The TPP, APEC and East Asian trade strategies

Author: Shiro Armstrong, ANU

The Trans-Pacific Partnership (TPP) trade agreement got a big boost around the APEC meeting in Honolulu. A broad framework was announced, progress highlighted, and a 12 month deadline for a deal was set.

The TPP is the first trade agreement which President Obama did not inherit from his predecessors, and it is seen as a means of keeping the US engaged in Asia. Understandably then, the pressure to show that progress had been achieved at the Honolulu summit was on everyone’s mind.

The TPP aims to be a high-quality, 21st century agreement that furthers economic integration in the Asia Pacific, with the current negotiations including Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam. Prime Minister Noda’s much-anticipated announcement on Japan’s intention to join the other nine APEC economies in the ongoing TPP negotiations is another important development on this front. Japan’s decision to start consultations with countries currently negotiating the TPP in order to join negotiations certainly elevates the importance of the initiative.

But Japan’s involvement, and the recent announcement around the APEC meeting, does little to resolve the cross currents that confront East Asian regionalism and Asia Pacific economic integration.

One risk is that the APEC process could lose momentum by some of its membership getting bogged down in TPP negotiations that might well turn out to be less than fullsomely productive. Trade deals take time; and they are likely to take even longer with more parties around the negotiating table. The TPP should not be rushed, and so it is important that the success of APEC meetings should not be tied to announcable progress on the TPP. A lack of progress on the TPP is not a lack of progress in the APEC process: one should not bring down the other.

Progress on binding regional trade agreements has been difficult through APEC because of the diversity of membership and the nature of cooperation in APEC. The failure of the WTO’s Doha Round has added impetus to the TPP negotiations. Yet it is not clear the TPP is the answer to a lack of progress in a weakened global trading system.

Less than half of APEC’s member economies are committed to negotiating a TPP at this stage, but more importantly, the end agreement and design of the TPP may mean that some key economies find it difficult to join. The most important of those is China. The so-called platinum standards the US is pushing for in the TPP — stronger intellectual property rights, stronger labour and environmental standards and regulatory discipline of state-owned enterprises — will make it hard for developing countries and transitional economies to join.

The fact that other countries in the region have seen that China — their biggest trading partner — may find it difficult to join the TPP seems in fact to have elicited a tactical response from East Asia, re-energising cooperation in a number of ways. Long-term political rivals China and Japan elevated the urgency of the ASEAN+6 Closer Economic Partnership Agreement, which is now cast in terms of an East Asian FTA. The ASEAN response (driven by Indonesia) has been to propose an ASEAN+1 template. Given ASEAN has FTAs with each country in the plus-six grouping (Australia, New Zealand, India, Japan, South Korea and China), the idea would be to harmonise those arrangements, consolidate them, and then open the process to others (the US, for example). Although neither East Asian response is well articulated, agreed on or entrenched at this stage, they are not favourable developments for the US.

There are also signs that the TPP might turn out to be little more than a bunch of bilateral deals itself, and that won’t do much to solve the problem of overlapping FTAs in the region — one of the TPP’s core goals. Unless it is designed with uniform concessions and commitments to all members, not only will the TPP fail to overcome the ‘noodle bowl’ of overlapping FTAs in Asia, it will add another bowl of noodles within the current bowl.

Japan, in its approach to TPP membership, recognises the possibility that China will not join the TPP any time soon. Given the importance of China to Japan, both economically and strategically, Japan has signalled it will move forward on a bilateral FTA with China at the same time as it moves to join the TPP negotiations. FTAs with South Korea and the EU are also in the works.

The East Asia Summit (EAS), which the US and Russia joined last year, is seen as another way to keep the US engaged in Asia. The EAS now comprises ASEAN+6 plus the US and Russia. While any additional opportunity for dialogue in the region is welcome, it is still a young institution that has not established a strong agenda. Its focus is leaning toward political-strategic issues, which are important, but without a prominent place for positive-sum economic issues (the international financial institutions have not been invited to the Summit this year), the big powers could end up dominating the talks, focussing on zero-sum or negative-sum security issues.

East Asian economic integration has been market-driven, not institution-driven, and production networks have flourished despite FTAs in which the rules-of-origin issue complicates the sourcing of imported intermediate inputs. The Asia Pacific region, and especially East Asia, has enjoyed rapid growth of trade and development based on the idea of open regionalism.

The priority in East Asian economic integration is to promote the participation of least-developed economies in the production networks, as well as deepening the integration and specialisation of middle-income economies in those supply chains. This is an integration agenda beyond a narrow trade agenda. The TPP is not currently pointed in that direction and risks overshadowing East Asian and ASEAN-style economic cooperation within APEC — an approach which is still quietly delivering real progress in economic integration, as it has in years past.

Dr Shiro Armstrong is a Research Fellow at the Crawford School of Economics and Government, the Australian National University, and Editor at the East Asia Forum.