Ernest Chong

We continue our Asia-Pacific summer event round-up with a look at what’s new with the Trans-Pacific Partnership, a free-trade initiative touted to be the key to liberalizing the region’s economies. 

Trans-Pacific Partnership

In June, Canada and Mexico became the newest members to the Trans-Pacific Partnership (TPP) multilateral free trade negotiations. While the addition of these two heavyweight economies represents a significant boost to the TPP line-up, skepticism remains as to the viability of the whole exercise.

Difficulties abound in getting all nations to endorse every TPP provision. Many of the region’s transitioning economies protect their agricultural industries, utilize cheap labour, and loathe the costs of environmentalism. Intellectual property stipulations and state-owned enterprise regulation are proving to be equally controversial. Japan, for example, remains an observer precisely because of agriculture and its automotive industries. Malaysia and Vietnam both feature dominant state-owned enterprises.  Newcomer Canada will have to deal with longstanding domestic agricultural preferences.

Given the TPP’s stringent compliance standards, one wonders whether the framework is trying to be deliberately selective. Washington’s commandeering of the negotiations makes it clear that the TPP has now become part of its regional re-engagement strategy, but to what end? The elephant in the room is obviously China’s absence, raising questions about exactly how the TPP fits into America’s Asia-Pacific strategy. Indonesia, a relatively developed and rising market economy, is also noticeably missing. The Philippines, an American ally, has not had its interest reciprocated. China’s Southeast Asian friends – Cambodia and Laos – have also not been included. Any agreement therefore risks fracturing the region – TPP members and everyone else. Such a wedge is likely to polarize the region with serious geo-strategic consequences.

For its part, China is negotiating its own TPP-esque framework – the ASEAN+3 initiative – and does not seem particularly phased. It worries, of course, that the TPP is in fact an attempt to strategically divide the region, but Beijing is aware of the inherent difficulties outlined above and has a certain level of economic confidence despite China’s domestic challenges. No Asia-Pacific trade agreement can truly be successful without the participation of the largest economy in the region, and China’s economic position does not immediately require it to join in. While Vietnam, the framework’s least-developed nation, may see access to American markets as more important than the costs of meeting high TPP compliance standards, China does not have the same urgency. Beijing will have to be persuaded that the TPP binding rules and phase-in timing are consistent with its own reform agenda and timetable.

In the meantime, we must remember that trade agreements cannot reshape intrinsic market forces; they can only facilitate smoother transactions. China’s market size and geographical location make it Southeast Asia’s default (and largest) trading partner. Southeast Asian nations’ varying degrees of economic development naturally form divisions of specialization and a regional production chain network. As China shifts economic gears, its labour-intensive industries will relocate to labour-abundant Southeast Asian economies, while Chinese firms (and Beijing) will increasingly look outward for foreign direct investment opportunities and for economic and geopolitical influence. Geographical proximity keeps transportation costs low. That the region is also a fast-growing consumer market merely reinforces the importance of intra-Asian trade. The TPP will have a tough time convincing the region that it has more to potentially offer than what is readily available in-house.

The afterthought, however, is that the TPP has medium- to long-term potential for broad expansion through Asia. Over time, as regional relationships become more coherent and simplify Asia-Pacific’s “noodle bowl” of poly-lateral free trade agreements, it is likely that they will gradually converge with TPP objectives. This requires a parallel development alongside intra-Asian integration and a dogged adherence to what is likely to be an under-performing framework. The hope is that the TPP’s initial success would encourage other nations to join and thus enhance all parties’ future gains, and eventually provide an attractive platform for extra-regional expansion.

Concluding next time – Myanmar, Thailand, China.

Ernest Chong graduated from the Master of Public Policy program at the School of Public Policy and Governance in 2011. He also holds a Master of Arts in War Studies from King’s College London. His areas of interest focus on defence and security issues in Canada, the United States, and the Asia-Pacific.