[SCMP Column] Pacific Trade Deal Welcome, Despite Geopolitical Baggage

October 08, 2015

Asia’s embattled trade liberalisers can at last celebrate: the long-awaited Trans-Pacific Partnership (TPP) was finally born this week, three years behind schedule and after five tortured days of haggling in Atlanta. It is set to be one of the world’s most ambitious trading blocs.

The TPP deal embraces 12 Asia-Pacific economies and 600 million people, is predicted to add US$280 billion to members’ GDP by 2025, and is intended to stand as testament to Barak Obama’s “pivot” to the Asia Pacific.
But it will be some time yet before we trade liberalisers will dare to pop any champagne corks. Each TPP member has to ratify the deal, and any one of these ratification processes could sabotage it. For example, Canada’s Stephen Harper faces elections in just two weeks, in which opponents have made it clear that they will denounce anything he has negotiated. And in the United States, Democrat Obama will have to rely on Republican support to get the deal ratified in 2016. As the Financial Times noted on Tuesday: “Even if Republicans do rally around the TPP, they might prefer to hang on for a Republican administration, and one that might reopen the deal.”

The TPP negotiation began in 2006 as the ambitious dream of four small but liberal economies – New Zealand, Singapore, Chile and Brunei. It was visionary, but it was inconsequential. The leap to embrace eight more economies in 2008 (Mexico, Peru, the United States, Australia, Canada, Malaysia and Vietnam, and belatedly Japan) brought critical mass, but loaded on top of the original economic liberalization agenda an uncomfortable geo-political agenda.

In short, and regrettably, the TPP has increasingly become a US deal, embodying an aim to bolster Japan as the lead economy in Asia, and to fetter China’s emergence as a global economic leader. Obama could hardly have been clearer in his statement greeting the deal: “When more than 95 per cent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products…”

Obama’s “unifying principle” has been to “level the playing field for American workers and businesses, so we can export more products stamped “Made in America”.”

Such US rhetoric makes me deeply queezy. As the Financial Times Trade Editor during the Uruguay Round of trade liberalization talks, I travelled the world for five years listening to Trade Ministers and local chambers of commerce making the same complaint: “If it were not for those pesky deceitful foreign businesses and manufacturers twisting and breaking the trade rules, our fine, upstanding exporters would perform much better in global markets.” Slipped into this rhetoric was always the call for “fair” trade – code for “our right to do protectionist things to frustrate the deceit and manipulation of those pesky foreigners”. On cue, Obama talked of the US negotiating “free and fair trade that would support our workers, our businesses and our economy as a whole.”

This is protectionism clothed in free trade rhetoric, and it makes me fear for the liberalizing spirit that sat at the original heart of the TPP initiative.

But let me not be too curmudgeonly. What we have seen of the deal so far really does suggest that there is significant liberalization inside the TPP. Farm sectors in Japan and Canada – last bastions of deep protection – have been tweaked open for the first time. For example, Japan’s tariffs on beef imports have been cut from 35% to 9% - not perfect, but no small feat.

Perhaps even more important, the complex tangle of Origin Rules that sit at the heart of so many bilateral Free Trade Agreements have been massively rationalized. The 12 TPP members have agreed on a single set of rules of origin, greatly simplifying the lives of companies that have production chains spanning lots of countries.

Despite being so bluntly excluded, China gritted its teeth and welcomed the deal: “China hopes the TPP pact and other free trade arrangements in the region can boost each other and contribute to the Asia-Pacific’s trade, investment and economic growth,” said the Ministry of Commerce. It added that China was “open to any mechanism that follows rules of the WTO and can boost the economic integration of the Asia-Pacific.”

But if integration is to include China, then this may be some time coming. Just as the US is blocking China’s engagement in the Trade in Services negotiations ongoing in Geneva, it is unlikely any time soon to invite China to join the TPP. But surely this really overt effort to check the ascent of China’s global economic influence has to be counter-productive, as well as highly provocative diplomacy? Even before the terms of the TPP deal are ratified, Beijing’s sights are likely to be on creation of the Free Trade Area of the Asia Pacific (FTAAP) – and whether the US likes it or not, the foundations now laid by the TPP are unlikely to be the only foundations for such a major regional trading deal. The battle for economic influence in the Asia-Pacific continues unabated.

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