Asia-Pacific trade policy: from trade Opera to game of thrones?

Asia-Pacific Insights: Antoine Martin comments on recent regional developments pertaining to trade negotiations in a tense APEC, TPP and FTAAP context.


 

[By Antoine Martin ]

Following on a previous comment which analyzed the 2017 Asia-Pacific trade negotiations and commented on how trade liberalization negotiations in the Asia-Pacific region had somehow taken the shape of a trade Opera, let’s have another look at regional trade policy and trade politics.

Policy and politics are two different concepts. Policy is about making things happen, politics is about how to make things happen. Nothing new here, though, but when considered in a regional trade context, the distinction can have an impact on the political economy at the international and regional levels.

As of early 2016, in particular, the epic APEC trade Opera is actually turning into an Asia-Pacific game of thrones starring the U.S and China. The stakes, as mentioned previously, are a race for trade diplomacy in the region to be won by whoever pushes the most influential multilateral trade Agreement, and a political power competition worth looking at for it might have some interesting consequences.

The issue of competing regimes (if any…)

So, it seems, the question of whether or not competing regimes make sense has never been on leaders’ agendas. As far as the trade policy negotiations are concerned, what matters is who gets there first and with what results.

There are two ways to look at the issue of competing regimes.

One way is to say that, given the number of initiatives, the trade regime in the Asia-Pacific region will be unreasonably fragmented between various supersize regional trade agreements and therefore largely overlapping. As such, it might generate a variety of legal discussions and trade disputes at the regional and global level in the future.

Another way is to consider that these initiatives, even though they are competing between each other, are moving forward from the lagging WTO trade system and, as such, builds the premises of future international trade rules and mechanisms, through a network of trade agreements rather than through a single multilateral framework. Sort of a WTO with benefits, in sum.

From trade Opera to Game of Thrones

Fragmentation only worries lawyers, though. It is merely a marketing argument used by regional leaders such as President Xi Jinping on November 18th to denounce rival trade pacts and call for unity around… the FTAAP.

In reality, the trade Opera has now turned into a regional game of thrones starring China and the U.S as the main rivals. What matters most is the power to influence the game of international politics and, in this case, unity means nothing.

Yes, negotiating mutually beneficial cross-border trade policies is important. But Beijing’s and Washington’s race for the bigger and quicker Asia-Pacific arrangement has transformed Asia-Pacific regional trade negotiations into a political influence contest possibly outshining the post-cold war Russia U.S tensions. The type of political tension of course differs but, still, trade diplomacy here is not about trade nor about regional trade policy liberalization. It is about power and the goal is to affirm one’s political authority over global trade policymaking. Negotiations, in turn, are about setting the rules of the game for future regional and global trade relations rather than about playing merchants.

China is a thorn in Obama’s foot

No one can tell which trade doctrine will prevail. Yet, TPP is essential to U.S diplomacy and the Chinese efforts to set up two distinct trade areas clearly are like a thorn in President Obama’s foot. In fact, despite being left aside of TPP, China has become a serious competitor to Asia-Pacific trade diplomacy.

No one knows whether TPP will work either, or if it will be approved by U.S Congress at all. The U.S-led pact has been signed already so it could obviously be effective sooner than FTAAP (which is so far a big idea to be realized around 2025) but it was obtained after quite a struggle and might overall have less impact in terms of international trade liberalization, especially if China is left outside.

Nonetheless, when FTAAP takes off, it will outweigh TPP in terms of influence. Even if the U.S is not part of it, the Beijing Policy roadmap was endorsed by APEC leaders on November 17th so the Agreement will be deep-seated amongst APEC leaders and will furthermore benefit from the rising Chinese-funded OBOR. China, in addition, has already placed itself as a key player by imposing its Asian Infrastructure Investment Bank as a strong regional answer to the World Bank. In fact, some stakeholders have already started describing TPP and RCEP as ‘pathways’ to a larger economic integration scheme which could well take the form of the FTAAP.

Politics and influence, Made in China

Overall, the decision to leave China out of TPP negotiations somehow plays against the U.S, politically speaking at least.

Legal aspects

Legally speaking, of course, the TPP Agreement is a very significant piece of regional trade law which will bring credit to U.S diplomacy. Most likely, in fact, TPP eventually came out of the box because large countries such as China, Brazil or India (and their demands) were actually left aside.

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Politically

Politically, however, the decision to leave China out of TPP negotiations has awakened a trade dragon.

First, China left as an observer had simply no choice but to support a counter-agreement to preserve its regional political and policymaking influence and its share of the Asia-Pacific trade cake.

Second, China not being invited into the TPP trade negotiations means that the Agreement loses grip on a part of international trade that would have obviously given it a major representativeness and power.

Third, by not inviting a major stakeholder to the table U.S diplomats secured a major legal agreement but lost a chance to present themselves as coordinators of the world’s major economies, as well as a chance to set up one of the most significant trade agreements in terms of GDP shares. In fact, numbers that commonly circulate suggest that TPP could account for 40% of global GDP while Chinese-led RCEP and FTAAP would respectively account for nearly 30% and 57% of global GDP.

Fourth, China could therefore be playing two different leagues at the same time with RCEP being already en route and FTAAP being considered by local actors as the future of TPP (see the APEC Trade Opera Part 1), i.e. less strict while integrating more partners and covering more of the region than TPP and RCEP together.

Last but not least, in addition to being considered as a possibly premature arrangement, the newborn TPP is already described by some as a pathway to realizing the FTAAP (together with RCEP) while the (so far theoretical) Chinese initiative is being granted promising credentials by the same token.

A king in the East?

By excluding China from TPP, the U.S diplomacy secured an important legal instrument for regional trade in the Asia-Pacific region. Yet, as far as regional policymaking and politics are concerned, it somehow shot itself in the foot.

Yes, TPP is a strong piece and the U.S deserves credit for this.

But as far as international trade politics are concerned, the APEC trade Opera has already conferred China a dose of political authority which will add up when FTAAP and OBOR materialize. If these ever work, China will appear as the mastermind of trade diplomacy in APEC. Meanwhile, the country is likely to enjoy a comfortable position in the Asia-Pacific game of thrones.

 

 


Insights by Dr Antoine Martin

Personal Profile Antoine Martin Founder The Asia-Pacific CircleDr Antoine Martin is the Head of Insights of The Asia-Pacific Circle, which he co-founded in Hong Kong in 2016. Antoine follows analyzes and comments on developments in international trade, investment, and finance, with a particular focus on Asia-Pacific relations. He is also a scholar at The Chinese University of Hong Kong, Faculty of Law, a leading academic institution in Asia.

– Read more Insights by Antoine Martin –

 

 

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