China 101

What Asia-Pacific trade pacts could replace the TPP?

With US president-elect Donald Trump on record as opposing the Trans-Pacific Partnership, attention is turning to alternatives that include China

PUBLISHED : Monday, 21 November, 2016, 7:32am
UPDATED : Monday, 12 June, 2017, 10:55pm

With US president-elect Donald Trump threatening on the campaign trail to withdraw from the Trans-Pacific Partnership, attention has turned to two other Asia-Pacific trade deals that, unlike the TPP, both involve China. These are the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP ).

These free-trade initiatives promoting regional economic integration are a response to many years of unproductive Doha talks under the World Trade Organisation.

What is the TPP?

The Trans-Pacific Partnership is a free-trade agreement signed by the United States and 11 Pacific Rim countries including Japan and Australia, but excluding China.

The idea was initiated by four countries –New Zealand, Singapore, Chile and Brunei – in 2002.

Initially the administration of US President Barack Obama shrugged off the invitation to join, but it become a key economic pillar in Obama’s pivot to Asia to curtail China’s influence in the region. He announced in 2009 US participation in the talks, which then attracted Peru and Australia.

The TPP is also dubbed “Anything But China” and deemed as deliberately excluding China to contain China’s economic and geopolitical influence in the region. It fueled panic on the mainland as Chinese businesses were set lose under the trade and investment pact.

The trade deal sets high standards for the environment, human rights and labour protection and puts restrictions on the role of state-backed enterprises, as well as vowing to remove barriers in trade and investment and promote the digital economy.

The 12 countries signed the TPP in February 2016 and the member countries entered the ratification stage. Japan is the only member country to have already ratified the deal. Its parliament approved the TPP on November 10, right after Donald Trump’s win in the US presidential election, in an apparent sign it intended to take a leading role in the pact.

Is the TPP dying?

Trump described the TPP as “a disaster” during the presidential campaign. The US media reported that Trump would act quickly to fulfil some of his controversial promises in his first 100 days as president, and surmised his plans for the TPP and trade policy could be part of that.

It is unknown, however, whether Trump will scrap the plan or restart negotiations to include more favourable terms for the US domestic economy.

The TPP has also lost support in the US Congress, which said it would not pass the pact during the lame-duck period of Obama’s presidency but leave its fate to the incoming Trump administration.

Vietnam, which is considered to be the bigger beneficiary of the pact, dealt it another blow when Prime Minister Nguyen Xuan Phuc said the country would shelve ratification of the accord due to political changes in the US.

Other TPP members still hope the TPP can take effect even without the participation of the US, while some have also started to talk up the trade pacts advanced by China – the RCEP and FTAAP.

China’s reaction: friends or foes?

The TPP ignited worries in China as researchers feared the pact, which carries higher standards than existing trade agreements and also covers investment and the environment, would become a smaller version of the WTO in the Pacific-Asia region, except without China. They especially worried it would negatively affect China’s trade.

Some mainland economists suggested the Hong Kong special administrative region apply to join the TPP. The central government appeared unruffled at being excluded, with the Ministry of Commerce and Ministry of Foreign Affairs saying China is open to the deal and assessing its probable impacts.

But with hopes of the Trump administration endorsing the TPP fading, China’s involvement in the similar RCEP and FTAAP trade blocs is gaining more and more attention.

TPP members do not want to give up the deal, but have also shown interest in the RCEP and FTAAP.

Peruvian Commerce Minister Eduardo Ferreyros said the country had started talks with China on the RCEP. The inclusion of Peru could attract other Latin American countries to join the pact.

With outsiders raising expectations of China’s roles in the RCEP and FTAAP talks, Beijing has displayed a modest attitude and downplayed speculation that China would take the lead in writing trade rules in the Asia-Pacific.

“Neither the RCEP or FTAAP is dominated by China,” the Ministry of Foreign Affairs said on Friday. China “respects the core status and domination of Asean” in RCEP talks and is devoted to regional integration in the Asia-Pacific region.

Would the death of the TPP and creation of the RCEP reshape the region’s economic order?

It is obviously to soon to see.

Some economists said the expected isolationism of a Trump presidency, which would likely include less spending on overseas strategies, would benefit China in extending its economic and geopolitical influence in Asia.

What is the RCEP?

The Regional Comprehensive Economic Partnership was initiated by members of the Association of Southeast Asian Nations, who also invited China, Japan, South Korea, Australia, New Zealand and India.

The deal does not cover the United States, but the US would likely be invited to take part once the founding members reached agreement. India, concerned that the opening of its markets could hurt its less-competitive domestic industries, is yet to show a firm inclination to join.

The RCEP aims to set up a single market in the 16 countries by removing tariffs and non-tariff barriers. It would cover an area with a share of GDP accounting for one-third of the global aggregate. If approved, it would become one of the world’s largest free-trade zones.

Talks on the RCEP have been delayed due to the pressure of the TPP. It had been expected no deal could be reached on the RCEP next year, but the Trump win and the possible demise of the TPP could give the RCEP new life.

RCEP talks in June in Singapore failed to reach consensus on key issues such as tariff cuts on agricultural products. Japan expects a significant reduction of tariffs but China and India remain very cautious. Another round of talks is scheduled to be held in December in India.

China has expressed strong support for the talks and, with Asean, is at the forefront of the RCEP negotiations.

What are possible differences between the TPP and RCEP?

The RCEP may not include environmental or labour protections. The TPP set standards on environmental protection, workers’ rights and food safety, which some member countries believe are too stringent for their local conditions.

Other standards such as the strict limitations on state-owned enterprises made China reluctant to seek immediate entry into the TPP, some economists said.

What is the FTAAP?

The Free Trade Area of the Asia-Pacific is a trade deal that would cover the 21 economies that are part of the Asia-Pacific Economic Cooperation (Apec) forum. It would have a wider coverage than the TPP or the RCEP, and would include both China and the US.

The scheme was endorsed by China and received a boost when Beijing hosted the 2014 Apec summit, where members reached consensus on the “Beijing Roadmap”.

China’s proposal to implement the FTAAP would consolidate the existing but fragmented free-trade agreements among various Apec member countries.

China is becoming a leading advocate for the FTAAP and China observers believe the deal would be a potential countermeasure to the TPP.

China pushed for a feasibility study on the FTAAP in 2014, but met resistance from some TPP members including the US, who considered it premature due to concerns it could detract from efforts in TPP talks. Much has changed since then and Beijing hopes for further progress on the FTAAP at the Apec summit in Peru, as reflected in a speech by President Xi Jinping in Lima on the weekend.