Asia-Pacific trade negotiations: how about a regional trade Opera?

[By Antoine Martin ]

Part of the political economy challenges ahead is the evolution of trade liberalization negotiations in the Asia-Pacific region. In a comment dated June 2014, Jayant Menon (Lead Economist at the Asian Development Bank’s Office of Regional Economic Integration) actually presented a rather interesting snapshot of Asia-Pacific trade negotiations.

These, indeed, are characterized by various trade liberalization initiatives competing not only with each other but also with lagging WTO trade negotiations. Originally enough, politics in the region seem to have created the premises of what could be called a never-ending Trade Opera, with characters, acts, an intrigue, some shifts and, of course, a certain dose of policy. Not to say politics.

Trade Opera: the (main) characters

At the center of the Opera, two distinct trade liberalization negotiations are led respectively by the U.S and China, not to mention of course the alternative frameworks being put into place by other APEC countries (including Russia) which, as much possible, want to preserve their share of the cake too. At stake, a race for trade diplomacy in the Asia-Pacific region to be won by whoever pushes the most influential multilateral trade Agreement.

Trade opera

On the one hand, the Trans-Pacific Partnership (TPP) agreement has long been pushed by President Obama’s administration to ease modern trade issues (liberalization in goods and services, competition, intellectual property, investment, e-commerce and so on) amongst twelve APEC countries. Not including China.

The Free Trade Area of the Asia Pacific (FTAAP) negotiations have been around for even longer. Originally supported by APEC leaders – including the U.S – as part of the Asia-Pacific trade policy agenda from 2004, these were however left aside – by the U.S – to the benefit of TPP negotiations and have since then remained consistently pushed by Chinese President Xi JinPing as a wider regional trade answer to TPP. FTAAP, in fact, makes part of China’s regional trade plans which include the ambitious One Belt, One Road project aimed at developing China’s trade route with Asia and Europe, the development of the Infrastructure Investment Bank (AIIB) as well as a contribution to the RCEP regional trade group. As such is thus largely described as a counter-TPP initiative.

Act#1: the 2014 Beijing APEC Summit

The Beijing APEC Summit held in November 2014 was Act #1 of the Opera. The meeting essentially gave President Obama and his TPP partners a rare occasion to boost regional negotiations with Asia-Pacific counterparts. Japan negotiators, for instance, still refused to launch market-opening reforms not knowing if the TPP would be subject to further U.S Congress amendments prior to ratification. It also gave President Xi Jinping a formidable forum for promoting the FTAAP while marketing China’s regional trade views. In fact, China even obtained for the Beijing APEC final Declaration to call for more work on the FTAAP, thus increasing competing expectations regarding the U.S-led TPP.

Act#2: the 2015 TPP signature and release

Act #2 took place this year with the signing of the TPP Agreement on October 5th. After various leaks and numerous negotiations, its thirty chapters and about six hundred pages were released on November 5th, showing an increased focus on e-commerce, small and medium-sized enterprises, transparency and anti-corruption provisions. About ten days later, however, President Xi Jinping took the show from TPP by using the 2015 Manilla APEC Meeting to further promote China’s FTAAP roadmap and called once again for APEC support.

Act#3: this is just the beginning

In the main, both regional trade initiatives still have a long way to go. Starting with China. First, FTAAP negotiations are still at an embryonic stage and, although the APEC ministers applauded in November the launch of the Collectivity Strategic Study and the establishment of the task force and drafting committee, concrete suggestions on the trade arrangement will not be formulated before next year. In fact, the Manilla meeting had limited impact because its original ‘inclusive’ trade goals were partially replaced by security issues following last month’s Paris attacks. The South China Sea dispute between the U.S and China also stepped in.
Second, the One Belt, One Road (OBOR) project pushed by Beijing to increase trade routes in the region in parallel to FTAAP negotiations is lagging behind. Described as a major economic agenda since the Little Red Book in the 1960s, the initiative is a geographically massive and super-funded project aimed at setting up a trade corridor linking China to Europe through Asia and Africa. Something like a reversed silk road, in other words, except no one knows how OBOR will work and what projects it will be made of.

The U.S is not quite there either.

President Obama still needs to have the TPP text ratified by Congress but faces strong domestic opposition in relation to TPP impacts on medicines, agricultural products and data protection provisions for pharmaceuticals. In fact, US commentators have described the arrangement as a knife in the heart of U.S manufacturing and both Democrat and Republican candidates have pronounced against voting the TPP in its current form while calling for more negotiations. Candidate Trump, for instance, has repeatedly named TPP a ‘disaster’ that would encourage US firms to move into cheaper economies and lead to job cuts. Re-tuning the signed Agreement with America’s partner countries would seem delicate and ambitious, though.

Act#4: the (other) competing initiatives

But wait, there is more.

Other initiatives and negotiations have joined the Asia-Pacific trade Opera. For starters, the Regional Comprehensive Economic Partnership (RCEP) which was originally to be completed by 2015 has been delayed for an extra year on November 22nd, after ten rounds of negotiation taking place between ten ASEAN countries plus regional trading partners such as Australia, China, India, Japan, New Zealand and South Korea. As usual, this trade Agreement focuses on trade in goods, services and investment as well as on e-commerce and intellectual property protection so that it is described as a likely competitor agreement even though it is less ambitious. Still, China purports to lead and the U.S is out.

President Putin wants a say on Asia-Pacific trade negotiations too and promotes a new although largely forgotten Russian-tailored free trade zone between Armenia, Belarus, Kazakhstan, Kyrgyzstan, Vietnam and Russia known as the Eurasian Economic Union (EAEU). Russia, in fact, expects meeting the EAEU agenda with China’s One Belt One Road project so as to further improve regional arrangements on the circulation of goods and services and add an energy security dimension (i.e. energy market, transport infrastructure, etc.) to regional cooperation. More countries could join.

Last but not least, ASEAN leaders met in Malaysia on November 22nd to praise the establishment of an EU-style regional economic bloc in a few years’ time. The move is rather symbolic as the roadmap is relatively empty so far, but it aims at recalling both the APEC Blueprint of 2002 and the 2003 Bali decision to establish a regional ASEAN single market with free circulation of goods, capital and labor (the ASEAN Economic Community) by 2020.

So, what’s coming next then?

Time shall tell. No one can tell which trade doctrine will prevail and it is difficult to make predictions. Here is a hint, though. Some voices amongst commentators – and even amongst the APEC members – seem to suggest that the TPP agreement which was recently released might in fact serve as a blueprint for the drafting of the Chinese-led FTAAP. This means, in short, more policy ahead and more politics!

To be continued … ‘Asia-Pacific trade policy: from trade Opera to game of thrones?’