Academic journal article East Asian Economic Review

Whither the TPP? Political Economy of Ratification and Effect on Trade Architecture in East Asia

Academic journal article East Asian Economic Review

Whither the TPP? Political Economy of Ratification and Effect on Trade Architecture in East Asia

Article excerpt

I. INTRODUCTION

In East Asia, two major trading architectures are vying for dominance. They are the TPP (Trans-Pacific Partnership) and the RCEP (Regional Comprehensive Economic Partnership). 12 countries have joined the TPP, and 16 countries are negotiating the RCEP. In terms of economic significance, the membership of TPP covers 37.4 % of the global GDP and 27% of the world trade, while 30.6% of the global GDP and 30.2 % of the world trade is covered by the members in the RCEP.1 RCEP is based on countries in Asia: 10 members of the ASEAN plus 6 countries (Korea, Japan, China, Australia, New Zealand, and India). On the other hand, TPP centers on the both sides of the Pacific-Japan, Malaysia, Singapore, Brunei, Vietnam, Australia, New Zealand from the Asian side of the Pacific and the US, Canada, Mexico, Chile, Peru from the American side of the Pacific. Some countries are joining both the TPP and the RCEP: Japan, Malaysia, Singapore, Vietnam, Brunei, Australia, and New Zealand.

Noticeably, the US is not in the RCEP, and China is not in the TPP. From the membership formation, perception has developed that the TPP is led by the US, while the RCEP is led by China. It is no doubt that the US has led the TPP. In the case of RCEP, realities are more complex than the simplified version of China-leading. The ASEAN has been persistent that it should be the core of the RCEP. As a matter of fact, the RCEP membership has evolved from the ASEAN plus six non-ASEAN countries (Korea, Japan, China, Australia, New Zealand, and India), each of which has its bilateral FTA with the ASEAN. The problem is that the ASEAN cannot lead the RCEP negotiations. In terms of economic power and negotiating leverage, only China is capable of leading the RCEP negotiations. Question is whether China is willing to lead. So far, China has been hesitant and unwilling to exercise its leadership in advancing the RCEP talks. Now, with the conclusion of the TPP, China finds itself facing the moment of truth: either lead or lose.

These mega FTAs build on the decade-long attempt of making bilateral FTAs in East Asia. While motivation of harmonizing and integrating a variety of rules of origins in bilateral FTAs has given rise to the necessity for mega-FTA, these mega FTAs aim further and beyond the familiar work program of bilateral FTA: substantial liberalization of service and investment, introducing disciplines on behind-the-border measures, and establishing trading rules related to digital economy. Through a series of multilateral negotiations under the aegis of the GATT in the 20th century and a series of bilateral FTAs in the early part of the 21st century, tariffs on goods have been reduced to substantially low level in many East Asian countries. When tariffs become 'trade issue', it is mainly for the two reasons: first, the gap between binding tariffs and actual ones is large, hence creating uncertainty for trading partners; second, remaining binding tariffs are difficult to be reduced due to stubborn domestic opposition. For these reasons, the importance of tariff negotiations is not the same as before. Tariff negotiations are no longer the most important negotiating agenda for trade talks. This is precisely the case in the TPP and the RCEP (Schott and et al., 2016; Solis, 2016).

Global economy has taken new landscape, driven by technological advances and digital revolution. Deepening the Global Value Chain, vibrant cross-border flow of capital for greenfield investment and merger and acquisition, and digital trade have become an integral part of the global economy, but not effectively reflected in the current global trading rule. As for investment, various bilateral investment treaties have been agreed but failed to form multilateral investment agreement. Considering the ever-increasing flow of cross-the-border investment, the patchwork of bilateral ties would generate regulatory confusion and risk to investors and regulatory loophole for policymakers. …

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