Source: Financial Times

Lurking in the background of the imminent US-China strategic dialogue are concerns about what role, if any, the world’s second-largest economy will play in the Trans-Pacific Partnership and how the that trade grouping will compete with or complement the Regional Comprehensive Economic Partnership. Getting the details of these mega-regional trade deals wrong could seriously damage Asia’s regional economic infrastructure – a point which is often overlooked. Preventing this will require both China and the US to take more active positions.

In China, many view the TPP with suspicion, charging that it is part of a deliberate containment strategy by the US. But western policy makers describe the deal as a 21st-century, high standard agreement that will benefit the global economy, and further US strategic interests in the Asia-Pacific.

With respect to China’s strategic posture, it does not particularly matter which of these views is true – in fact, both might be at the same time. The more important question for China is what position it will take on the TPP given that it already has a role in the Asean-centric RCEP.

China believes that it will be very difficult for it to meet the high standards being negotiated under the TPP. Disciplines on state-owned enterprises, government procurement and stricter protection of intellectual property rights are potential stumbling blocks for Beijing. But China is not the only one who will find it difficult to meet these high standards.

The TPP negotiating partners are a diverse group of countries with vastly different sizes and levels of development. Vietnam, Malaysia and Singapore all have important state entities that receive preferential government treatment. Poorer countries such as Vietnam will find it challenging to conform to strict labour, legal and environmental regulations. Protectionist sentiments toward agricultural interests are strong within many of the supposedly high-standard economies.

The partnership is perceived as providing less flexibility and making fewer allowances than the RCEP. But given the diversity of the negotiating partners, this should not be seen as an insurmountable barrier for China. In the short term, the stricter standards may not seem compatible with China’s current strategic objectives. But viewed over the long term, China’s interests in issues such as IPR protection are likely to move closer to the TPP standard, even as it continues to disagree on some issues such as defining key sectors for state involvement.

China should see itself as having an interest in being actively involved in TPP negotiations as early as possible. This will give it more say in shaping standards, rather than coming in later and being forced to accept a fully formed agreement. Entering early also avoids the possibility of being blacklisted for non-economic reasons, given that new applicants require unanimous approval from current members.

Even if China’s request to join the TPP is denied, this is still advantageous from its strategic perspective. Receiving clarity on whether it is actually welcome to join is much preferable to passively waiting for an invitation.

The addition of China to the TPP would greatly benefit the deal. While some have argued that its presence would be disruptive because it is harder to grant exemptions for a large country, Japan’s accession, carrying its own set of sensitive issues, makes this reasoning less convincing. In fact, building a trade architecture with multiple large economies makes more sense for the future of the “living agreement” than having a single dominant country negotiate with many smaller ones.

Some argue against China’s involvement with the TPP because it already has a role in RCEP. This agreement aims to create a free trade area between the Association of South-East Asian Nations, Japan, South Korea, China, Australia, India and New Zealand. It has many of the same objectives as the TPP, but tackles a slightly more limited range of issues, and its lower standards and promises of development assistance make it more easily accessible to developing countries.

Realistically both the TPP and RCEP negotiating processes will take a long time, and uncoordinated could well lead to conflicting results. This would be harmful for the regional economy because much of the economic activity in east Asia depends on the operation of the production-sharing network that links countries. As countries proceed with trade liberalisation either through the TPP, the RCEP or both forums simultaneously, it is critical to make sure this process does not harm the production sharing network by creating conflicting regulations or restrictive rules of origin.

Protecting the underlying structures that have made Asia the most economically dynamic region in the world requires making the TPP and the RCEP more closely linked. China’s involvement in both negotiations would be helpful in this regard. The diverse group of TPP negotiating partners, including many southeast Asian nations also involved in the RCEP, makes excuses for excluding China less than credible.

This process can work in both directions – if China joins the TPP, the US should also seek some role in the RCEP. This would move the TPP and the RCEP closer together, bring in broader interests of a range of countries in the region, and speed up the end goal of creating a free trade area for the Asia-Pacific.

This piece originally appeared in the Financial Times.