Trade agreements: TPP, RCEP convergence? China would be keen on it to gain access to all regional markets

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March 21, 2017 5:54 AM

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The US withdrawal from TPP was expected to have dealt a telling blow to the prospects of the agreement. (Reuters)

Activism on trade agreements has gathered momentum in Asia-Pacific as countries try consolidating fruits of negotiations they have been involved in. The activism is centered on the two large mega-regional trade agreements (RTAs): TPP and RCEP.

The US withdrawal from TPP was expected to have dealt a telling blow to the prospects of the agreement. Apart from its economic size shrinking significantly, minus the US, the TPP lost the geopolitical glue of US defence allies stitching a trade deal around the Pacific Rim. But within less than two months of the US exit, the remaining TPP nations have rallied together. The TPP-11 (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) met at Chile last week and declared themselves committed to trade liberalisation in the Asia-Pacific. A few days before the meeting, members of the 16-country RCEP met for their 17th round of negotiations at Kobe in Japan. The RCEP talks are at an advanced stage with a distinct possibility of the negotiations concluding by the end of the year.

The current state of play on regional trade in Asia-Pacific reflects concerns to formalise and implement the RTAs. The concerns have led regional leaders to emphasise commitment to trade and, at least implicitly, signal the region’s determination to move ahead on trade irrespective of the US. The commitment also reflects the region’s resolve to challenge the anti-trade, protectionist narrative dominating political discourse in the US and Europe. But notwithstanding the resolve, there are challenges the region needs to overcome for moving ahead on trade.
There’s confusion among regional leaders over how to get going on the TPP without the US. In spite of their commitment to free trade and regionalism, the TPP-11 meeting at Chile did not pronounce if the group intended to implement the TPP. The Chilean foreign minister expressed hope that the future steps on the TPP would be decided at the group’s next meeting in Vietnam in May 2017. Various opinions expressed during the meeting indicated considerable divergence. One possibility, evident from the presence of China, Columbia and Korea in the meeting, is to work towards an expanded agreement based on the core content of the existing TPP text. If TPP-11 adds new members, particularly China, the agreement is likely to acquire a different look, mostly due to exclusion of some of the more controversial issues like state-owned enterprises (SOEs) and labour standards. China is not comfortable with these issues, as are TPP members like Malaysia and Vietnam, who were ‘persuaded’ to agree to these provisions by US negotiators.

Some current and potential TPP members would be pondering over the possibility of using the TPP to conclude high-standard bilateral FTAs with the US. It is interesting that the US ambassador to Chile attended the TPP-11 meeting despite the US not being in the TPP any more. Given the Trump administration’s penchant for bilateral FTAs, and the fact that TPP members like Japan, Malaysia and Vietnam found the deal attractive as they don’t have FTAs with the US, they remain open to striking bilateral deals with the US. They are likely to stay simultaneously engaged in the TPP-11 and US FTAs.

There are also efforts to get RCEP and TPP-11 closer. These efforts fit well with China’s eagerness for a Free Trade Area for the Asia-Pacific (FTAAP). They also resonate the sentiment articulated by erstwhile Australian prime minister Julia Gillard that TPP and RCEP can be different pathways to the same goal. The possibility of RCEP and TPP converging seemed remote in the months leading up to the US elections when the Obama administration branded RCEP a ‘China’ effort for capturing influence in Asia-Pacific and stressed the importance of US ratifying TPP for keeping China at bay. The scenario is different now. China’s prominence is noticeable in all regional integration efforts in the Asia-Pacific. It would be keen to pull RCEP and TPP together for gaining preferred access to all major regional markets and also for being recognised as an undisputed champion of free trade and a global leader of trade integration.

China and ASEAN are keen on early conclusion of RCEP for showcasing it to the rest of the world as a successful example of regional trade integration at a time when trade is in trouble. But this might entail compromising the quality of the agreement, which Australia, Japan and New Zealand would wish to avoid. Achieving consensus on quality remains a challenge for all trade negotiations in the region. Unlike the US, which pressured other TPP countries to agree to market access conditions that would suit its export interests, China would prefer a less-confrontational approach and a low base for a quick conclusion of the RCEP. It would advocate the same principle for getting RCEP and TPP closer. Whether it succeeds in its efforts depends on whether it can convince the rest of the region on its means for achieving the end.

The author is a senior research fellow and research lead (trade and economic policy) at the Institute of South
Asian Studies in the National
University of Singapore.
Twitter: @Amitendu1
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