The latest meeting between the leaders of the United States and China on June 7 and 8 in California was both unique and important. While in an informal atmosphere, President Obama and President Xi had a wide range of terrific discussions and were quite successful in achieving goals that both had set forth for the working meeting. Among the topics for discussion was The Trans-Pacific Partnership (TPP). However, the two leaders only touched on the issue briefly, omitting the issue of China’s access to the organization.
It is not surprising that President Obama and President Xi did not talk about China’s access to the TPP based on economic and geopolitical considerations.
First, the TPP is a core element of the American rebalancing strategy. As President Obama’s security advisor, Tom Donilon indicated that the rebalancing strategy is a comprehensive concept that includes “building regional economic architectures and the TPP obviously is at the core of that.” China has already tried to play a critical role in the process of East Asia integration but the U.S. has a very simple goal in utilizing the TPP to compete and even to substitute the forming East Asia trade bloc led by China and cannot consider China as a key role in building the economic architecture in the Asia Pacific. Therefore, the US cannot allow China to appear at the negotiation table unless China changes its regional policies. More than that, if President Obama shows any positive signal for China’s access, he will risk unfavorable internal politics in the U.S. Just one month ago, he gave the clear signal that “the objective now is to complete the negotiations” and not to add new members.
Second, negotiating the TPP agreement has too high of a quality level for China to participate. By the end of May 2013, the TPP negotiations will have seen 17 rounds of exchanges since early 2010. If concluded successfully, the TPP will be a high standard free trade agreement (FTA) agreement for the 21st century. However, the schedule for conclusion has been postponed for two consecutive years. The crux of the problem comes as a result of the high threshold in horizontal and cross-cutting issues such as regulatory coherence, supply chain competitiveness, state-owned enterprises (SOEs), small-and medium-sized enterprises, E-commerce, labor issues and others. In the context of the current TPP negotiations, the presence of SOEs in Vietnam—estimated to represent 40% of output—warrants particular attention as it may hold effects on other regional nations in the future, such as China.
Another problem may arise with the issue of regulatory coherence that was initiated by the U.S. to improve regulatory practices, reduce regional divergence in standards and eliminate some unnecessary barriers. Negotiators have been reluctant to this since the beginning of negotiations and certain countries remain unwilling to change their attitudes. A special phenomenon such as the proliferation of regulatory and non-tariff barriers has spread over the region and become a major hurdle for business trying to gain access to markets. The effort, particularly by China, in aligning the standards, eliminating test and certification redundancies and particularly facilitating customs efficiently should win applause. But at this moment, it is hard for China, amidst an economic transition, to adjust and fit the strict requirements made by the TPP.
Third, the TPP negotiation process has been over-weighted in closed-door discussions, but under-weighted in public transparency. This is the reason that China cannot make an objective judgment on the TPP and its implications on China’s own national interests. Although no one could blame any FTA negotiation for its intimacy, countries such as China may have reason to ask for transparency, particularly in the TPP process as it is under the Asia-Pacific Economic Cooperation (APEC) framework to which China belongs. President Xi gave a clear indication during his dialogue with President Obama that China was interested in being briefed on the process as it went forward. According to Donilon’s remarks to press afterwards, President Xi also suggested setting up a more formal mechanism for the Chinese to get information on the TPP negotiation process. But based on Donilon’s response, the U.S. seemed evasive and noncommittal.
The diplomatic summit in California may have given an indication of economic integration in the Asia Pacific. China is interested in the TPP, but needs to learn more about it before any possible access in the future. The TPP seems representative of a future regime for the next generation of trade and its success will be at least a benchmark for all emerging powers to adopt. However, it remains only a target and not yet a possibility for China to enter immediately. This has to do with several factors conditioning China in its current state..
One point is that China’s gradual approach requires reform to have a progressive advance. The state strategy has been cautious and stable in promoting China’s open-up and reform, never giving way to “shock therapy.” Although China has some unique advantages that can be used for China’s choice to cooperate with specific countries and organizations, it remains cautious in its participation of both regional and global economic partnership, particularly when dealing with “closed-door” negotiations, as has been the case with the TPP.
Another point revolves around social ramifications. China’s social stability cannot tolerate a thrust of the TPP’s labor standard or free flow of Internet data, trying to implement this quickly would have devastating results.. If China is to change something such as its labor standards to meet the standards of the TPP, it must be done so gradually.
There may also be concern regarding the swaying and unstable future of the TPP. The Obama Administration repeated the request to conclude TPP negotiations in 2013. However, international observers believe that push actually overestimated the current state of negotiations. If the U.S. wants to conclude the TPP soon, it has to lower the level of the quality or standards that it has negotiated. Assistant U.S. Trade Representative and TPP Chief Negotiator Barbara Weisel acknowledged in May that the U.S. would not get everything it wants in a final TPP deal if the TPP has concluded in 2013.
In conclusion, the U.S. seems desperate to complete the TPP negotiations this year and is less interested in accepting new members. Therefore it is understandable that both President Obama and President Xi did not talk about China’s access to the agreement. The Chinese president will remain very prudent towards China’s access but mainly in requesting information access. The conclusion of the TPP process will be instrumental to the future of global trade, the manner of this, however, remains to be decided.