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The U.S., TPP and Challenges Ahead

Feb 14 , 2011

Planning for the new trade entity Trans-Pacific Partnership (TPP) concluded with a successful four-round negotiation phase in 2010, resulting in the US announcing degrees of progress to the surprise of some negotiators.

This US-dominated TPP seeks to  build on a completed free trade agreement among four economies across the Pacific including Brunei, Chile, New Zealand and Singapore. The trade bloc was  named as P4 after it was promulgated in  2006 and although the  US was not involved in formation talks it started negotiations with P4 in 2008 to bolster the TPP. These talks continued on the sidelines of APEC summits and the TPP is considered by some to be a pathfinder for the mooted APEC sponsored  Free Trade Agreement of Asia Pacific (FTAAP).

Some Australians have been cautious about the TPP based on the experience with its FTA with  America which is seen to have failed to significantly increase exports to America while American imports to Australia continue to grow. Other arguments stress the risk for New Zealand that a TPP  deal will allow American firms to block New Zealand exports to America, in particular in the fields of pharmaceuticals, beef, dairy, movies and music. It is no wonder that some countries involved in the negotiations believe the proposed trade deal across the Asia Pacific region isdesigned by the US based on its own interests.

The United States’ involvement  indicates a strategic regional cooperation adjustment of US trade policy  away from  the previous bilateral approach. There are some special reasons for American engagement with the already established: First, President Obama is being pragmatic in trying to expand  American interests and, while still haunted by the lingering after-effects of the global financial crisis, believes there is merit in taking firm action through the TPP to add jobs at home and eliminate domestic complaints by  increasing American exports to the Asia-Pacific.

Second, the United States wants to create a high quality FTA as a  substitute for the perceived weaker Asian model, thus setting an example for the region to follow the American-created model in developing regional integration.

Third, there are strong US concerns about anAsian trade from which it is excluded.  ASEAN Plus Three (APT), the East Asia Free Trade Area and the East Asia Community all exclude the US. Any trade and investment transfer vehicles  that could reduce

Fourth, China’s rise triggers a debate on regional leadership issues. Its continued growth enhances its role in regional  diplomacy and the launch of a China-ASEAN free trade area in 2010 pulls all players closer. The US fears China making further inroads into the region  and believes the TPP would be a foil  to  China’s  leadership in East Asia. Obviously, US participation in the TPP has additional  implications for regional geo-economics and geopolitics.

The Obama Administration wants to finalize negotiations and conclude the agreement in November 2011 for member heads to sign the TPP in Honolulu. Completion of negotiations in 2010 signals a large degree of success for all parties but challenges  remain ahead in 2011.

The strongest  issues for the nine countries committed to a new trade framework have been  related to the structure of the TPP itself. There have been at least three major issues to  deal with: the first concerns the relationship of a TPP to existing FTAs; the second is about market access, and the third is  membership. Almost all potential members  understand the TPP  excludes  cornerstone regional  members China and Japan, both extraordinary markets in the region. Member country’s  internal policy adjustments to fit the requirements of a TPP would be significant for  Vietnam and Malaysia. In American eyes, Vietnam cannot be recognized as a market economy because its government has a history of intervention in trade and service sectors. Whether the US would recognize Vietnam as a market economy will affect Vietnam’s access to a TPP. The Malaysian government has also  intervened in economic activities, particularly in its service sector including the banking industry. A challenge  for Malaysia will be  how to improve its internal operational environment. 

Australia’s latest policy shift could also present  a new challenge for a TPP. On December 10, 2010, new Australian Trade Minister Craig Emmerson gave notice  the Australian government wanted to  return to the trade policy of the Hawke-Keating era  and criticized the former conservative government for doing a politically motivated  trade deal with the United States. Like others, China pays close attention to the progress of TPP negotiations. It seems logical for China to join the TPP because its approach to  to regional integration is open, inclusive and cooperative.

PM Wen Jiabao remarked that China would not only positively participate in and maintain international cooperation  but also wants to play a constructive role in building international institutions.

In terms of the push towards both the TPP and an  FTAAP,  China needs to  start  researching the dynamics of their potential influence. Some aspects of the TPP  will be useful for China to further its implementation of  WTO rules and could be beneficial to its development. If China joins in the future  negotiations, it can also submit ideas to influence the outcome.

Cai Penghong is Senior Fellow at Institute for Asia Pacific Studies, Director of APEC Research Center, Shanghai Academy of Social Sciences.

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