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TPP Doesn’t Represent Global Interests

Oct 22 , 2015
  • Zhang Monan

    Senior Fellow, China Int'l Economic Exchanges Center

The 21st century is one of economic globalization. No country’s development can proceed without the support of economic globalization. With the dramatic expansion of regional economic agreements in recent years, the World Trade Organization is losing its central role in the international trade system. The RTAs, however, are inconsistent with the macro trend of globalized development and globalized interests.

With the US-dominated Trans-Pacific Partnership Agreement (TPP) making substantial headway, a trading bloc comprising 12 countries on the rim of the Pacific is taking shape. The TPP derived from a trade agreement among four small- and medium-sized economic entities (or P4). None of them is among the world’s fastest growing economies. Both the scales and impacts of their economies are limited. The TPP would not have grown from a little-known free-trade agreement into a so-called “high-quality 21st-century” FTA that attracts global attention had the United States not decided to participate. Rather than the aggregate volume of trade and size of the economies it commands, the TPP’s real significance lies in the fact that it kick-starts a new round of adjusting, and upgrading of global trade rules.

The TPP will not only abolish or reduce tariffs on commodities, but also cover safety standards, barriers to trade in technologies, sanitary and phytosanitary measures, competition policies, intellectual property rights, government procurement, dispute resolution, as well as labor and environmental protection. Thus, the TPP has transcended the WTO in both the scope and depth of agreement. In addition, with more countries in the Asia-Pacific taking part, it will inevitably grow into a huge FTA that includes major global consumer markets and sources of supplies, which may constitute an unprecedented new challenge for the multilateral trade system as well as various bilateral and multilateral free trade agreements under the current framework of the WTO.

Nowadays the global trade order is undergoing unprecedented new adjustments. Competition over international trade rules is becoming the focus of a new round of wrangling regarding globalization. The trend of the evolution of a new generation of international trade rules is gradual formulation of new multilateral trade rules through the fusion of rules on goods trade, investment, and service trade, with the support of the development of plurilateral trade rules that regulate a specific field, and based on the establishment of regional trade rules. Global trade protectionism will become even more fierce and covert, turning from free trade to rule-based trade, from global free-trade platforms to regional free trade.

But such competition over rules remains an alternative incarnation of US hegemony over rulemaking. Judging from the evolution of international trade rules, their formulation has followed the pattern of major countries making proposals, forming a limited group of core countries, and then expanding into a multilateral agreement. Since World War II, taking advantage of its economic strength, the US has always been building a system of rules in which it plays a dominant role, such as the International Monetary Fund and World Bank, derived respectively from Agreement of the International Monetary Fund and Articles of Agreement of the International Bank for Reconstruction and Development. Taking advantage of its role as architect of such rules and mechanisms, the US accomplished the basic framework of a US-dominated “economy-finance-trade” system.

In recent years, with the Doha Round of WTO negotiations being bogged down in stalemate, the process of negotiations over rules on international trade and investment has begun to see new changes. Some agreements and negotiations have shown protectionist colors. The multilateral framework of international trade and investment risks overlapping and fragmentation. Data show that, up to now, bilateral and regional free trade agreements signed by WTO member countries have surpassed 300. Take Asia for example: By 2013, the number of free-trade agreements in the area had risen from 36 in 2002 to 109; 148 others were being negotiated. Altogether 257, the total has far outnumbered FTAs in other regions of the world, accounting for over 70 percent of trade in the area.

Since the 2008 international financial crisis in particular, international market resources have become even more limited, the global economy has increasingly focused on “stock partition”, and competition among regional FTAs has grown fiercer. All economies have begun to turn to liberalization of mini multilateral trade. Article 24 of the GATT and Article 5 of the GATS, which explicitly expressed the WTO’s attitude toward FTA constructions, are the basis for co-existence of FTAs and the WTO. However, Article 24’s own lack of effective rules and regulations has to some extent interrupted the process of globalization, and eroded the framework of the multilateral system.

Regional FTAs share several outstanding problems: First, different FTAs have divergent rules of origin, same products from different regions and countries are subject to different tariffs, and there are different standards for safety, environmental protection, and market access will inevitably increase management and transaction cost for each country, which goes against fair competition and improving the efficiency of global trade. Second, given FTAs’ characteristic of being open to insiders and restrictive to outsiders, as they lower trade barriers among member economies, such FTAs tend to build higher trade barriers against non-member economies. Therefore, regional interests don’t represent global interests. Third, the least-anticipated outcome is each FTA going its own way, becoming mutually exclusive and discriminatory, which will deviate from the macro trend of convergence, result in the fragmentation of the global value chain and multilateral rules. That will also lead to trade protectionism, and go against the macro trend of trade and economic globalization.

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