22 October 2016
Officials from Trans-Pacific Partnership (TPP) member nations hold a meeting to discuss their common goals. Photo: Reuters.
Officials from Trans-Pacific Partnership (TPP) member nations hold a meeting to discuss their common goals. Photo: Reuters.

TPP can help speed up China economic reform

The Trans-Pacific Partnership (TPP) originated from the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4) signed by four nations — Chile, New Zealand, Singapore and Brunei — in July 2005.

In November 2009, US President Barack Obama announced during a visit to Asia that his nation will join the TPP talks in a bid to boost US employment and economic recovery. Meanwhile, Japan also participated in the formal negotiations since July 2013.

Eventually, as some other nations came on board, the TPP club expanded to 12.

As of late 2015, TPP members accounted for 40 percent of the global GDP and 13 percent of the world’s total population. Obviously, the US has a dominant role in the TPP agreement, which mainly covers rules for intellectual property rights protection and bilateral talks to reduce import tariff for certain products.

TPP also includes market access for agricultural products, the country-of-origin rule in auto manufacturing industry and intellectual property protection in pharmaceutical industry.

The US, which has a competitive edge in the service industry, has been actively pressing ahead development of the service trade. The existing WTO system benefits goods trading but offers little help for service trade.

By contrast, TPP will adopt a negative-list approach to achieve full opening of the service sector. The US focuses on finance and telecom services, two sectors that entail security risks for China. If China can’t join the TPP, it could face hurdles in future goods trade.

TPP members include two groups of nations which are dependent on resources exports and consumption. China, meanwhile, has a critical role to play in global trade.

Against this backdrop, TPP nations may not be able to form a self-sufficient trading eco-system. And it remains to be seen how that could affect regional or even global market.

According to the agreement, TPP nations are allowed to strike free-trade agreements with other non-TPP members. TPP deal, as a non-exclusive agreement, may not restrict regional trade and manufacturing development in Asia Pacific anytime soon.

In June, China signed a free-trade agreement with Australia, covering goods, services, investment and other sectors. The agreement is considered to be one of the most successful free-trade deals that China has struck with any nation so far.

Data shows that 85 percent of products in bilateral trade will enjoy zero-tariff when the FTA takes effect.

China and many other nations have not yet joined the TPP, but that does not mean these countries can’t trade or invest freely with other TPP nations.

Nevertheless, there are still lingering issues among TPP members. For example, the US and Australia have reached a compromise on the length of monopoly protection allowed for new biotech drugs. But Chile and Peru have failed to reach consensus on biotech drugs.

Also, Canada has slammed the door on a suggestion by New Zealand that it might push for greater access for its dairy products. The US and Japan also have issues over agricultural produce sector and both sides are reluctant to make compromises.

President Obama said the US is trying to “write the rules of the global economy”. Meanwhile, various nations are also trying to establish different free-trade zones. China’s free-trade zones and the “One Belt One Road” strategy are a good example.

Meanwhile, financial organizations like the Asia Infrastructure Investment Bank will also help reshape the global economic and financial order.

If the TPP deal can accelerate China’s reform, that would be a positive for the nation’s future growth. State firms’ privatization and issues such as food safety and intellectual property rights protection and currency convertibility outlined in the TPP agreement are in line with China’s own structural reforms goal.

Nations don’t have permanent friends or enemies, only permanent interests. China’s future will be bright as long as it presses ahead with economic reforms.

This article appeared in the Hong Kong Economic Journal on Oct. 12.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker

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