How rival trade blocs between the US and China could be good for free trade in Asia

How rival trade blocs between the US and China could be good for free trade in Asia
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Japanese prime minister Shinzo Abe said on March 15 that Tokyo wants to join negotiations for a free trade pact between the United States and 11 other countries—the Trans-Pacific Partnership (TPP).

Some think the TPP would be a potential rival to another proposed trade grouping, the Regional Comprehensive Economic Partnership (RCEP). Each has a global power behind it. While the proposed TPP so far includes the US, plus a handful of Southeast Asian and Latin American countries, the RCEP would include China, plus the 10 members of the Association of South East Asian Nations (ASEAN) and the region’s more developed economies—Australia, India, Japan, South Korea and New Zealand.

Chinese officials have long said that the TPP is a ploy to contain the middle kingdom’s rise (article in Chinese)—a kind of economic complement to America’s increased military presence in the region. Former US trade representative Susan Schwab, who initiated America’s participation in the talks in 2008, said “containing China” had nothing to do with the deal (pdf, p. 3) while other officials have said it’s really more of a matter of “constraining China” (pdf, p. 4).

But calling the two trading blocs a US-China rivalry is simplistic, says Jeff Schott, a fellow at the Peterson Institute for International Economics. As our map shows, a handful of countries will be part of both agreements. Japan’s entrance into the TPP talks is likely to be approved and South Korea, following the lead of its regional rival, is likely to ask to join as well, Schott says. If that happens, the second- and fourth-largest economies in the region would be members of both blocs.

Instead, one can think of the deal as serving different functions for countries of different levels of development. The economies slated to be in the TPP are fewer and more developed; it is a stricter agreement that is expected to require standards for labor rights, environmental protection, and reforms to state-owned enterprises. It also won’t give members exceptions to free-trade agreements for sensitive domestic industries.

In contrast, RCEP will be more accommodating for Asia’s less developed countries. Members can opt out of trade policies and protect vulnerable sectors. Less ambitious than TPP, RCEP’s main objective is to harmonize ASEAN’s various free-trade agreements in the region, or the “noodle bowl” as officials have called the overlapping deals.

Still, the potential for rivalry can’t be ignored. The US, in its so-called pivot toward Asia, and China both want to shape how trade and labor flow in the region. The potential loser in that rivalry could the smaller emerging Asian economies, writes Beginda Pakpahan, a lecturer at the University of Indonesia. If some go to one camp over another, the newfound influence these developing countries have gained through ASEAN may start to crumble.

But that doesn’t have to be the case, Schott says. The two pacts are just part of the slow process of Asian economies opening up and trading more with each other, as we’ve reported. One of the frameworks, or a hybrid of the two, could form the template of an Asia-Pacific-wide free trade area, long pushed for by the Asia-Pacific Economic Cooperation (APEC). The proximity of the two trade blocs could even be a source of cooperation between the US and China, according to Schott. He says, “I could see… the RCEP and TPP finding some links, some bridges between the two, and that would be how the US and China come together in the context of a broader APEC initiative.”