27 October 2016
Men work at a corn factory in Son La, Vietnam. Many of the signatories to the TPP accord has strong trade relations with China. Photo: Reuters
Men work at a corn factory in Son La, Vietnam. Many of the signatories to the TPP accord has strong trade relations with China. Photo: Reuters

TPP: China willing to write trade rules with US

The agreement on the Trans-Pacific Partnership, reached after five years of often nail-biting sessions that ended inconclusively, marks a triumph for the United States, especially for President Barack Obama, but opposition to it is so strong in the US Congress that its passage is far from certain next year, which will be marked by US presidential election campaign rhetoric.

China, not a TPP member, has loomed large during the talks and, as soon as an accord was reached, the White House released a statement in which Obama said, “We can’t let countries like China write the rules of the global economy; we should write those rules.”

Although such words may give the impression that the accord, which binds together the economies of 12 countries that together account for 40 percent of the world economy, is somehow aimed at China, the reality is that it isn’t.

Just look the countries involved: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. China is important to all of them. For some, such as Australia, Japan, New Zealand and Vietnam, China is their biggest trading partner.

Moreover, many TPP countries already have free trade agreements with China. Even the US is negotiating a bilateral investment treaty with China.

What accounts for Obama’s anti-China rhetoric is domestic politics. The Democratic Party is overwhelmingly opposed to the TPP, due in large part to the opposition of organized labor.

Many Republicans, too, who backed fast-track negotiating authority for Obama, are dubious about the accord, in particular because of the pharmaceutical industry’s opposition.

Obama probably feels he has little choice but to play the China card, given the increasingly negative US sentiments toward that country.

Actually, it is difficult to gauge the impact of TPP on China. The US Agriculture Department found the impact to be negligible. A People’s Bank of China economist estimated TPP would shave China’s GDP by 2.2 percent. China’s Commerce Minister said it would “evaluate comprehensively” the TPP’s impact.

In Hong Kong, John Tsang, the financial secretary, has said that TPP would “enlarge the pie of regional trade and fuel demand for imports”, thus benefiting even non-signatories.

On its part, Beijing seems to accept that it is currently not ready to undertake the responsibility of membership in TPP. Commerce Minister Gao Hucheng has said that China is open to any trade mechanism that follows the rules of the World Trade Organization and hoped that “the TPP pact and other free trade arrangements in the region can boost each other and contribute to the Asia-Pacific’s trade, investment and economic growth”.

Furthermore, the Chinese official said China was “willing to cooperate with the US in formulating global trade regulations” so as to push forward the world’s economic development.

While the US did not want China to take part in the negotiations that ended in an agreement last week, Obama has made it clear that China can in future become a member if it will live up to the high standards of the trade accord, such as on state-owned enterprises and the environment.

Even Shinzo Abe, the Japanese leader who is certainly not China’s favorite politician, has said that Chinese membership in TPP “would have significant strategic meaning”.

It is conceivable that China may well seek TPP membership – much as it asked to join the World Trade Organization in the 1990s – in order to spur domestic economic reform. Major reforms were announced at a party plenum in 2013 and the terms of TPP membership could well be used to overcome opposition by vested interests.

In the shorter run, China is likely to seek to fast-track its own favored free trade accord – the Regional Comprehensive Economic Partnership (RCEP), which comprises the 10 ASEAN countries plus China, South Korea, Japan, India, Australia and New Zealand.

This 16-nation bloc would be an even larger grouping than TPP and include the world’s two most populous countries, China and India.

Of those 16 countries, seven are in the TPP, so TPP and RCEP will overlap and certainly are not mutually exclusive.

In fact, it is even possible that, in time, the two trading blocs – assuming they are actually formed – will not just compete but cooperate, possibly to such an extent that they may consider merging, to become a super trading bloc.

After all, in the absence of progress by the WTO in the Doha Round of trade talks, the best hope for progress in the dismantling of trade barriers lies in the expansion of regional trading groups.

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Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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