China's proposed free-trade pact puts pressure on US to conclude TPP
Andrew Hammond says Sino-US rivalry is set to intensify as both push their favoured trade pact in a bid to shape the regional order. For Obama, with elections in 2016, time is running out
In their final communiqué at this week's summit in Beijing, Apec's 21 members agreed on a two-year study to look into the feasibility of establishing a Free Trade Area of the Asia-Pacific. The move has been welcomed by President Xi Jinping as a "historic" decision.
The idea of an Asia-Pacific free trade area has been debated since at least 2004, but assumed new importance for Beijing after Washington began to champion the Trans-Pacific Partnership (TPP).
According to Xi, the free trade area will provide a greater economic boost than the TPP, and he encouraged Apec nations to "vigorously promote" it, "setting the goal, direction and road map and turn the vision into reality as soon as possible".
While Xi has said that the free trade area does not "go against existing free trade arrangements", at the heart of the debate on this issue are the contrasting US and Chinese visions to shape the regional order and cement their influence in it. And Beijing's push for the Asia-Pacific pact thus provides an alternative model for future regional economic integration to that of Washington.
From China's perspective, the Asia-Pacific pact would be much more conducive to its national interests (not least because Beijing would be part of the new economic agreement, unlike the TPP, from which it is excluded) by creating an integrated free trade area with China potentially at the centre.
Beijing hopes that this economic community could ultimately evolve into a broader regional cooperation blueprint in areas like transport - from air traffic to highways and rail.
By playing a lead role in championing the free trade area, Beijing also seeks to burnish its regional leadership credentials. This is important given that some countries in the region remain wary of its future ambitions as a nascent superpower.
However, despite this week's agreement, the free trade area concept faces multiple challenges. These include the fact that it is a long-term project that may not reach any conclusion for at least a decade, while 12 Pacific Rim countries, including the US, Australia, Canada and Japan, are already committed to achieving a similar ambition on the basis of the alternative US-led TPP framework.
Some 25 years after Washington helped create the Asia-Pacific Economic Cooperation forum, US President Barack Obama is leading the charge for the TPP, which could see a deal in 2015 with the dozen countries involved that collectively account for about 40 per cent of world gross domestic product. As with his presidential predecessors, a key ambition for Obama with the TPP is to embed regional institutional frameworks to extend US influence.
For Washington, the proposed TPP is thus only the latest manifestation of a global institutional building project that began in the post-second-world-war period to encourage the growth of democracy and open markets across the world. From 1945 onwards, US administrations helped create and nurture key international bodies that exist to this day, from the United Nations to the International Monetary Fund and World Bank.
Inspired by this success, both the US administrations of George H.W. Bush and especially Bill Clinton sought to respond to the collapse of Soviet communism by encouraging the creation or expansion of a range of economic and security institutions, including Apec, the North American Free Trade Agreement, the World Trade Organisation and Nato.
And, it is these bodies that are now potentially in the process of being reinforced by new ones, such as the TPP and the Transatlantic Trade and Investment Partnership between the US and European Union, which would represent the largest regional free trade and investment agreement in history, with the US and Europe accounting for over 50 per cent of world GDP.
Beijing may now sense that the recent stalling of the TPP negotiations offers a potential window of opportunity to advance the Asia-Pacific free trade pact.
Whether the TPP can now be relatively speedily concluded in 2015 will depend, in significant part, on whether Washington and Tokyo can bridge what remain significant differences in their negotiating positions, and also if Obama can secure the so-called Trade Promotion Authority from the US Congress. That legislation, which Obama is more likely to secure next year than in 2016, the year of US presidential and congressional elections, would allow the White House to submit any TPP deal to Congress for an expedited "yes-no" vote, without the possibility for any amendment by the House of Representatives and the Senate.
This is widely seen as a prerequisite for the TPP to muster sufficient support in Congress.
Overall, competition between Beijing and Washington for the regional economic integration agenda may well intensify following the Apec summit. Both see a key role for their favoured institutional framework in extending their national influence.
Much may now depend on whether Obama can conclude the TPP deal next year, or whether debate will drift into the following year, which will make passage potentially more difficult, given that it is a key US election year and Obama will have less latitude to secure a final deal.
