40 per cent of world’s economy signs up to TPP trade pact that Obama says ‘allows US, not China to write the rules of the road’
Twelve countries that make up 40 per cent of the global economy have officially signed up to the US-led Trans-Pacific Partnership Agreement, one of the largest ever regional trade deals – and one that some critics believe is aimed at countering China’s influence.
Trade ministers from the 12 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam – signed the pact in Auckland yesterday.
The agreement aims to remove tariffs and trade barriers within the Pacific Rim.
“TPP allows America – and not countries like China – to write the rules of the road in the 21st century,” US President Barack Obama said after the signing.
China’s Ministry of Commerce said it was studying and evaluating the document and would “proactively participate in and push forward regional free trade arrangements that are highly transparent, open and inclusive”.
Ma Jun, chief economist of the People’s Bank of China estimated in an article on Shanghai Securities News that the difference to China between joining the TPP and being kept out was about 2.2 per cent of GDP.
US trade representative Michael Froman said at the signing ceremony that the agreement was “never directed against” any specific country and that it was “important to have a constructive economic relationship” with China.
Despite the denial, some Chinese officials and economists believe the TPP is an arrangement to deliberately counter China’s fast growing influence in the region.
Former deputy trade minister Wei Jianguo told the South China Morning Post that the TPP would have a big impact on Chinese exports, in particular those ‘rules of origin’ that stipulate products eligible for free trade must use raw materials from TPP members.
“To deal with the challenge China is negotiating many other FTA deals including the [Regional Comprehensive Economic Partnership], [Free Trade Area of the Asia-Pacificic] and the ones along the One Belt, One Road route such as with the Gulf Council groups,” said Wei.
The TPP agreement will need to be approved by each member state’s domestic legislation in the next two years before it becomes legally binding.
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Ratification may prove far from easy, notably in the US, where opposition to a deal that could cause job losses could prove too strong in an election year.
But many analysts believe the pact will go through, and have urged China to seek TPP membership as early as possible.
“The US trade rules always become global rules eventually. Better to join it earlier than later,” said Lu Zhengwei, chief economist of Industrial Bank.
He said some terms in Sino-US trade talks were already similar to those of the TPP.
However, Wei pointed out that China had never been invited to TPP talks.
The TPP’s high standards for labour rights protection and provisions against state-owned enterprises would be two major hurdles for China, said Chu Yin, a researcher at the Centre for China and Globalisation.
The TPP requires an independent trade union, which could be a concern for Beijing. And the SOEs’ dominance in the Chinese economy means the TPP restrictions are hard for it to accept.
“In the next five or ten years, it is very unlikely China would agree on such things,” said Chu.
Additional reporting by Agence France-Presse