STOCK MARKET WATCH -- Tuesday, 17 March 2015

[Demeter]

1. TPP and China's Reality Sara Hsu

The Trans-Pacific Partnership (TPP) is a proposed trade and investment treaty that would promote free trade among countries on both side of the Pacific Ocean—including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. This proposal has been under closed-door negotiation since 2002, with the United States joining the negotiations in March 2008. Attempts have been made in recent months by President Obama and Republican leaders to fast-track the deal into law. China is notably missing from the agreement, although state officials have publicly commented that the nation is open to joining.

This is no small free trade agreement—it covers over 40% of the world’s GDP. The TPP would potentially eliminate tariff and nontariff barriers in trade and investment, providing expanded market access to participating countries. Rules will be more rigorous than those in the World Trade Organization; intellectual property laws would be strengthened. For example, the pharmaceutical industry would receive much stronger patent protections. Well-known figures such as Robert Reich have publicly criticized the TPP for its orientation toward big business and financial interests, and its omission of sufficient protections for workers and the environment. The secret negotiations have also been a target of criticism, as they have excluded public participation.

Amidst these negotiations, China’s stance has been unclear. In the beginning of its formation, after the United States joined the talks, some Chinese scholars viewed the treaty as an attempt by the U.S. to counterbalance China’s power in the Pacific region. In the past couple of years, however, China has been officially open to the treaty while remaining outside of negotiations. While President Xi is explicitly open to trade cooperation, the rumored high labor, free data movement, and intellectual property standards imposed by the treaty present barriers to China’s participation. While the details of the high labor and environmental standards are unknown and controversial, a Wikileaks post on the intellectual property standards reveals strong pro-big business protections for patents. China was invited to join the TPP in 2012 by then-U.S. Secretary of State Hillary Clinton, but continues to analyze its potential gains from joining.

This so-called “high-standards” treaty is less suitable for China than other proposed treaties whose talks are under way. China already has several bilateral agreements in place, including those with Switzerland, Chile, and ASEAN, and is currently engaged in talks to build an Asia-Pacific Free Trade Area and a Regional Comprehensive Economic Partnership, and to put into place the recently approved China-South Korea Free Trade Agreement. The Asia-Pacific Free Trade Area would eliminate trade barriers across 21 countries in the region, while the Regional Comprehensive Economic Partnership would promote free trade across the ten ASEAN nations plus Australia, China, India, Japan, South Korea and New Zealand.

The reality is that China is unlikely to join the TPP, as joining would force the nation to raise its standards in several disparate areas that are economically or politically costly. As free trade agreements go, the devil is in the details, and from the little we have seen of those details associated with the TPP, they are not easily transferable to China. Further, the Asia-Pacific Free Trade Area would be more geographically expansive, including powerhouses such as the United States, Canada, Russia, Japan, South Korea, Australia, and Mexico, and a number of other countries. President Xi has promoted what he refers to as an “Asia-Pacific dream.” Although the U.S. has not been overly supportive of the Asia-Pacific Free Trade Area, this proposal falls more in China’s favor, as it would lead to relatively higher gains in trade for China and potentially less costly requirements.

To sum up, although China’s officials have underscored their openness to the TPP, it is not at the forefront of their agenda, and TPP nations would be naïve to think that China would participate in any pact that would increase its cost of doing business. Whether and when free trade cooperation on both sides of the Pacific will come about is anyone’s guess, but for now, for China, the TPP is a non-starter.

- See more at: http://triplecrisis.com/the-trans-pacific-partnership-and-chinas-reality/#sthash.2mJIOOMv.dpuf