Trans Pacific Partnership: Shaping a new regional architecture

Trans Pacific Partnership: Shaping a new regional architecture
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The TPP will set standards and tariffs for twelve Pacific Rim countries that all together represent 40% of the global economy. Meanwhile, China is not included in the agreement.

The Trans Pacific Partnership (TPP) represents an important opportunity for the American economy and is expected to raise the level of American exportation over the Asia Pacific countries by lifting 18.000 tariffs on US exports. Even highly defended markets such as agriculture in Japan will facilitate the access of foreign goods in its domestic markets.

Moreover, the TPP foresees a rapid and valuable integration of the Asian markets. China and its valuable import market have been left out from the agreement, which represents Washington’s most effective strategy to counterbalance Beijing’s desire to establish a hegemonic power over the region.

TPP

New rules of the game

Yet the TPP is not merely a commercial agreement but is also the fundamental keystone of the Obama Administration’s efforts to expand and consolidate Washington’s position in the Asia Pacific. Indeed, since 2011 Obama has pledged to reaffirm the natural vocation of the American power in the region based on the elaboration of the Rebalance to Asia strategy, and strongly characterised by a large range of diplomatic, military, and strategic initiatives.

Indeed, regional economic integration is a fundamental leverage point to shape the new Asia’s strategic environment, boosting U.S. economic power and establishing a new set of rules in which China would be forced to comply or be strongly penalised.

Establishing a rule-based economic system in order to promote economic integration and foster additional investment in the region is a clear priority for the U.S. The TPP is seen as the most viable tool to reassure regional partners about the stability of American leadership in the region, too often questioned by Beijing’s expansion strategy.

China‘s assertiveness is expressed also in playing a central role in the regional economic framework, and abiding to strict rules and standards set by Washington is not part of the equation.

China’s worries

Meanwhile, China’s miracle growth continues to slow down with 6.5 per cent growth expected for this year and serious spill over in the region given Beijing’s role as the biggest trading partner for most of its Asian neighbours. In the last two years, the country’s economy has moved from production-oriented to consumption-driven, and Xi Jinping’s commitment towards structural economic reform has not yet produced the expected results.

Part of the Chinese leadership is struggling to promote new mechanisms and support reforms that would allow China to improve its competitiveness and expand its role as a global power. The approval of TPP represents an additional source of concern for Beijing.

Since the beginning of the negotiations for TPP, Chinese watchers have expressed mistrust over the trade deal given its scope to establish a series of rules that would regulate investment, capital flow, intellectual property, and state owned enterprises.

Even though the Minister of Commerce, Gao Huncheng, recently expressed his hopes over the role of TPP as a tool to foster regional trade and economic growth, Beijing has grown suspicious that the TPP’s ultimate goal is to contain China.

This is especially true after Beijing’s continuous attempts to promote alternatives to political and economic architectures controlled by Washington and its allies such as the establishment of the Asian Infrastructure Investment Bank.

In addition, China has been negotiating its own free trade agreement, the Regional Comprehensive Economic Partnership (RCEP) including the 10 ASEAN countries in the attempt to frame its own new set of rules that would provide significant advantages to Chinese companies.

Recently, Beijing has re-launched RCEP negotiations, aiming to accelerate the discussion and avoid being left out from a free trade area. However, there are no guarantees that China will succeed in its pursuit, and it could be pushed to join TPP despite its reluctance over Washington’s demands.

RCEP

Bringing China in?

Interestingly, while China’s leadership has inaugurated important steps towards structural economic reforms, improving the level of transparency, and diluting the influence of the Party over the state-owned enterprises, it has done so without embracing an orthodox market-oriented economy.

Indeed, the leadership’s perception that such economic integration would be a threat rather than an opportunity for the expansion of China’s economy is still strong among Politburo hardliners.

Certainly, despite several attempts to define common grounds to build a diplomatic framework, there remains strong mistrust that TPP would allow the U.S. to write the rules of the global economy – leaving China with little room to negotiate.

However, Washington would largely benefit from China’s membership in terms of access to the Chinese market for American goods and services, and also in gaining China’s pledge to support and contribute to strengthen regional institutions on which the U.S.’ Pacific allies rely.

Undoubtedly, both Washington and the Pacific Rim countries understand China’s influence in regional trade, and how critical it is to incorporate the most dynamic actor in the world economy, but it will require more time to establish an integration framework acceptable to Beijing.

Reaching an important stage like that cannot be solved simply by an international agreement, but requires an ultimate improvement in relations between the U.S. and China.

Categories: Asia Pacific, Economics

About Author

Daniele Ermito

Daniele Ermito is a London-based analyst. He is also a GRI analyst and regular contributor for the Foreign Policy Association, where he writes mostly on the Koreas ‘blog. He holds a BA (Hons) in International Relations from the University of Bologna and a MSc in Asian Politics from the School of Oriental and African Studies. His areas of research include Northeast Asia security, Japanese politics and Chinese foreign policy. You can follow him on Twitter @DanielRmito.