Daily Archives: July 20, 2012

World Trade Organization and Regional Deals: the FTAs and TPP

[W]ith the stalling of the Doha round of multilateral trade talks, regional free-trade agreements (FTAs) in Asia have become one of many arenas of strategic competition between America and China.  [So how likely is it that Japan, China and South  Korea will get together to establish a free trade area as they announced on May 13th, 2012?]

There are a couple of shrug-worthy elements to the proposed free-trade area. The first is that it will be terribly hard to bring to fruition. In all three countries, important lobbies will resist the opening to free competition: Japanese farmers, Chinese state-owned enterprises, South Korean exporters hoping to steal a march over Japan through a bilateral free-trade agreement with China. Secondly, any agreement is likely to be a “shallow” one—allowing plenty of exemptions. South Korea has signed “deep” agreements with the European Union and America, though they have been fiercely controversial. But China’s trade agreements, such as that with the Association of South-East Asian Nations, ASEAN, tend to be sneered at by American and European trade negotiators as feeble substitutes for the real thing—FTA-lite. Meanwhile, domestic political pressures suggest that Japan’s government is hardly in a position to negotiate a full-strength one.

It would be wrong to dismiss the effort as pure symbolism, however. China is the biggest trading partner for both Japan and South Korea. All three countries recognise that their futures are intertwined and are sincere in wanting both to ease the suspicion left by historic animosities and to remove barriers—at least to their own exports. At the summit meeting in Beijing where the planned talks were announced, they also agreed on an investment-protection agreement, their first trilateral treaty. And their three-way FTA is seen as a stepping stone to an even bigger free-trade area, including the ten-member ASEAN.

In the dreamland in which some trade negotiators live, this would then merge with another, parallel project, the Trans-Pacific Partnership (TPP), which is being pushed by America, to form a grand Asia-Pacific free-trade area. The failure of global trade negotiations would be mitigated by an encompassing regional achievement. In the real world, however, the TPP is not complementary to the China-promoted trilateral initiative. It is in competition with it. Besides America, the TPP brings in eight other countries (Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam) which met this week in Dallas for their 12th round of talks. America insists it would welcome talks on Chinese membership. But some of the provisions it has introduced to the TPP—such as those directed at the activities of state-owned enterprises—seem designed to hinder Chinese entry.

The Chinese government professes an “open” attitude to the TPP. But the official press has aired reasonable suspicions that the TPP is part of the broader rebalancing of American global strategy towards Asia and the Pacific, which China sees as part of a plan to contain its rise. The involvement of Vietnam, for example, lends weight to this interpretation. At odds with China over territorial disputes, it has strengthened ties with America. But in its economy, too, state-owned enterprises play a big role. It is not an obvious candidate for membership in a “21st-century” trade pact, as the TPP is advertised. Unlike the trilateral FTA, the TPP is to cover, for example, intellectual property and environmental and labour standards, as well as tariffs. These American concerns may be hard to impose on the other TPP countries.  The biggest problem facing the TPP, however, is the failure so far of Japan to join the process.

Excerpt, Trading strategies: China and America compete to lead regional free-trade arrangements, Economist, May 19, 2012, at 50