The signal for exporting nations is clear: if you count — or want to count — in the new world order, make sure you join a regional free trade agreement.
That’s the message that many global trading nations will be taking home if — as expected — the US-led Trans-Pacific Partnership (TPP) free trade deal is finalised this weekend in Hawaii.
Certainly, most nations still pay lip service to the multilateral trading system symbolised by the World Trade Organisation (WTO). And yes, there is also a focus on bilateral free trade agreements as well as plurilateral deals.
But once, again, loudly and clearly: the trend towards mega-regionals is unstoppable and that’s where savvy nations are headed.
As described by one newspaper, FTAs are “the new Great Game at the dawn of the 21st century”.
The TPP is about trade and commercial interests, certainly. It’s about creating growth and jobs. But it is about more than that: it’s also about overarching strategy and geopolitics and just which nation will emerge as the primary power in the Asia-Pacific region.
So let’s be clear: the TPP is US-led and China — along with India and Indonesia — is excluded. Still, the TPP would create a 12-nation grouping including five countries in the Americas (Canada, the US, Chile, Mexico and Peru); five in Asia (Brunei, Japan, Malaysia, Singapore and Vietnam); and New Zealand. South Korea, the Philippines and Taiwan have voiced interest in joining.
Once signed, the TPP will form a free trade area with a population of 800 million, which accounts for 30 per cent of global trade turnover and nearly 40 per cent of global output.
That is impressive. And clearly those outside the TPP are worried. And are not sitting still.
First, China. Convinced that TPP is meant to “contain” China’s regional and global outreach, Beijing is working on several fronts to counter the US led initiative.
Beijing is actively promoting the Regional Comprehensive Economic Partnership (RCEP) which would include members of the Association of Southeast Asian Nations (ASEAN) as well as India.
China is also taking up the Free Trade Area of the Asia-Pacific (FTAAP) which would bring together members of the Asia Pacific Economic Cooperation (APEC) forum.
Most significantly, China’s President Xi Jinping has come up with the ambitious ‘One Belt, One Road’ initiative to connect an array of Asian and European nations through transport, infrastructure and ICT links — and ultimately through unfettered trade.
India’s actions may not be that visible but Delhi is creating stronger trade links with Southeast Asian nations while also seeking to negotiate a free trade agreement with the European Union. The EU-India negotiations are in an impasse at the moment — but both sides are trying to inject much-needed momentum into the talks.
Which brings us to the EU. European trade officials did not, at first, take the TPP very seriously. As the deal looks set to be signed, attitudes appear to be changing.
The EU is negotiating FTAs with a number of Asian nations — Japan, Vietnam and Malaysia — which are also members of TPP. A free trade deal with New Zealand and Australia has not been ruled out. And Singapore has already signed a free trade pact with the EU.
And, significantly, for the EU, China is demanding exploratory talks on the pros and cons of an EU-China FTA. Brussels has so far filibustered by insisting that it first wants to conclude ongoing negotiations on an EU-China Bilateral Investment Treaty (BIT) before considering a free trade deal. But sooner rather than later, the EU will have to acquiesce.
The EU has of course responded by trying to hammer out its own Transatlantic Trade and Investment Partnership (TTIP) with Washington. But those negotiations have run afoul of civil society groups which fear that TTIP will lower EU health, food and other standards.
In Asia, however, if it is to compete with the US and China, the EU needs to start FTA negotiations with the 10-member Association of Southeast Asian Nations (ASEAN). Europe could be even more ambitious and seek a trade deal which covers ASEAN as well as New Zealand and Australia.
More ambitious still would be a trade agreement which would cover all 51 countries which have signed up for ASEM, the Asia Europe partnership.
Clearly, therefore, trade agreements these days are about commercial and economic interests but also geopolitical outcomes.
US President Barack Obama has no doubts that “if we don’t write the rules for free trade around the world, guess what, China will … and they’ll write those rules in a way that gives Chinese workers and Chinese businesses the upper hand.”
Make no mistake: the TPP and other FTAs of its kind are not easy to negotiate. The scope of such deals is enormous — covering questions ranging from copyright law to labour and immigration issues, as well as more standard trade talk of import tariffs and exceptions for sensitive commodities.
It is crucial that TPP — and the transatlantic TTIP if it is ever completed — keep the doors open, with no discriminatory terms set for newcomers.
Finally, while it is understandable that countries, frustrated by the long-stalled Doha round of global trade talks, have turned their attention to various initiatives to set up regional FTAs, they should try to maintain the WTO’s central role in global trade liberalisation.
The TPP process itself is an admission that the consensus-driven WTO is too cumbersome a venue for so-called “high-standard” trade deals. But it would be counterproductive and harmful to give up on the WTO and its ability to create a “level playing field” for all trading nations, big or small, rich or poor.