The Regional Comprehensive Economic Partnership (RCEP) negotiations in Kobe, Japan wrapped up just a couple of weeks before trade negotiators met in Chile March 14-15 to take part in renewed talks among the 11 remaining parties to the Trans-Pacific Partnership (TPP). The Chile meeting was held in order to discuss moving forward with the agreement without the United States.
China and the United States in Chile
China and the United States were both reportedly in attendance at the Chile meeting last week. It was also reported that the United States’ message in Chile was to actively engage with its Asia-Pacific partners and that it intends to remain a key part of the Asia-Pacific community. However, despite the United States best efforts at messaging in Chile, it has turned away from the region by withdrawing from the TPP and with some of its more recent pronouncements in the 2017 Trade Policy Agenda. Or, at least, The United States has put itself on hold while most of the rest of the world moves forward with free trade.
Growth in Asia Pacific
While the United States does have economic and political clout with a gross domestic product (GDP) of about $17 trillion, Association of Southeast Asian Nations (ASEAN) does not appear to be waiting for the United States to get its ducks in a row when it comes to trade. While economic growth in the rest of the world is slowing, Asia Pacific’s economic growth as a whole is picking up. It is reported that ASEAN is expected to grow at 7% per annum, with a GDP reaching $4.7 trillion by 2020, and the possibility of becoming the fourth-largest economy in the world by 2030. This growth presents great opportunity for the region.
The Asia Society Policy Institute’s recent report Charting a Course for Trade & Economic Integration in the Asia Pacific discusses that part of Asia Pacific’s success is “the direct consequence of market-opening policies and other economic reforms, some as a result of unilateral action, others as part of commitments under trade agreements. Key among them is a great openness to trade.”
A Gift to China
This leaves many asking whether it is possible for China to fill the void created by the United States’ tilt away from the region. It was reported that Jin Yi’nan, a People’s Liberation Army general stated that “Trump has given us a grand gift, though he does not know it.” So it comes as no surprise that China wants to be a trade leader in the region and some might say with the RCEP negotiations and other initiatives such as The Belt and Road and the Free Trade Area of the Asia Pacific (FTAAP) it already is.
Regional Comprehensive Economic Partnership or “TPP lite”
The RCEP, although often referred to as a China initiative, was started by ASEAN as a way to build upon the ASEAN plus one agreements it has with Australia, New Zealand, China, India, Japan, and Korea. RCEP parties represent 45% of the world’s population with a combined GDP representing approximately 1/3 of the world’s GDP. Although negotiations are closed door, it is reported that the agreement covers trade in goods, trade in services, intellectual property, investment, competition, and e-commerce. As the RCEP negotiations progress, it has been reported that India and China are negotiating for the first time and have some issues to sort out including India’s trade deficit with China and its existing tariff system. Additionally, it is reported that Japan and Australia are holding out for a higher quality RCEP and do not want to rush negotiations, while China wants to push through to finish it by the end of 2017.
The Belt and Road Initiative
The Belt and Road Initiative is a development strategy and framework, proposed by China that focuses on connectivity and cooperation among countries primarily in Eurasia. It is estimated that the initiative involves 65 countries; covers 4.4 billion people (accounting for 63% of global population); the aggregate economic value of these countries amounts to US$21 trillion (representing around 29% of global GDP) and is viewed as one of President Xi Jinping’s signature propositions. According to The Economist, officials say there are up to 900 deals under way, worth $890 billion, such as a rail link between Beijing and the German city of Duisburg, and a 3000-kilometre high-speed rail from Kunming, in the country’s southwest, to Singapore.
Free Trade Area of the Asia Pacific
For the time being, the FTAAP is a vision for trade in the future. No negotiations or agreements exist yet. It originated in 2006, when the Asia Pacific Economic Cooperation (APEC) economies agreed to examine the long-term prospect of Free Trade Area of the Asia Pacific (FTAAP). In 2010, APEC leaders issued “Pathways to FTAAP” and instructed APEC to take concrete steps toward realization of the FTAAP. The Goal is to have a comprehensive free trade agreement by developing and building on ongoing regional undertakings such as ASEAN+3, ASEAN+6, TPP and RCEP.
More recently, in November 2016, the 21 members of the APEC finished a Collective Strategic Study (CSS) on FTAAP. The study concluded that an FTAAP has potential and could promote economic gains and broaden regional economic integration, but negotiations should not start yet as additional work needs to be done with regard to trade and investment barriers.
Although China’s influence in the Asia Pacific region will differ greatly from that of the United States, (e.g., the RCEP agreement will likely not include the TPP’s labor and environment provisions and may also include less favorable terms for investment and other areas such as e-commerce), at the moment, China is the only game in town and it is happy to take the lead .