Date
19 August 2017
Inside The Yangshan Free Trade Port

China should give serious thought to joining the TPP

With the first round of the United States-led Trans-Pacific Partnership (TPP) talks nearing an end, China should discard its current wait-and-see attitude and explicitly voice its willingness to join the dialogue. Otherwise, the nation might suffer a repeat of its miserable experience in the past when it was marginalized by the world’s mainstream economic systems for decades until it joined the World Trade Organization (WTO).

China had wanted to leverage the United Nations Conference on Trade and Development to counter the influence of the WTO, previously known as GATT, only to find that the country was left behind by the world trend.

It then began years of tough negotiations to rejoin the world trade system. But the efforts proved enormously beneficial.

Since China became a WTO member, it has emerged as the world’s largest exporter and has also recently become the No. 1 in overall trade, overtaking the United States.

The economy opened up as authorities reduced tariffs, dismantled trade barriers and undertook reforms in the trade system in keeping with the WTO commitments.

Another remarkable progress lies in the country’s quick mastery of the global trade rules and its skillful use of them.

In the first few years, Chinese companies were reluctant to answer lawsuits when they were accused of dumping their products in foreign markets, partly because they had no idea of how to deal with such cases. But nowadays they respond actively, either individually or in groups, when facing similar charges.

China’s mastery of the trade rules has improved so much that it even uses the same rules to counterattack. One of the most recent cases came in July last year, when China announced an anti-dumping case against the European wine. The investigation was clearly retaliation against the EU’s trade probe into Chinese solar products. The Chinese move partly helped the two sides sit down and reach a negotiated settlement over the solar product spat.

But when it comes to investment system, China has lagged behind and it knew very little of the global investment rules, because it didn’t enthusiastically open up its services sector to foreign and private investors in the past decade.

Now that the WTO negotiations are moving slowly, the US is promoting its own agenda of creating a set of high-level free trade standards. The TPP is serving this strategy.

Although it is called a free trade agreement, the TPP is actually an all-round economic pact that promotes regional integration and openness. The pact has high thresholds, with a focus on dismantling investment barriers. It features minimum government intervention into the enterprise sector, greater protection of the environment, respect of labor rights and equal treatment of foreign and home players.

All these are exactly goals that China needs to strive for.

Chinese President Xi Jinping has acknowledged that Beijing’s reforms are propelled by problems, signaling that opposition to reforms, mostly from interest groups shaped in the past decade, is massive.

Therefore, the country needs to leverage external forces to push for domestic reforms as it did with the entry into the WTO. The TPP stands out as one of the external forces.

That is also the strategy that China is taking. Beijing has announced the adoption of a negative-list form in negotiating a bilateral investment treaty (BIT) with the United States. The form means China will significantly ease approvals for foreign companies. The opening-up of the investment system will rise to a new level if the country joins high-level economic pacts such as the TPP and China-US BIT.

Joining the TPP is also conducive for China to learn global rules on investment and finance. It cannot be denied that the US is still the global economic rule setter. Although China has the ambition to challenge it, it doesn’t have the ability to do so for now. The country must acknowledge that point and pick up its old strategy of biding its time.

It must garner more experience by joining the TPP. The reason is simple: If you are not part of the game, how can you learn to play it?

RC

The writer is an economic commentator. He writes mostly on business issues in Greater China.

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