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China needs to offer plausible alternatives to TPP in Asia-Pacific region

2014-06-10 08:52 Global Times Web Editor: Qin Dexing

From the very beginning, the Trans-Pacific Partnership (TPP) has been touted as a "gold standard" free trade agreement (FTA). The long-term view of the US is to create an agreement that will serve as the basis for an eventual Free Trade Agreement of the Asia-Pacific (FTAAP) with a new level of comprehensiveness and sophistication.

However, it is doubtful whether the TPP approach is the most economically sound and politically feasible template for economic integration in the Asia-Pacific region.

To begin with, a cornerstone of the Obama administration's policy is to use FTAs as a component of an integrated approach to development policy in developing countries. The truth is that the TPP involves both opportunities and risks for developing countries.

The effects of a comprehensive and high-standard TPP on development are difficult to predict. Some leaked draft TPP provisions have already caused legitimate concerns. According to the US proposal, the parties to the TPP would be obliged to enforce laws and regulations to fulfil their obligations under seven multilateral environmental agreements as well as five core labor rights.

Violations of these provisions are subject to potential trade sanctions.

However, the relationship between trade policy and labor rights and environmental protection are among the most contentious issues that the global trading system has ever faced. Some leading economists have forcefully argued that attaching non-trade issues to trade agreements could make things worse in developing countries.

It is noteworthy that the US failed to push forward a FTA in the Americas in 2005 because the US insisted on a comprehensive trade agreement. Brazil and other Latin American countries rejected the US approach.

Moreover, the emergence of the TPP has caused concerns not only in China, but also in other quarters of the Asia-Pacific region. Over the years, ASEAN has taken an ASEAN Plus One approach and obtained "ASEAN centrality" in Asian economic integration. After the US introduced the TPP and several ASEAN members joined the TPP negotiations, ASEAN was concerned that the US might take away its leadership of Asian economic integration and marginalize the organization.

As China is excluded from the TPP and since the TPP does not necessarily represent the best approach to economic integration, it is imperative for China to promote its own FTA strategy in this region.

When striving to formulate its own FTA strategy, China needs to think carefully. On the one hand, negotiations that are limited in scope might fail to attract the support of developed economies.

On the other hand, the new FTAs should take into account sensitivities and asymmetries that exist among the countries participating in the negotiations.

In response to the substantial progress in TPP negotiations, China has started a strong push toward an intra-Asian economic and trade architecture. This is particularly demonstrated by China's active support of the launch of negotiations for the Regional Comprehensive Economic Partnership (RCEP) proposed by ASEAN in 2012.

Both ASEAN and China share concerns that the TPP may be a centrifugal force arising to rip asunder the economic integration of East Asia. To promote intra-regional economic integration and build mutual trust, China chooses to support ASEAN's centrality in leading regional economic integration rather than taking the helm itself.

The RCEP may not aim for the same level of ambition in terms of tariff reduction and trade liberalization as the TPP. Nevertheless, the RCEP seems to offer more flexibility to participating countries.

By allowing sensitive items to be left out of the negotiations, the RCEP could be more appealing to countries less inclined to the declared high-standard ambitions of the TPP.

It must be acknowledged that establishing a high-level FTA through the RCEP will not be an easy task. ASEAN's historical efforts, reaching back almost five decades, have not yet led to a high level of integration.

This casts doubt on ASEAN's leadership capacity to manage different relational dynamics among participating countries.

Other challenges include historical conflicts and unsettled territorial disputes between China, Japan and South Korea, and significant development gaps among RCEP members that may prevent countries from pursuing aggressive trade liberalization policies. It remains to be seen whether the RCEP will be able to overcome these challenges down the road.

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