The Trans-Pacific Partnership (TPP) agreement has been a lynchpin of the Obama Administration’s rebalancing policy towards the Asia-Pacific. Announced Oct. 5, 2015, the agreement aims to "promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections."
After seven years of negotiations, 12 countries signed on to the agreement – among them was the US, absent was China. But it’s really too early to tell what the impact will be on China, said Wendy Cutler, one of the lead negotiators for the US on the TPP as Acting Deputy US Trade Representative.
“TPP is going to help create what we call regional supply chains among the participating countries,” said Cutler, who is now Vice President and Managing Director of the Washington, D.C. Office of the Asia Society Policy Institute. “So I think by definition countries that are not part of TPP are going to find it more difficult to become an integral part of the supply chains that are created in the region among TPP members.
“I expect China will carefully review the agreement and make its own judgments in terms of how it could benefit or where it could lose as a result of the agreement, largely through trade diversion,” Cutler said after addressing the chamber’s members in a closed-door session.
A World Bank report on the impact of TPP published in January 2016 forecast that the agreement could raise the GDP of member countries by an average of 1.1 percent by 2030, with trade increasing by 11 percent during that time. It also forecast that the biggest benefits would go to smaller, open economies within the TPP, and the detrimental effects on non-members could be limited.
Exporters in these countries, such as Malaysia and Vietnam, “would benefit from lower tariff and non-tariff barriers in large export markets, while other firms stand to gain from stronger positions in regional supply chains through deeper integration,” the report said. China is mentioned only rarely in the report, which predicts it will suffer a minor decline in GDP as a result of the deal, and a slight increase in exports.
With China moving ahead with its own multilateral lending institution, the Asian Infrastructure Investment Bank, expectations are rising that it will more aggressively promote its own trading block, the Regional Comprehensive Economic Partnership. The model is one of competition between a US-centered trading arrangement and a China-centered one.
“I don’t agree with that analysis at all,” said Cutler. “I think both deals are about trade liberalization, and the difference is that TPP envisions and advocates deeper and more extensive trade liberalization than RCEP.”
However, if China did want to join the TPP, Cutler said that there were several provisions that China would likely struggle to adopt, especially regarding state-owned enterprises, digital trade, and labor and intellectual property rights.
Developments to look out for over the next few months are whether other countries express an interest in joining the TPP, perhaps creating momentum for a broader Free Trade Area of the Asia Pacific, and whether Regional Comprehensive Economic Partnership (RCEP) negotiations are completed according to the 2016 deadline set by participating countries.
Of course, TPP has yet to be ratified, and Cutler said it would be critical for organizations such as AmCham China to help make the case to Congress.
“I think it will be very important for the chamber to describe the implications of, and the importance of, TPP passing the US Congress during their meetings with congressional representatives and during their doorknocks in Washington,” she said. “I think there’s a lot of interest in how China’s viewing the TPP, and I think the companies here are very well positioned to describe what they’ve learned through their experiences.”
Editor's note: Regional trends such as TPP will be at the forefront of the discussion at the 2016 APCAC Business Conference (April 14-15), which will bring together over 300 business, policy, diplomatic, government and media leaders for two days of important and incisive discussion on China’s Asia Pacific engagement and its implications for American business.