Tuesday, 4 June 2013

China requests inclusion in Trans-Pacific Partnership talks

Last week on May 31, Beijing’s Commerce Ministry announced in a press release that China is looking at the possibility of joining the Trans-Pacific Partnership (TPP) talks. While this shouldn’t necessarily be an issue worth raising, including China into the TPP talks does not initially appear to gel with what the United States is trying to do with the partnership.

The TPP, as led by the United States and other countries from around the Pacific Rim, is plodding along with the understanding that China will not be included in the talks due to restart in the middle of this July. Even though it’s hard to see this as anything but containment, the path of necessary reforms is already laid out for China. Anything is possible should they choose to work on their trade openness.

Washington looks at the TPP as a framework within the Pacific where larger regional issues and trade liberalisation initiatives can be discussed and as path for their international trade agenda. After the United States announced that its post-war plans will focus heavily on the Asia-Pacific, Washington opened up two main fronts to streamline their plans: economic and military.

These fronts do not work in segregation, but the two have not appeared to work in concert either. United States Secretary of Defence Chuck Hagel said recently the current American administration feels the military aspect of its so-called “pivot” to the Asia-Pacific has been unfortunately overblown in the media.

The United States plans to engage with the region on all levels, and prefers not to be regarded as a hegemonic military presence as opposed to a beneficent economic presence. Any talk of a ‘containment’ strategy around China is misguided and certainly not the reaction Washington wanted. But this message, whether it was ever meant for greater publicity, seems to have been missed by planners in Beijing.

China has always suspected the real motive behind the “pivot” was to enclose China to better manage its rising power. Emphasising the US Navy’s shifting deployment strategy in the media was probably not the fault of journalists, as Mr Hagel intimates. But if the American strategy in the Pacific Rim is not to directly contain China then Beijing argues there should be few barriers to join the TPP. In a way, China is calling the American’s bluff.

China wants to join the TPP because it is taking the advice of every serious economist on the planet. Free international trade, which is a huge part of the TPP, is unarguably a good thing. With the membership of the TPP being expanded – Japan and Canada are two recent inclusions – then greater trade diversity and promotion should only increase. Including China should only add to the efficacy of the agreement.

But the deck is somewhat stacked against China. Not only do the other members, especially the United States, feel that including China could risk the world’s second largest economy dominating the group when it comes to trading goods, the present state of the Chinese economy does not meet the standards of transparency required for entry and it is unclear whether it will in the foreseeable future.

As it stands, countries can only join the partnership if they fall towards the ‘open’ end of the continuum. As a perfect example, New Zealand made a huge fuss when Canada applied for access to the TPP because the Canadian dairy industry is heavily protected. Things have since calmed down.

Countries which cannot meet the standards of trade openness need to reform or risk missing out on the benefits of free international trade. China has struggled to meet the requirements set down by the inaugural members, especially around intellectual property rights and state-owned enterprises. But even though Washington has faith that China will meet the structural requirements in the future, this doesn’t exactly explain why China has been snubbed in the past.

In comparison, Vietnam has been accepted into the club. It has at least the same amount of problems with trade transparency, intellectual property rights, and state-owned enterprises as China. Vietnam also has relatively high tariffs and invasive state intrusion on the economy. So including them, but leaving China in the cold, lends weight to the argument that the United States could be using the TPP as a tool against China.

The TPP appears to be less about economics and standards than it is about politics and how Washington would like the Asia-Pacific region to look now that it’s getting more involved. This is just the way things are when the United States boasts an economic output larger than the following three economies combined.

Including America in the TPP was always going to mean bending to Washington’s rules when it came to trade openness. For any smaller county looking to participate in a free trade agreement with the United States, there will have to be some compromises inevitably favouring the larger economy. Intellectual property rights is on the top of the agenda for the United States right now, and countries entering into trade agreements with America will be required to enforce U.S.-style property laws they might not actually be ready to enforce.

If China is willing to undertake economic reforms then its path to join the TPP should be changed from essentially impossible, as it stands today, to potentially considered. The Chinese Communist Party is moving towards separating China’s economy from their outright control, but this process will take time. China is also pursuing free trade agreements with South Korea bilaterally, and South Korea and Japan on a trilateral basis, so perhaps these will be good litmus tests.

The principal hazard for the TPP is political. It could split the Pacific into members and non-members putting China permanently on the outside. For New Zealand, which already has a superbly functioning FTA with China, leaving them in the cold must feel a little strange. 

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