Japan?s decision to be part of both the ASEAN-led RCEP and US-led TPP opens up the possibility of a larger Asian FTA. Japan has also launched negotiations for an EU-Japan FTA

Suvi Dogra & Jun Jie Woo

Some see it as the surprising fourth arrow to Japanese Prime Minister Shinzo Abe?s ?three-arrow? economics?popularly dubbed ?Abenomics??while others see it as just another dimension of the third arrow. Whichever way one may view Abe?s decision to take Japan into the US-inspired Trans-Pacific Partnership (TPP), the fact is that Japan?s decision has imparted new life to a faltering initiative.

The three policy arrows in Prime Minister Abe?s initiative to revive Japan?s economy, as his advisor Heizo Takenaka told an audience in Mumbai last week in his IISS Oberoi Lecture, are monetary easing, fiscal stimulus and structural reform. Takenaka believes Abe?s decision to join TPP is aimed at exerting pressure on Japanese companies to become more globally competitive. It is also a political gesture to US President Barrack Obama who has personally promoted the TPP idea in the Indo-Pacific region. Moreover, adds Takenaka, ?We do not have an FTA with the US, therefore TPP is crucial.?

From its start, the TPP was more than a regional trading arrangement. The US has not shied away from allowing it to be viewed as a response to China?s growing economic presence in the Asia-Pacific. Abe has noted that the TPP?s impact extends beyond the economic sphere. Participation in the TPP will allow Japan to create a ?new economic order? with the US, creating new rules and ensuring stability in the Asia-Pacific region. Importantly, Abe sees the creation of this new order and its new rules as important steps in achieving Japan?s national interests. Given that Japan is currently embroiled in a territorial dispute with China over the Senkaku islands, joining the TPP can also be seen as an attempt on the part of Japan to counter increasingly assertive China. Ma Jiali, executive deputy director at the Centre for Strategic Studies, Beijing points out that Japan is a superpower economically but not so politically. Hence, it needs to work with the US.

The Indo-Pacific has become a noodle bowl of cross-cutting free trade agreements (FTAs) and regional trade agreements (RTAs). These include the ASEAN-China FTA (ACFTA), ASEAN Plus Three FTA, ASEAN-India FTA (AIFTA), and a slew of bilateral FTAs. The TPP arrived in this complex arena as a strategic initiative from the US. In response, China encouraged ASEAN to float a rival grouping that excludes the US called the Regional Comprehensive Economic Partnership (RCEP). India is a founding member of RCEP while it still remains outside APEC and the new TPP.

Takenaka believes ?It is crucial to engage all interested parties at this juncture in order to achieve a larger Asian FTA.? Hence, Japan?s decision to be part of both the ASEAN-led RCEP and US-led TPP. Japan has also launched negotiations for an EU-Japan FTA.

Responding to Abe?s aggressive trade diplomacy, China has ramped up efforts at negotiating a trilateral FTA with Japan and Korea. China?s FTA policy can thus be seen as a continuation of its post-opening up ?charm offensive? that aims to bolster the economic superpower?s soft power resources and extend its influence over the region.

Even as the new kids on the block?TPP and RCEP?vie for regional support, the long forgotten Asia Pacific Economic Cooperation (APEC) has sought to signal its own relevance by proposing that the new FTAs and RTAs will have to be merged into a wider free trade bloc encompassing the entire Asia Pacific region, with the aid of ?convergence mechanisms? developed by APEC.

Should existing trade agreements eventually converge towards the APEC vision of complete regional liberalisation, the way in which such a convergence is shaped has significant implications for the power hierarchy and security architecture of the region. On the one hand, regional convergence based on the RCEP model will facilitate China?s rise as the dominant Asian power. Conversely, a TPP-driven convergence will allow the US to re-assert itself as the dominant power in Asia. Importantly, China is not part of the TPP while the US is excluded from the RCEP.

ASEAN in the middle

ASEAN is situated at the centre of this great power competition for influence. Being the core around which the APT and RCEP are arranged, it is both the target and arbiter of regional trade negotiations. Furthermore, ASEAN members such as Brunei, Malaysia, Singapore, and Vietnam are involved in the TPP. Observers have warned that the two competing regional trade agreements threaten to unravel ASEAN?s centrality and internal consistency, with ASEAN being pulled in two directions by the competing visions of economic order offered by the US and China.

Thus far, ASEAN has played its cards well. The association?s adherence to the so-called ?ASEAN Way? principles of non-interference and consensual decision-making has enabled it to remain in the ?driver?s seat? in the regional integration process in the Indo-Pacific.

While the ?ASEAN Way? has often been criticised for fostering inefficiency and indecisiveness, it has nonetheless promoted greater dialogue amidst rising tensions. Informal negotiations and confidence-building measures have been crucial to maintaining regional stability and cooperation.

Even as major powers compete for influence in the Asia Pacific, ASEAN is set to retain its role as a regional facilitator and a force for regional stability. However, to be able to remain relevant ASEAN must ensure internal consistency in policy and transparency in decision-making. Neither China nor the US should browbeat ASEAN and ASEAN must strike a balance in its relations with these two and with Japan and India. This approach alone would ensure fruition of the idea of an ASEAN Economic Community (AEC).

Whither India?

India has thus far been left out of the recent discourse on trade liberalisation in Asia-Pacific, be it APEC or TPP. With China?s rise as a global trading power, India is struggling to maintain its geo-economic and geo-strategic position in Asia. Having decided to participate in the RCEP, India may induct itself into the Asian economic architecture, but given that China too is on board, the question that remains is whether India can draw maximum benefits while furthering its regional economic interests through RCEP even as the TPP takes root in the region.

With its ?Look East Policy? and its far-sighted decision to allow ASEAN to remain in the ?driver?s seat?, India has gradually but steadily increased its engagement with the Indo-Pacific region. Rather than get drawn into the TPP vs RCEP tussle, India should pursue membership of APEC and seek an APEC wide grouping, discouraging this TPP vs RCEP competition.

Suvi Dogra is a research officer for the Geo-economics & Strategy Programme at the International Institute for Strategic Studies (IISS), New Delhi, and Jun Jie Woo is a PhD candidate at the Lee Kuan Yew School of Public Policy, National University of Singapore