First steps for Trans-Pacific Partnership, or Obama’s ‘Anything but China’ trade pact
Twelve Pacific Rim nations representing 40 per cent of the global economy on Thursday signed a giant trade deal seen by many as a move to keep China’s economic might in check
The Trans-Pacific Partnership was signed by 12 member nations on Thursday in New Zealand, but the massive trade pact that covers 40 per cent of the world economy will still require years of tough negotiations. Here is the background:
What is the TPP?
The Trans-Pacific Partnership Agreement, one of the world’s biggest high-level trade and investment deals, covers 12 countries – the United States, Japan, Australia, Canada, New Zealand, Brunei, Chile, Malaysia, Mexico, Peru, Singapore and Vietnam, which together account for 40 per cent of the global economy.
Negotiations heated up in 2010 after the pact was endorsed by US President Barack Obama. The TPP talks have excluded China, reflecting what analysts say is Washington’s concern over China’s rising power. The deal is also seen as a major move by Obama to cement US trade dominance as part of his Asia-Pacific rebalancing strategy.
On October 5, the US and 11 other countries concluded the deal that will cover investment, services,
e-commerce, government procurement, intellectual property, state firms, labour and the environment.
Twelve countries signed the TPP agreement in New Zealand on Thursday.
New Zealand Prime Minister John Key said at the ceremony in Auckland that the agreement was “still just a piece of paper, or rather over 16,000 pieces of paper until it actually comes into force,” according to Reuters.
Winners and losers
The next step for the TPP is the two-year ratification period by member states. The approval of the deal in the US may be affected by the presidential election. Opposition and disagreement on some issues still linger among member states such as Canada and Malaysia.
Opponents are concerned about growing status of multinational companies and the potential effect on employment in member states.
Upon signing the deal, member states will lower or exempt tariffs on nearly 18,000 categories of products.
Car producers in Japan and the US may benefit from the deal, but Japan will have to compromise and reduce protectionism in agriculture. But Japan also sees great potential to expand its service-sector presence in the region.
Vietnam, the nation most heavily reliant on exports, is expected to be the biggest winner as tariffs on its textile exports will be lowered to zero from the current 17-32 per cent.
Possible impacts on China and Non-TPP nations
The trade pact was dubbed “Anything but China”. It is not just about trade and economy – which will definitely hurt China’s exports – but also geopolitics as China’s rising influence in regional economics and politics is not welcome by the US and Japan.
It will not be easy for China to join the TPP in the short term as it has to conduct bilateral talks with each member state and will require US Congressional approvals. Analysts said the TPP’s standards for industry entry and environmental protection, the status of state firms and labour rights were set relatively high for China at this time.
However, there are growing voices in the US supporting China’s inclusion in the TPP.
The American Chamber of Commerce in Hong Kong (Amcham) supports allowing China to join the TPP as a non-sovereign party or an observer. Taiwan is finding a way to join TPP to avoid being Shen Danyang marginalised.
Meanwhile, the US and European Union are negotiating the Transatlantic Trade and Investment Partnership agreement, a proposal that would create the world’s biggest free-trade zone.
Ministry of Commerce spokesman Shen Danyang said China was conducting a “comprehensive and systemic” assessment of the TPP.
At the same time, Beijing is stepping up efforts for more free-trade pacts to counterthe US-led TPP. It laid out a road map in December, aiming to set up a global free-trade pact network.
Among the proposals, President Xi Jinping is pushing the China-led Apec-based Free Trade Area of the Asia-Pacific (FTAAP) initiative and promoting talks on the Regional Comprehensive Economic Partnership (RCEP), which involves the Association for Southeast Asian Nations plus China, Japan, South Korea, New Zealand, Australia and India, but not the US.
China has also signed FTAs with 20 or so countries, from Switzerland to Chile. It kicked off a free-trade pact with South Korea and Australia, separately, in December. It is discussing with Norway, Sri Lanka and Gulf Cooperation Council.
At the same time, China is trying to speed up investment treaty talks with the EU, hoping to cement a deal this year, and then the two sides will consider the feasibility of talks of a free-trade pact.
Ma Jun, chief economist of the research bureau of the People’s Bank of China, estimated that China would lose 2.2 per cent of GDP if it chose to stay outside of TPP in comparison with its possible entry. Beijing is bargaining with the US to finalise negative lists – areas of investment in which foreign participation is restricted or excluded – in the bilateral investment treaty.
US business representatives have complained that the negative list proposed by the Chinese side is too long.