Trade agreements are in ASEAN’s best interests

Author: Sanchita Basu Das, ISEAS

At the last Asia Pacific Economic Cooperation (APEC) Summit in November 2015, the United States and China advanced their own set of interests with respect to trade agreements in the Asia-Pacific region. While the United States celebrated the conclusion of its Trans-Pacific Partnership (TPP) deal in early October 2015, China stressed the potential of a Free Trade Area of Asia-Pacific (FTAAP).

A container truck passes by piles of containers at a terminal of Yangshan Deep-water Port in Shanghai, China. (Photo: AAP)In his speech, President Xi Jinping promised to work to ‘finish at an early date negotiations for the Regional Comprehensive Economic Partnership (RCEP), while accelerating talks on a China–Japan–South Korea FTA.’

Economics aside, what do each of these trade agreements mean for the United States, China and ASEAN from a strategic perspective? The United States and China view trade agreements like the TPP, RCEP and FTAAP as ways to limit each other’s ability to compete in their respective areas of interest. China, as a growing economic power, has an interest in leading the East Asian institutional architecture and needs to ensure that neither the United States nor Japan will dominate the region.

The United States’ interest lies in making sure that China’s economic rise does not lead to a reduction of US influence in East Asia. Even worse, from a US perspective, is the possibility of East Asian countries coming together to exclude the United States from the region, as in the ASEAN+3 and ASEAN+6 arrangements. ASEAN wants both the United States and China to be engaged in the region, while maintaining its centrality in the broader Asian architecture.

RCEP, though led by ASEAN, is one of the mediums for China to meet these ends in a peaceful manner. But RCEP includes India, which has a record of being difficult in multilateral negotiations. That may slow the agreement’s progress or even derail it from its stated objectives.

In order to safeguard its interest, China has simultaneously proposed an upgrade to the ASEAN–China Free Trade Agreement signed in 2002. The decision to upgrade was endorsed in late 2015. Its aim is to align ASEAN–China FTA policies to current business practices. It seems that Beijing wants those in the ASEAN region to automatically take into account Chinese interest and to view China as an economic opportunity rather than a growing threat.

The idea of FTAAP, championed by China since 2014, seems to be in reaction to China’s exclusion from the TPP and that agreement’s ‘high standards’ — standards that may prohibit Beijing from joining the pact anytime soon. This attitude can be observed in President Xi’s speech at the 2015 APEC Summit. As Beijing ‘worries about fragmentation’ in the region, Xi stated, it asks for the accelerated realisation of an open and inclusive FTAAP.

Beijing’s advocacy for FTAAP at the APEC forum also reflects its desire to be part of an agreement from its inception. As APEC covers 21 economies, it is highly likely to be more accommodative to developing countries’ needs and their domestic environments. The absence of India in APEC also gives the FTAAP a better chance of success compared with the RCEP. Ultimately, Beijing wants to ensure that APEC, rather than the TPP, remains as the central forum connecting the United States and Asia.

The United States seems determined to use the TPP to connect its economy to the growth centres of Asia. It has been long complaining about unfair trade practices among developing countries leading to significant trade imbalances between the West and the East.

The TPP is seen as a way to rectify such imbalances. This was reflected in President Barack Obama’s address to the Australian parliament in 2011: ‘We need growth that is fair, where every nation plays by the rules — where workers’ rights are respected and our businesses can compete on a level playing field’.

For the United States, the TPP also serves to emphasise its strategic ‘pivot to Asia’. This is an attempt to reverse the belief that the United States has been preoccupied with fighting terrorism since 2001 and that it is making a lukewarm effort to reach out to ASEAN states with formal proposals for economic cooperation.

ASEAN countries tend to view both the United States and China as matters that cause both anguish and opportunity. Acknowledging their own economic and size-based weaknesses, ASEAN countries’ interests generally lie in following cooperative relationships and institutional frameworks. They welcome India in this regard. Currently, RCEP is the most reassuring agreement for ASEAN, as it has acknowledged Southeast Asia’s centrality from the beginning.

But the other approaches, such as TPP, China–Japan–South Korea FTA and APEC-FTAAP, threaten its unity and centrality. This can be observed in the TPP — the agreement includes only four of ASEAN’s 10 members and its entry conditions make it difficult for the other six to join anytime soon. President Xi’s advocacy of the China–Japan–South Korea FTA during 2015’s APEC Summit, as well as China’s expression of interest to eventually join the TPP, could endanger ASEAN’s cherished desire for centrality.

Still, at the moment, almost all trade agreement frameworks are of high strategic importance for ASEAN countries. Despite the resource costs involved, these agreements will continue to offer new ways for ASEAN to engage and balance the region’s major players.

Sanchita Basu Das is Fellow and Lead researcher (Economics) at the ASEAN Studies Centre and Coordinator of the Singapore APEC Study Centre, both based at ISEAS-Yusof Ishak Institute, Singapore.

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