BEIJING — Both the definition of "Free-Trade Zone" and the "Pacific" should be called into question as the U.S. and Japan try to seal a deal on the Trans-Pacific Partnership (TPP) by the end of the year.
As an ambitious multilateral trade cooperation mechanism outside the World Trade Organization (WTO), the TPP would not currently include such major Asian economies as China and South Korea. It is thus a partnership as much about who is excluded as it is about who is in it.
The WTO's Doha Development Round today still remains incomplete. Meanwhile multilateral or bilateral free trade agreements are all the rage. Free trade zones constructed outside the WTO are more or less exclusive, and the multilateral free trade zones are usually delineated by regions.
The TPP has thus deviated from the typical framework as a regional agreement, since "Trans-Pacific" turns out to be a very vague definition indeed. There already exists a regional forum — the APEC, between 21 different Pacific Rim countries and regions, compared to TPP's proposed 12 member states. It's a "small circle" with glaring exclusions.
The United States is attempting to use the TPP as a strategic tool for its declared "return" to East Asia. Its intention of using an upmarket free trade zone to redivide East Asia’s geoeconomic space will undoubtedly face resistance from the numerous multilateral or bilateral free trade agreements already in place in the region. Redrawing boundaries in a more mixed network is bound to be more complicated for all, which is ultimately the difficulty that the TPP faces.
As an independent high-level free trade zone, the TPP will need to establish an identity. And in order to establish this identity, the category of “others” is bound to exist. China, South Korea and Russia are outside of this club. The problem is that over the past decade various smaller trade agreements have been formed in East Asia, including the 10+1 and the ongoing Sino-South Korea or Sino-Japan negotiations.
Many are now convinced that the region already has too much multilateralism, and what is lacking is a higher standard and more integral multilateral institutional arrangement. However this inclusiveness is exactly what the TPP is missing.
Big plans, partial results
The Trans-Pacific member states, moreover, are at different stages of development with a variety of development models, which will make it harder for them to form a common identity. The core of the East Asian model is the export-oriented economy led by a strong government. The prerequisite for such a development model is the external market’s openness, in particular the strong dependence on the American market.
Meanwhile, the TPP is aiming to achieve a peer-to-peer open market. And even more importantly, it wants to fix agreements on intellectual property rights, service trade and business regulations. But Vietnam and Malaysia, for example, have quite a number of state-owned enterprises that makes them considerably different from America’s free enterprise system. At the same time, Japan is demanding that the United States loosen up its car market while the U.S. wants the Japanese to open up their agricultural commodity market.
That China isn’t participating in the TPP is both a sign of its exclusionary approach, and a reminder of the cost of excluding. China is East Asia’s economic locomotive and the biggest trade partner of numerous TPP member states, including Japan. If the TPP is to be against China, then TPP member countries will be forced to face the pressure of choosing sides.
For China, there are two ways of defusing the situation: Either join the TPP or reinvent the wheel. Chinese Premier Li Keqiang has declared on many occasions that China is open-minded about the topic. However the TPP’s strict standards could shackle China on various fronts. China, instead, is advocating upgrading the East Asia free trade zone, and other agreements that could dilute the TPP’s dominant nature in East Asia.
The exclusiveness of the Trans-Pacific Partnership doesn't match with America's rhetoric of multilateralism — but it shouldn't come as a surprise. Indeed, after World War II, the United States used multilateralism to constrain other countries. Arvind Subramanian, Senior Fellow at the Peterson Institute for International Economics pointed out that Washington will contain China's rise via multilateralism. Thus, the fact that the TPP excludes China would seem to patently deviate from America's political objectives.
As a matter of fact, China is no longer a passive recipient of multilateralism, but one of its chief promoters. It has been a prime beneficiary of multilateralism, with its trade dependence exceeding 50% to far surpass that of other major world economies, including the United States and Japan. So in the end, it will be very hard for any regional free trade deal to cross the Pacific without China, which stands at the center of the Western Pacific.