China and the Trans-Pacific Partnership Agreement: Misfit or Missed Opportunity?

Abstract

IntroductionThe Trans-Pacific Partnership (TPP) agreement is being sold as a 21st-century free-trade agreement (FTA) involving 12 member countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. (In 2014, the TPP's 12 economies made up about 36 per cent of the world's GDP and about 25 per cent of world trade in goods and services.) The agreement goes beyond providing member countries market access to goods, services and investment (as covered by most other trade agreements such as the China-ASEAN FTA). It also includes other trade-related issues, such as government procurement, competition involving state-owned enterprises (SOEs), labour and the environment. Negotiations began in March 2010 and were concluded in February 2016, with ratification by respective national governments to happen within two years.Absent was the 'elephant in the room': China. China is the world's largest trader and the 12 TPP member countries made up about one-third of China's trade in 2013. Although China was invited to join the TPP in 2012 by the then US Secretary of State Hillary Clinton, there is reason to believe that the high standards ordained by the TPP were designed to keep China out (Hsu 2015). This was implied by President Obama in his State of the Union address in January 2016: 'With TPP, China does not set the rules in that region; we do.'China has its own plans to increase its influence in the region, playing a leading role in the Regional Comprehensive Economic Partnership (RCEP), which comprises the 10 member states of ASEAN, Australia, India, Japan, New Zealand, South Korea and China. The 'One Belt, One Road' initiative would link China with Central and West Asia as well as the Middle East and Europe. The establishment of the Asian Infrastructure Investment Bank and the New Development Bank (or BRICS Development Bank) are also China's initiatives to increase its economic and political influence, particularly among developing countries.The purpose of this paper is to evaluate China's exclusion or rejection from TPP membership. To what extent does China lose out by being left out of the agreement? Are the requirements and coverage of the TPP too sensitive for China? We attempt to answer these questions by evaluating the trade patterns of China and the TPP members and delving into the TPP agreement signed by member countries, highlighting chapters that contain issues that could have been stumbling blocks for China in the negotiation stages. However, the shape the TPP will take after the Obama administration is yet to be seen, as the victorious candidate for the US presidency has had harsh words on the current agreement.We conclude that at the current stage of the Chinese economy, the TPP may be a little too far reaching and that China's other international initiatives, such as the 'One Belt, One Road' initiative, as well as its sheer size, will reduce the losses of being left out of the TPP.China and the TPP: A missed opportunity?How important is the TPP to member countries? Recent estimates by Petri and Plummer (2016) have concluded that most members will gain from the agreement. The US will find its annual real income increase by 0.5 per cent of GDP, while annual exports will increase by 9.1 per cent in 2030. The exports of Japan, Vietnam and Malaysia are to increase by 23.2 per cent, 30.1 per cent and 20.1 per cent respectively in 2030. But non-members will gain little. China is expected to gain only 0.2 per cent when the agreement is concluded in 2030.Table 1 shows China's trade of merchandise goods with members of the TPP in 2013. This indicates that the 12 countries of the TPP make up about one-third of China's trade. However, the US stands out in that it makes up about half of the exports to TPP members, and about one-quarter of imports. Japan and Australia are also quite important but countries from Latin America and smaller countries in Asia are quite insignificant. …