by Rajiv Biswas, Asia-Pacific Chief Economist, IHS Markit
Key Points:
- China has accepted an invitation to send a delegation to trade talks among Trans-Pacific Partnership (TPP) member states being held in Vina del Mar, Chile, on 14-15 March.
- China is not a TPP member but has stated that it hopes the trade talks in Chile will contribute to pushing forward the process for establishing the Free Trade Area for the Asia-Pacific (FTAAP), a long-term vision for greater trade integration among APEC member countries that is currently still in the early planning stages.
- South Korea, which is also not a TPP member country, has also been invited to take part in the trade talks in Chile.
- The trade talks in Chile will focus on the way forward for further trade liberalization among Pacific countries following the US decision to withdraw from the TPP Agreement.
- Discussions will focus on the possibility of a TPP ex-US agreement, which would technically require a reshaped TPP agreement since the original TPP deal required the ratification of TPP members comprising at least 85% of the GDP of the entire TPP grouping. Therefore, without the US, a new version of the TPP agreement would be needed.
- While the other 11 TPP members could create a parallel agreement without the US and move forward, the economic benefits will be significantly reduced without the US participating. The US accounted for around 65% of the total GDP of the original 12 TPP member countries. The total size of GDP of the 12 TPP negotiating countries with the US included would have been USD29 trillion, or around 38% of world GDP, while TPP ex-US would be USD10 trillion, or 13.5% of world GDP.
- Discussions in Chile may also focus on whether the Regional Comprehensive Economic Partnership (RCEP) trade negotiations among 16 APAC countries could provide a better building block for Asia Pacific trade liberalization than trying to revive the TPP negotiations. Two TPP members that are not yet part of the RCEP negotiations have expressed interest in joining the RCEP negotiations.
Outlook:
Some TPP members, including Australia and New Zealand, have advocated that the remaining 11 TPP members should proceed with implementing the TPP deal without the US. If the remaining 11 TPP members decide to move ahead with the TPP, it is possible that other Asia Pacific countries could eventually join the TPP agreement, adding to its importance. South Korea and Indonesia had previously signalled their interest in joining the TPP, but that was when the US was still part of the TPP negotiations, and a TPP agreement without the US may not be politically or economically attractive for either Indonesia or South Korea. Indonesian government senior officials have already signalled that Indonesia may refocus on strengthening its bilateral trade ties with the US, EU, and Australia, while monitoring the future progress of the TPP. Moreover, the TPP had faced many political roadblocks and significant opposition in a number of the TPP member countries, so the political appetite to pursue the TPP without the US will likely be significantly reduced in some of the TPP member nations.
Therefore, some TPP member countries may prefer to refocus on the RCEP as an alternative large-scale regional trade liberalisation initiative. The RCEP is a more conventional trade agreement than TPP and is less ambitious in its scope of coverage, and does not include major reforms to labour protection standards or liberalization of government procurement policies. Nevertheless, the scope of RCEP is substantial, and includes market access negotiations on Trade in Goods, Trade in Services and Investment as well as negotiations on other areas such as Rules of Origin, Intellectual Property and Electronic Commerce. The US withdrawal from the TPP will help to strengthen China’s economic leadership position in the Asia Pacific with its key role as a member of trade negotiations on the RCEP and the FTAAP. This will help build on its other regional economic initiatives, such as the ‘One Belt, One Road’ regional strategy, as well as China’s leadership in creating new development finance institutions such as the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB) and the Silk Road Fund. At the Asia-Pacific Economic Cooperation (APEC) Summit held last November in Lima, Peru, two Latin American TPP member countries, Chile and Peru, had also expressed interest in joining the RCEP negotiations.