favourable status of state-owned enterprises in a bid to safeguard fair competition.