The Trans-Pacific Partnership as a tool to contain China: myth or reality?

Author: Sanchita Basu Das, ISEAS

The Trans-Pacific Partnership (TPP) is in its 17th round of negotiations and the leaders are expecting to reach an agreement by October this year.

President Barack Obama and Chinese President Xi Jinping head for their bilateral meeting at the Annenberg Retreat at Sunnylands in Rancho Mirage, California, on 7 June 2013 (Photo: AAP).

Since the launch of its framework in 2011, the negotiations were joined by Canada and Mexico in December 2012, and by Japan in April 2013.Negotiators envision the TPP to be a ‘comprehensive and high-quality’ FTA that aims to liberalise trade in goods and services, encourage investment, promote innovation, economic growth and development, and support job creation and retention.

But where is China in the TPP negotiations? In 2012, China was the world’s third-largest economy in terms of purchasing power parity. China has around 19.2 per cent of the world’s population (7.1 billion in July 2012) compared to 17.8 per cent in India, 4.5 per cent in the US and 3.5 per cent in Indonesia. Given China’s position in the global economy and the fact that it is not a participant of the TTP negotiations, many academics have speculated that the TPP is an economic tool for the US to contain China’s rise in East Asia. This argument received further support from those accustomed to hearing US criticism for unfair Chinese trade practices. But, in reality, this may not be the case.

First of all, the TPP initiative could be seen as similar to the rules of the WTO, where countries get together to follow certain guidelines and standards in conducting economic activities and bringing in a level playing field for each other. This way, the countries constrain each other from unfair international trade practices, not those that are not party to the agreement.

Second, trade agreements such as the TPP cannot ‘contain’ China, as the TPP members who participate in Asia’s production network with China may not support it. Even the US needs China to cooperate on commercial activities. China is currently the US’s second-largest trading partner, its third-largest export market and its biggest source of imports. Due to China’s large population and its booming middle class (the United Nations Population Division and Goldman Sachs predict that China will have 1.4 billion middle-class consumers by 2030, compared to a forecast of 365 million in the US) China is an important market for many US companies.

Keeping in mind the importance of trade and economic cooperation, China has either signed, or is in the process of signing, several bilateral and multilateral FTAs. It has bilateral trade pacts with five of the twelve TPP members (Australia, New Zealand, Chile, Singapore and Peru), and engages with three TPP parties (Brunei, Malaysia and Vietnam) through a broader trade deal with ASEAN. China is also currently participating in the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), which involves 16 countries, including India, and is negotiating the China–Japan–Korea trilateral FTA.

In the short term, China is most likely to keep its distance from the TPP. It is not ready to implement the types of obligations currently being negotiated. Rather, China will wait to prepare its domestic economy before considering the ‘comprehensive high-quality’ trade accord. This is not impossible as China carried on extensive reforms prior to joining the WTO in 2001. On the other hand, China will continue with its efforts of deeper economic cooperation in the Asia Pacific, such as through the China–Korea FTA and the China–Japan–Korea FTA, which will act as building blocks for deeper FTAs with TPP signatories in the future.

However, whether China ultimately joins the TPP is a choice China has to make. For now, both the TPP and the RCEP are seen as parallel pathways of economic integration, finally leading to the APEC’s Free Trade Area of the Asia Pacific (FTAAP). As one of the leading economies in the RCEP initiative in the Asian region, the decision to join the TPP will be a difficult one to make.

In the long term, there is a chance that both the US and China will come to a middle path that bridges some of the elements of the TPP and the RCEP. Such an arrangement could be embraced under the FTAAP, thus linking the two economic powers.

Sanchita Basu Das is an ISEAS Fellow and Lead Researcher for Economic Affairs at the ASEAN Studies Centre, Institute for Southeast Asian Studies, Singapore. She is also the coordinator of the Singapore APEC Study Centre.

A longer version of this article first appeared here in ISEAS Perspective.