Apec miracle: how the US and China can look beyond TPP and RCEP for Asia-Pacific trade harmony
Zha Daojiong says Beijing and Washington could use their Apec membership as the scope to work towards the establishment of a Free Trade Area of the Asia-Pacific, to benefit all Pacific Rim economies
As diplomats and negotiators quicken their pace to put together the annual gathering of heads of state under the Asia-Pacific Economic Cooperation framework, one question is inevitable: can the meeting this year deliver progress on rules for region-wide trade and investment?
It really does not take too much of a sceptic to dismiss such questions out of hand. After all, unlike previous years, the largest economy in the group, the United States, has stopped being involved in the Trans-Pacific Partnership (TPP) negotiation process – acting instead under the dictum of “America First”.
China, the second largest economy, has put forward its own trade and investment platform, called the “Belt and Road Initiative”. The plan can be said to be the Chinese version of a results-oriented approach to economic diplomacy.
Then there is Japan, the third largest in the group, which is still actively trying to make enactment of a “TPP-minus (the US)” a reality.
Indeed, if the governments of the top three economies do not see eye to eye on working towards commonly accepted rules in economic interactions down the road, the prospects for achievement in trade liberalisation are dim at best.
One needs to bear in mind, meanwhile, that World Trade Organisation rules do bind all the Apec economies. But those rules are more reflective of product flows and value chains around 1995, when the decision was made to upgrade the General Agreement on Tariffs and Trade (GATT). It was the inadequacy of GATT/WTO rules that led to the search for schemes like the TPP and Regional Comprehensive Economic Partnership (RCEP).
But the window of opportunity should not be shut fast and firm. Regional geopolitical dynamics, in an ironic way, could brighten the chance of a shift in gear.
Vietnam is the year-long host of Apec this time around. Back in April, it secured an announcement of attendance by US President Donald Trump. For an American administration to commit to a presidential trip abroad this early is, in many ways, unprecedented. Washington wanted to affirm its nascent diplomatic affinity with Vietnam, with its ties with Beijing not far in the background. For similar reasons, Japan has given full support to Vietnam in its efforts to shape the agenda for the group meeting. China, for obvious reasons, does not want to be left unnoticed at the table.
Can there be a miracle in Vietnam? The answer will have to come from the big league players.
Interactions between China and the US since the beginning of this year should have exposed the limits to their respective results-oriented approaches.
I argue that the time has come to adopt a third template – one that is not a choice between the TPP and RCEP, but involves the harmonisation of trade policies.
China did not take part in the TPP negotiations. Yet, US adoption of the original framework agreed by four small but highly open economies did serve as a useful scenario for China to either speed up the implementation of, or decisive action on, a number of its own policies of trade and investment liberalisation. Notable examples include the initiation of free trade zones in Shanghai and two other cities in 2013, and the expansion of projects of a similar nature to nine other provinces three years later.
In 2015, China started to implement a “negative list” formula in project approval for both domestic and foreign investors. In so doing, China brought itself in line with standard practices of most nations in the Organisation for Economic Cooperation and Development.
Third, since 2009, China has moved to complete and enact free trade agreements with Switzerland, South Korea and Australia.
Fourth, China has gradually but firmly put in motion its vision to see a revival of the ancient Silk Road economic belt and the emergence of a Maritime Silk Road, both projects of increased international connection through Chinese investment as seeding activities.
Last but not least, China became more active in shaping the agendas of the Apec and G20 summits it hosted since 2012. The philosophy behind many of these policies is the same as that motivating the TPP.
In other words, change in Chinese trade policies indicate that China is moving ahead at its own pace in trade liberalisation.
With the TPP in the state it is in, a good deal of attention turns to the RCEP, of which China is a participating member.
One point that deserves clarification is that the RCEP is not China-led (as many international news reports erroneously claim), either in the formation of articles or momentum in negotiation. Like the TPP, the RCEP has drawn its share of criticism from policy and research professionals, and the public at large.
Does China have a particular capacity to influence the pace of concluding the RCEP negotiations? Past record is less than encouraging, and there are few indications of Chinese enthusiasm for greater levels of activism in that process.
Trade liberalisation takes many paths and forms; entering into a free-trade agreement is just one of them. China’s policy actions indicate that it is not opposed to the philosophy of trade liberalisation, although it did not participate in the TPP negotiations.
Further, there is little evidence to suggest Chinese competition with the US, or anyone else, for leadership in handling the momentum of multilateral trade negotiations.
Hence, a third way – one that is different from choosing between the TPP and RCEP – is warranted, especially given the diplomatic or political ramifications of either of those two free trade agreements.
Chief among the many possible justifications for this line of thinking is that neither the US nor China should be allowed to be seen as having “lost” in what each sees as a race for leadership.
The American and Chinese markets are not only the largest in existence, they are the ones to cultivate for increased trade flows throughout the Asia-Pacific.
The logic of working to promote increased fluidity of product markets has to prevail. Rhetoric for projecting a winner or loser must not be the foundation for designing future choices for group action.
As a matter of fact, the Free Trade Area of the Asia-Pacific (FTAAP), an idea that was floated at the 2014 Apec meetings in Beijing, is a ready template for adoption.
Thus far, this free trade area has virtually no substance. But, that is the beauty of it as well.
Using Apec membership as the scope, both China and the US can participate in the feasibility study and negotiations towards its establishment.
Among other things, the FTAAP can free smaller economies from having to choose between joining either China or the US.
The search for more productive trade rules can and indeed should return to focus on its original mission of wealth generation for all.
If the Vietnam Apec can succeed in highlighting realisation of a region-wide scheme like the FTAAP as an agenda item for action down the road, against the ongoing sentiment of each going for itself, it will be a “miracle” in itself.
Something of the sort needs to happen to address the salient question about the meaning of such group gatherings.
Zha Daojiong is professor of international political economy at Peking University