28 October 2016
The United States and China are still working on a Bilateral Investment Treaty. Photo: Reuters
The United States and China are still working on a Bilateral Investment Treaty. Photo: Reuters

China, US vying for bigger role in regional trade deals

Twelve Pacific Rim countries signed the controversial Trans-Pacific Partnership (TPP) on Feb. 4 in Auckland, New Zealand.

These 12 members will have two years to complete the ratification process.

That means the deal will officially take effect within two years.

By then, nearly 18,000 goods will be subject to lower duties.

The TPP will re-draft rules for up to two-fifths of the global economy.

“The TPP is an extensive agreement. China is studying it, and evaluation work is underway,” an official of China’s Ministry of Commerce said.

He said China will actively participate in and push forward regional free trade arrangements that feature a high degree of transparency, openness and inclusiveness.

Competitive regionalism in East Asia triggered by China’s shifting positions has a domino effect.

The United States has resumed its focus on driving integration in the Asia Pacific.

And the US agreed to enter into talks with the Pacific 4 (P4) in January 2008.

The US-led TPP deal is aimed at safeguarding the economic benefits of the US and to get rid of many exceptions to World Trade Organization rules and tedious negotiations.

Nevertheless, globalization and regionalization are two factors interacting with each other all the time.

Whenever globalization deals like the General Agreement on Trade and Tariffs or WTO hit roadblocks, regionalization will take the upper hand.

In the Asia-Pacific region, the oldest regional organization is the 10-member Association of Southeast Asian nations (ASEAN) and the 21-member Asia-Pacific Economic Cooperation (APEC).

Much regional cooperation and discussion have emerged in East Asia in the wake of the 1997 Asian financial crisis, resulting in many frameworks centering on ASEAN nations, including China and ASEAN (10+1), ASEAN plus China, Japan and South Korea (10+3) as well as the ASEAN+3 plus Australia, New Zealand, and India (10+6).

In 2004, APEC leaders agreed to establish a 21-member Free Trade Area of the Asia Pacific (FTAAP) in 2007.

And the 10 ASEAN countries agreed to start talks on a Regional Comprehensive Economic Partnership (RCEP) in 2012.

There is a strong flavor of political jockeying behind various regional cooperation deals in the Asia-Pacific.

That’s why we’ve seen both regional and bilateral free trade agreements appear at the same time.

In fact, while the US pushed for the TPP to prevent China from making rules for global trade, it has never ignored the massive domestic market in China.

China and the US started talks on a Bilateral Investment Treaty (BIT) in 2008.

The US-China Business Council estimates that if the BIT can be reached within the term of the current US administration, US investors will be able to open up a new investment market worth US$200 billion in China within the next five years.

The economic value of such an accord could reach US$400 billion if related transactions are taken into account.

Still, it seems both sides have different views on details.

The Pearl River Delta region has benefited the most from China’s opening-up policy.

Dongguan rose to be the world’s factory hub, while Hong Kong, the window for China’s opening-up, has been left behind.

Financial and services are key areas of foreign investment.

Hong Kong still has great advantages in these sectors.

This article appeared in the Hong Kong Economic Journal on Feb. 15.

Translation by Julie Zhu

[Chinese version 中文版]

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Researcher of China Business Centre of the Hong Kong Polytechnic University

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