Trans-Pacific Partnership

Why the Trans-Pacific Partnership deal is no threat to China

Stephen Nagy and Bryan Mercurio say the Trans-Pacific Partnership could hasten rules-based trade ties

PUBLISHED : Tuesday, 13 October, 2015, 5:47pm
UPDATED : Wednesday, 14 October, 2015, 6:28pm

Critics argue that the Trans-Pacific Partnership (TPP) is a geopolitical tool and an ABC (anybody but China) trade agreement designed to contain a rising China. Others suggest it is not only the core pillar of the US "rebalance" to Asia but also the agreement that will set the rules for 21st-century trade. China itself has wavered in its views of the pact, from initial deep suspicion to a more nuanced view that acknowledges the benefits of the standards upheld in the agreement.

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Seen from both a geopolitical and a trade law perspective, the TPP could set the stage for China's eventual inclusion through a socialisation process that avoids many of the pitfalls associated with its accession to the World Trade Organisation in 2001.

China could benefit by viewing the set of shared rules in the TPP as a way to push through long-overdue domestic changes

At the moment, the agreement's significant cuts to tariff rates on agricultural products, deep liberalisation of services and strong commitments on intellectual property rights, environment, labour and state-owned enterprises place serious barriers to China's immediate accession. Its economic slowdown and continued reliance on state-led economic solutions further dampen the prospects of entry.

Geopolitically, the TPP in the short-to-medium term weds the biggest and wealthiest consumer markets to the burgeoning manufacturing hubs in Southeast Asia. Countries such as Malaysia and especially Vietnam will be benefactors of large injections of foreign investment and preferential access for their goods to the large and wealthy middle-class populations in Japan, North America, Australia, New Zealand, Mexico and Chile. The mix of increased investment and exports should lead to greater levels of employment, increased exports and a healthier balance of trade terms.

If all goes to plan, these gains will outweigh the economic sacrifices made to join the trade pact by a significant margin. In due course, these gains will be powerful drivers for other regional countries - such as the Philippines and Indonesia - to make similar sacrifices, further linking economies in Southeast Asia to a trans-Pacific and American/Japanese-led grouping.

In a similar vein, the more advanced members of the TPP will receive greater and preferred access to the most dynamic region of the global economy, the Asia-Pacific. With young class-conscious consumers and rapidly growing middle classes, the region offers established brands an opportunity to entrench their names and win over the influential consumers of the future. Perhaps more importantly, the advanced economies can co-opt the emerging countries into their view of trade relations in the 21st century and lock in standards which could now only be negotiated on multilateral platforms.

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Japan, with its large economic footprint in Southeast Asia, has perhaps the most to gain. Firmly tethered both economically and security-wise to the US, the agreement provides Japan with a cheap manufacturing hub to build products for tariff-free export to the wealthiest consumer markets of the advanced countries and burgeoning markets in emerging economies.

Importantly, the agreement accomplishes the US objective of reorienting its regional engagement away from a mostly security-based presence to one centred on trade and economy through the forging of a grouping of countries with a firm commitment to the rules of trade and the necessity of further economic liberalisation.

The enlarging and deepening of trans-Pacific trade in an agreement which is rules-based, transparent and stresses competitive advantages of its members is not a threat to China. Quite the opposite, the TPP could serve as a developmental road map for China; it could benefit by viewing the set of shared rules as a way to push through long-overdue domestic changes.

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As part of the socialisation process, the TPP does not directly or indirectly aim to contain China economically or security-wise. In a non-tangential way, the TPP aims to attenuate China's increasingly mercantilist, nationalistic and at times assertive trade practices while at the same time creating the conditions for a more responsible stakeholder in the regional and global economy.

While membership in the TPP is some way off, China could use the pact as an incentive to push forward the Regional Comprehensive Economic Partnership, an agreement being negotiated between the 10 members of the Association of Southeast Asian Nations, Australia, New Zealand, South Korea, India and China. No one expects this agreement to meet the standards and extent of liberalisation of the TPP, but increasing the ambition of this important regional initiative and producing tangible economic benefits to partner countries would be an important step for China to prove its value as a global trade giant and further establish its role as a regional leader.

The socialisation stemming from the TPP and potentially the Regional Comprehensive Economic Partnership benefits the region and China by deepening integration, lowering the incentive for conflict and recalibrating economic influence through rules-based trade agreements that cannot be dominated by a particular country.

The strengthening of economic ties between all Asian countries is of immense importance, and China should view the TPP as an opportunity to transform its domestic setting as well as to cement its place as a global power by demonstrating leadership and ambition in every regional trade forum.

Stephen R. Nagy is associate professor of politics and international studies at the International Christian University, Japan. Bryan C. Mercurio is a professor and outstanding fellow of the Faculty of Law, the Chinese University of Hong Kong