TPP vs. RCEP: Trade and the tussle for regional influence in Asia

Share

RCEP

After the United States' recent diplomatic disaster of trying to prevent general adherence to China's Asian Infrastructure Investment Bank (AIIB), US policy makers have been under pressure to strengthen their presence in Asia on the trade front: By concluding the Trans-Pacific Partnership (TPP), a potentially historic trade agreement linking the US, Japan and ten other countries, China would see its goal of reducing Washington's presence in its neighborhood severely thwarted. Furthermore, the TPP would connect the United States to the economic center of the 21st century, one of the fastest-growing regions of the world, and cement its relationship to Japan, its key ally. It would be the first real manifestation of Obama's pivot to Asia, which so far consisted of mere rhetoric.

China, which is excluded from the countries negotiating the TPP, has responded by promoting the Regional Comprehensive Economic Partnership (RCEP), which excludes the United States, and which would promote rapprochement between Beijing and Tokyo. The tussle for regional influence between the United States and China has thus also taken hold of the debate about trade agreements. Just like the TTP, the RCEP, whose negotiations were launched at the ASEAN Summit in Phnom Penh in November 2012, would connect a large chunk of the global economy, placing China and Japan at the center, and harmonize trade-related rules, investment and competition regimes. The RCEP includes a vast array of rules about investment, economic and technical cooperation, intellectual property, competition, dispute settlement and government regulation. Notably, India, set to play key economic role in Asia in the coming decades, is also part of the grouping.

RCEP

Bipul Chatterjee and Surendar Singh argue that the RCEP presents a "decisive platform which could influence India's strategic and economic status" in the Asia-Pacific region and bring to fruition its “Act East Policy.” Jeng Niamwhan, on the other hand, worries about the downsides for India's poor:

India (...) does not grant patents for new forms or new uses of a known substance. This has prevented unnecessary extensions of patent monopolies on some cancer drugs – a move praised by health advocacy groups such as Médecins Sans Frontières‎ as a major victory for access to affordable medicines. These safeguards would be lost if India and RCEP countries agree to Japan’s proposal. 

Earlier this month, senior officials of the 16-member RCEP met in Myanmar to provide impetus to the negotiations on the trade deal. Ministers are set to meet in Kuala Lumpur on August 24 to finalize the modalities of the pact. Finalization of modalities include exchange of offers in goods, services and investments, and the member countries are expected to disclose the number of products whose duties would be reduced to zero and goods which would not have any duty cut under the pact. While RCEP was expected to be agreed upon by the end of the year, negotiations are likely to take more time, given the great number of interests involved.

The Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) can be understood in the context of a growing number of Chinese-led initiatives that, in their entirety, create a "parallel order" to complement and possibly some day rival existing US-led structures. In the end, the prevailing deal will allow either Washington or Beijing to act as a regional agenda-setter, shaping the architecture of economic cooperation in the Southeast and East Asian regions, and helping secure economic interests.

Still, in the realm of trade agreements, zero-sum thinking may not prevail. There are substantial differences between the two: The RCEP is an exercise in harmonizing and integrating existing FTAs between ASEAN and its individual partners, while the latter is an attempt by the United States and others to create a new, more ambitious 21st century trade agreement with much higher standards. As The Economist points out,

Ultimately, for TPP to really make a mark, it has to be bigger. Leaving out China is an expedient to get the deal done but, if kept that way, it would be a huge gap. China is the world’s biggest manufacturer. Any Asian trade zone without it faces one of two sorry fates. Either, because of China’s centrality to Asian supply chains, the deal is so riddled with exemptions that it becomes worthless. Or, if the zone gains traction, the effect is to divert trade away from the most efficient Chinese companies and hurt the global economy.

One day, the two agreements, if ever agreed on, could even merge, in what would have dramatic implications for the global economy. While the TPP has generated ample debates even in region that are not part of the negotiations, the RCEP is generally absent from the public debates around the world. That is a mistake. The European Union, Brazil and others will be directly affected by the trade creation and trade diversion produced by the agreement (or lack of it) over the coming months or years.

Read also:

Does the BRICS grouping need its own rating agency?

The Politics of China’s Amazonian Railway

Time for Brazil to Get Tough on President Maduro

Photo credit: KYODO/ VOV