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Trading in the TPP for a Deal of China's Making

5 MINS READOct 19, 2016 | 09:00 GMT
Trading in the TPP for a Deal of China's Making
(MONEY SHARMA/AFP/Getty Images)
If the Trans-Pacific Partnership fails to win ratification, China could push its own trade deals that cover the Asia-Pacific region.
Summary

The fate of the Trans-Pacific Partnership (TPP) is growing less certain by the day, and China, whose rise the U.S.-led trade deal is meant to contain, is seizing the opportunity to promote its own alternatives. Its failure is by no means guaranteed, but if the deal does falter — as current anti-trade sentiment in the United States suggests it might — Beijing will be ready to offer up two replacements. The replacements, as it happens, would be helmed by none other than China, which hopes to create a model for future economic cooperation in the Asia-Pacific.

China's Foreign Ministry announced Oct. 6 that it had completed a feasibility study for the Free Trade Area of the Asia-Pacific (FTAAP), a multilateral trade deal that Beijing plans to present at the Asia-Pacific Economic Cooperation summit Nov. 19-20. Then on Oct. 11, representatives from 16 countries convened in Tianjin for the 15th round of talks on the Regional Comprehensive Economic Partnership (RCEP) free trade proposal, which will conclude on Oct. 22.

A Risk of Isolation

So far, few details of either deal have emerged, but some hints paint the outlines of what both might end up looking like. As is true of most major trade agreements, negotiations over the RCEP have been shrouded in secrecy. But the accord, which builds on the 10-country Association of Southeast Asian Nations and its existing free trade agreements with China, India, Australia, Japan, South Korea and New Zealand, is similar in format to the TPP.

Like its U.S.-backed analog, the RCEP has been marketed as a comprehensive framework for liberalizing and harmonizing certain standards among its participants. Those include not only trade regulations for goods and services, but also politically sensitive measures such as intellectual property rights protections and a dispute settlement mechanism. (In fact, a document leaked last year showed that Japanese negotiators asked for intellectual property rights protections akin to those of the TPP.) Nevertheless, anecdotal evidence suggests that the RCEP, if enacted, would focus largely on liberalizing trade in goods, indicating it could be closer in practice to existing East Asian free trade agreements than to the TPP, which calls for a more thorough overhaul of regulations in industries of interest to developed economies like the United States, including pharmaceuticals and information technology.

The FTAAP, by comparison, may look more similar to the TPP — at least at first glance. Unlike the RCEP, which the United States is not party to, the FTAAP would encompass all 12 of the TPP's participants, plus Russia and Taiwan and every RCEP state except India. The United States even reportedly supported the FTAAP in its early stages before shifting its attention to its own version of the deal that cut China out of the picture.

But for the most part, membership is where the FTAAP and TPP's similarities end. The latter, for instance, includes stringent requirements on a host of issues — intellectual property rights and public divestment from state-owned enterprises, to name a few — that China would have a hard time meeting even if it opted to sign onto the deal. (Chinese President Xi Jinping's recent statements on the importance of the Communist Party's maintaining control over state-owned enterprises highlight these hurdles.) Perhaps more important, though, the TPP — regardless of its original intent — has developed an overtly strategic dimension in the past two years. It means to lay the foundation of future competition in the Asia-Pacific, a set of rules that China, unsurprisingly, is unlikely to accept. From the United States and Japan's point of view, the deal is a means to try to force China to get onboard with their interests or risk isolation.

A Clear Choice

For China, the FTAAP is a far better option. Compared with the TPP, the agreement — which is more theoretical construct than actual pact — would have fewer conditions for membership and encourage freer trade in goods and services throughout the region. It would not impose substantial protections for the technology industry or other sectors like it, an approach that the United States has staunchly opposed. After all, promoting free trade while failing to protect intellectual property would, in Washington's opinion, serve China's interests far more than those of the United States. Though the United States would still stand to gain in absolute income from the FTAAP, according to the Peterson Institute of International Economics, its relative gains would be dwarfed by China's gains. The same cannot be said of the TPP, which — though less profitable on the whole for the United States than the FTAAP could be — would benefit the United States far more than it would China.

In many ways, the FTAAP is a more desirable deal for Beijing than the RCEP is, too. In addition to the United States, it includes four countries in the Western Hemisphere — Mexico, Canada, Chile and Peru — where China wields little influence. Russia would also be a member, giving China a partner that it could count on to push back against Washington's initiatives in the Asia-Pacific. Of course, China is unlikely to abandon the RCEP entirely, especially if the United States begins to make headway in ratifying the TPP, which could prove complementary to the RCEP in the long run. But should the TPP fail, Beijing will undoubtedly renew its efforts to see the FTAAP through. 

The TPP's members, which signed the deal in February, have a two-year window to ratify it. Within that time, the national legislatures of at least six signatories that collectively account for 85 percent of the bloc's total gross domestic product must approve the agreement. Because the United States represents more than 60 percent of the trade area's GDP, U.S. ratification is necessary to keep the deal alive. But with popular resistance to trade rising and the two major U.S. presidential candidates openly opposing the TPP, the chances of the deal being shuttered before it even gets off the ground cannot be ignored.

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