Law & Finance article(s)
November 3, 2014

The Trans-Pacific Partnership, a new trade agreement under negotiation between the United States and 11 other countries in the Asia-Pacific region, has been on the table for years, but nine of these countries have still not been able to sign and implement a finalized version of the agreement. Chinese vice-minister of finance Zhu Guangyao recently said at the Peterson Institute for International Economics in Washington that China should join agreements like the TPP, in line with closer integration with the global trade system.
The Chinese Ministry of Commerce has previously expressed interest in the partnership, saying that China may join “on the basis of equality and mutual benefit.”
The Obama administration has also said that the US is open to letting China join the negotiation talks. Michael DeGolyer, a government and international studies professor at Hong Kong Baptist University, thinks the US doesn’t really have a choice in the matter.
“If [the US wasn’t open to China joining the negotiations], the TPP would be perceived as ‘anti-China’ in its orientation, and other members might be less willing to join if China began to denounce the TPP and its members as trying to damage or exclude China,” he says. “It would make little sense to call it the TPP if it excluded the largest Pacific economy.”
As the world’s second-largest economy – soon to be the largest – China views Japan, the third-largest, as a major rival. Some may be led to believe that Japan’s entry into the TPP negotiation talks in the latter half of 2013 was a contributing factor to China’s interest, but Mo Pak Hung, an assistant economics professor at Hong Kong Baptist University, says that is not necessarily the case.
“Increasing trade with any country will raise the Chinese economic influence, and that will transform to political influence over time,” he says. “That will also bring benefits to the global economy.”
If China is to join the agreement, it will have to play by the rules. Just how closely can it stick to them?
“China is eager to integrate with the global economies gradually and so is willing to play by the rules, provided that they will not jeopardize macro-stability and socio-political stability,” says Mo.
China tends to follow the rules as actually practiced rather than as written, and so will push the envelope on rule-keeping in the same manner as the US or any other power does, according to DeGolyer. “The US is as guilty as any other country in bending and sometimes breaking rules,” he says. “Just look at the trade disputes record in the WTO for complaints by, as well as against, the US and look at the judgments made.”
From the American point of view, the TPP is meant to “provide new market access for Made-in-America goods and services, strong and enforceable labor standards and environmental commitments, groundbreaking new rules on state-owned enterprises, a robust and balanced intellectual property rights framework, and a thriving digital economy,” according to the Office of the US Trade Representative. It is also going to “include commitments that will improve the transparency and consistency of the regulatory environment to make it easier for small- and medium-sized businesses to operate across the region.”
For China, entry to the partnership means a number of things, but it is less clear whether they are positive or negative. “Increased trade, increased scrutiny of that trade, increased pressure to achieve full convertibility, increased attention to currency and investment flows – you can classify those as advantages or disadvantages, depending on whether you want or fear these things, and it varies cadre by cadre, province by province, entrepreneur by entrepreneur, and firm by firm,” DeGolyer says.
Mo says that one effect of China’s entry is an increase in the trade volume between China and the US, as well as mutual interdependence, which is beneficial to global stability and cooperation.
But according to DeGolyer, although the point of the partnership, in theory, is to increase trade, the reality could be slightly different.
“In practice, it will likely start with a spate of disputes over the interpretation and application of the rules,” he says. “The China trade picture is more likely to be affected by internal issues much more than external ones in the short and medium term.” Some examples of these internal issues are anti-corruption campaigns, economic or political reforms and the transition to a fully convertible currency hitting investment flows.
There are several implications for China if it ends up not joining the agreement. According to a research report by the Hong Kong Trade Development Council, “virtually all TPP-originated products will qualify for preferential duty treatment in the US,” and as an outsider, “China will almost certainly face a decided deterioration in its overall export competitiveness.”
In such a scenario, other countries would benefit. Vietnam, for example, which often supplies cheaper alternatives to China in the apparel, footwear and textile sectors, would increase its shipments and therefore its share of the market, potentially to the detriment of China, says the report.
As for the year ahead, DeGolyer says he thinks that there are other factors besides the TPP that will affect trade relations between China and the US. One of these factors will be the results of the American elections.
“For example, the Senate seat in Georgia may be affected by outsourcing,” he says. “If the Republicans lose this very red state, I think it will be seen as a loss caused by Republican support of outsourcing jobs overseas.” He adds that there are elections in Washington that will be seen as referenda on coal shipments to China and India.
DeGolyer also says recent events might need to be taken into account, referring to the pro-democracy movement in Hong Kong which was initiated in late September. “The other wild card on trade is what happens with Occupy Central and how it ends.” He says. “If it ends with violence, particularly mainland-driven violence, global consumer reaction to Chinese goods could be quite strong, at least in the short term.”

By Jeffrey Lee
Staff Writer | Hong Kong

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