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Bolatkyzy N. The Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RСEP) as competing projects in the Asia-Pacific Region (APR)

D.Trump’s withdrawal from the TPP predetermined thorough review of regional integration architecture and China’s role in the regional processes. Will China take the lead in the integration process within the framework of the TPP or actively promote negotiations aimed at establishing the RCEP?
 
 

The RCEP and TPP: General and Special

The RCEP has much in common with the TPP.

Firstly, the scale of both projects allows increasing the volume of trade and investment, facilitating the localization of industry and creating of new jobs. The RCEP and TPP will help to reduce the negative impact of “noodle bowl effect”, when various bilateral free trade agreements overlap.

Secondly, both projects can stimulate the participating countries to raise the level of information about customs regulations and regulatory requirements, trade procedures, customs clearance and commodity standards, etc.

Thirdly, small and medium-sized enterprises (SMEs) in the region can drive additional benefits, considering that the RCEP and TPP provide support measures for SMEs[1].

At the same time there are significant differences between the RCEP and TPP.

The most important distinguishing feature of the RCEP is a significant disproportion in the levels and rates of economic development of countries:

The first group is developed countries (Australia, New Zealand, Republic of Korea, Singapore and Japan) and Brunei; with high GDP per capita and low economic growth rates (less than 4% per year).

The second group  is countries with emerging markets, where GDP per capita does not exceed US$10000 – Vietnam, India, Indonesia, Cambodia, China, Laos, Malaysia, Myanmar, Thailand, the Philippines (with the exception of Malaysia, about US$17000), characterized by accelerated economic development[2].

There are also significant differences between the RCEP and TPP at the functional level.  The RCEP seeks to build on the experience of ASEAN and unite all ASEAN+1 Free Trade Area (FTA) in a regional framework. The RCEP is based on idea of the central role of ASEAN (ASEAN Centrality), whose tasks and commitments are adopted on the basis of consensus[3].

The RCEP seeks to ensure greater physical, institutional and human interconnectedness in order to reduce the development gap between member countries, while the TPP has more stringent requirements in the field of intellectual property rights, labor standards, competition policy, investment rules, environmental protection and the role of state companies. All of these issues are not directly related to trade, but they are influenced by the trade development in the 21st century[4].

The RCEP provides for the possibility of joining any ASEAN member + FTA and other trade and economic partners after the negotiation  process was completed[5], while in TPP new members are required to accept the existing terms of the agreement.

The RCEP does not support requirements that significantly exceed the scope of WTO commitments. The main idea of the new partnership is the liberalization of trade regimes taking into consideration the national specifics and the difference in the development of the member countries’ economies[6]. The ultimate goals of the RCEP are to gradually eliminate all tariffs for trade and create a “high standard” among the member countries.

The expected results of the RCEP implementation:

  • Deepen economic integration, which has already been achieved within ASEAN+1;
  • Creation of a large-scale FTA, gradual elimination of tariff and non-tariff barriers;
  • Easing restrictions on trade in services;
  • Building a competitive investment environment;
  • ASEAN countries further integration into the global economy;
  • In prospect the RCEP can become a global project.

 

China’s position on TPP and RCEP

China’s integration position in the APR is an accelerator of transforming strategic priorities, domestic economic and foreign trade policy of the country. China shapes its integration policy with respect to contemporary realities:

  • Chinese companies bet on the quality of goods and services, their innovativeness and quality of management;
  • China is gradually opening up services to increase competition, quality of services and business environment. In addition, China will facilitate the access of foreign investors to the markets of insurance, medical and telecommunication services;
  • China is increasing the Research and Development (R&D) spending. The share of China in worldwide cost in this direction increased by 20.4% in 2016. It is expected that China will outperform the USA (today 26.4% of global R&D spending) by 2026. China focuses on attracting foreign direct investment (FDI) into high-tech industries, highly qualified workforce and improving skills of national workforce;
  • In recent years, China has pursued an active investment policy abroad. At the same time Chinese companies reoriented investment toward to real sector, services and participation on major infrastructure projects. Moreover, China invests more in high-tech projects (including in the sector of alternative energy, biotechnology, etc). There are a growing number of contracts on acquisition of high-tech companies and industries[7].

China has a number of free trade agreements (FTAs) with 8 TPP’s members. (except Canada, Mexico and Japan). These FTAs compensate for the effect of trade flows change arising in the TPP. According to the text of the TPP agreement tariffs will increase gradually, and for a number of sectors (transport and etc) the time frame provides for up to 30 years. In this regard, in the short term no significant changes of trade flows are expected.

Nevertheless, the coming changes will impact China. Chinese manufacturers will have to compete with similar industries of other countries. These new challenges are prompting China to transform and develop trade.

In addition, the change of investment flows in China can stimulate the transfer of labor-intensive industries from China to the countries of South-East China (TPP members). The new standards of the 21st century of TPP will influence Chinese industry, market and management in the long-term[8].

After the USA withdrawal from the TPP, China lost no time in trying to embrace the opportunity to take the lead in APR integration through the RCEP.  Members intensively discuss the conditions of agreements since the initiative announcement.

The RCEP has not only economic, but also political significance for China:

  • Economic interest conditioned by necessity to create anternative for Western markets;
  • Political goal aimed at establishing relations with neighbors and strengthening influence in the region;
  • The foreign policy motive, to not allow the development of the USA integration projects;
  • Maritime safety issues (especially relevant in the framework of “Belt and Road” project).

The key positions within the RCEP are: 1) trade in goods; 2) trade in services; 3) investment; 4) economical and technical cooperation; 5) intellectual property; 6) competition.

According to the results of the 17th round of the RCEP negotiations (February 27 – March 3, 2017) parties agreed to cut tariffs to 92%. However, India was against. There was no consensus on public procurement[9].

At the 18th round (May 2-12, 2017) 16 member RCEP has already agreed on chapters related to small and medium enterprises, economic and technical cooperation and, in principle, on competition. However, hampering the progress is the nonagreement on the coverage of core market-access areas, specifically goods and services. Fourteen to 15 countries have agreed to slash 90 percent of applied tariffs to zero once the RCEP comes into force, but if some countries are not ready after so many rounds of talks, there is a way out[10].

At the same time, there are quite serious obstacles on the way to signing the agreement on the RCEP:

  • differences in the levels of members’ economic development make it difficult to reach consensus on tariffs, market access services, customs control, competitiveness of local producers and etc.;
  • most of countries do not have bilateral trade agreements, which made it difficult to find a common solution;
  • in addition to economic obstacles, there may also be a political obstacles, such as territorial disputes between China and a number of countries in the region.

 

Japan’s position on the TPP

 The TPP is important for Japan’s Prime Minister Shinzo Abe. It’s no secret the idea of joining this agreement wasn’t supported by Japanese establishment. Opponents of Sh.Abe pointed to:

Firstly, the vulnerability of agriculture under the inevitable abandonment of most of the measures of tariff and non-tariff protection of the domestic market;

Secondly, the refusal of sovereign right to unilaterally change the regime of customs regulation, sanitary and other standards and norms, the working conditions of foreign investors, public procurement procedures, etc. Sh.Abe made every effort to ratify the agreement in the Parliament.

The USA didn’t satisfy Japan with his withdrawal from the TPP, because Japan gained free access to Americans markets[11]. Closing this project requires at least new negotiations (most of them on bilateral)[12]. However, assessing the situation and the possibility of Chinese leading role in APR integration, Tokyo wants to take advantage of leading the TPP[13].

 

The position of South Korea in TPP and RCEP

Both projects are important for the Republic of Korea because of volume of their economies and markets.

Firstly, according to the expert estimates, the economic benefits from the RCEP are higher than the TPP, although the estimates don’t include the impact of non-tariff barriers, which are one of the most important issues of the TPP’s negotiations. Even taking into account non-tariff barriers, foreign direct investments and tariff barriers, RCEP will give more economic benefits to South Korea than the TPP with access to Chinese market.

Secondly, concluding the FTAs with most of the member countries of the RCEP and TPP, including the USA and China, is a unique position of South Korea. It is important for South Korea to participate in both projects in order to ensure security and harmonious trade and economic development[14].

 

Choice for ASEAN countries

ASEAN members, both in TPP and RCEP, try to play a double game, balancing among the USA and China. ASEAN should pursue the RCEP for three main reasons; (a) the liberalization level of the current ASEAN+1 FTAs is not satisfactory, (b) a noodle-bowl situation impedes the utilization of FTAs, and (c) the competition from other initiatives may erode the “ASEAN Centrality”[15].

 

Conclusions and generalizations

There are a number of scenarios for TPP:

1) The return of the USA to the TPP. It’s possible that D.Trump would change his attitude towards the TPP, especially since the USA’s participation in the TPP was initially based on their geopolitical and geo-economic ambitions in this region. Such a decision will affect regional balance of power.

2) Rebuild the TPP under the auspices of Japan. If Japan takes the lead in the TPP, the project will have a chance of survival. Japan will try to prevent China’s hegemony in the APR. However does Tokyo have enough resources to implement this project? Will TPP be interesting for other APR countries without USA’s participation and access to their market?

3) The failure of the TPP. Without USA and Japan, and consensus between members the project will be doomed to failure.

Prospects for the RCEP are more optimistic. Firstly, the RCEP provides for more liberal conditions than TPP. Secondly, a number of agreements have already been reached and China will do its utmost to implement this project. Thirdly, implementing this project will assume benefit for all member countries. Fourthly, the coexistence of the RCEP and TPP (including under the lead of the USA) in the APR is quite possible. In this case, the member countries of the RCEP and TPP will balance between their trade and economic interests and security issues.

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[1] Пак С.Ч. Политика Южной Кореи в сфере торговли и стратегия страны в отношении региональных и глобальных инициатив экономической интеграции на примере Всеобъемлющего регионального экономического партнерства (ВРЭП) и Транстихоокеанского партнерства (ТТП) //https://iorj.hse.ru/data/2016/12/08/1111907093/С.Ч.%20Пак.pdf.

[2]Стапран Н. Основные форматы многостороннего взаимодействия в Азиатско-тихоокеанском регионе //http://www.pircenter.org/media/content/files/13/14482833690.pdf.

[3] Пак С.Ч. Политика Южной Кореи в сфере торговли и стратегия страны в отношении региональных и глобальных инициатив экономической интеграции на примере Всеобъемлющего регионального экономического партнерства (ВРЭП) и Транстихоокеанского партнерства (ТТП) //https://iorj.hse.ru/data/2016/12/08/1111907093/С.Ч.%20Пак.pdf.

[4] Там же.

[5]Транстихоокеанское партнерство, Всеобъемлющее региональное экономическое партнерство: анализ перспектив развития и оценка влияния на российскую экономику и внешнюю торговлю. Всероссийская академия внешней торговли. 2014 //http://apec-center.ru/wp-content/uploads/2015/01/%D0%A2%D0%A2%D0%9F-%D0%92%D0%A0%D0%AD%D0%9F-2014.pdf

[6]Катасонов В. Транстихоокеанское партнёрство: США уходят, Китай приходит //http://www.fondsk.ru/news/2017/02/07/transtihookeanskoe-partnerstvo-ssha-uhodjat-kitaj-prihodit-43514.html.

[7] Арапова Е. Китай в АТР: трансформация интеграционной повестки. //http://nk.org.ua/geopolitika/kitay-v-atr-transformatsiya-integratsionnoy-povestki-87592.

[8] Дун Я., Су Ц. Транстихоокеанское партнерство: анализ полного текста соглашения //http://cyberleninka.ru/article/n/ranstihookeanskoe-partnerstvo-analiz-polnogo-teksta-soglasheniya.

[9]局2017 年 2 月 RCEP 第 17 回合談判進展摘要.國際貿易 (Краткий отчет об итогах 17 раунда ВРЭП) //https://www.google.kz/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiukvjm8-nTAhWrA5oKHb95AiUQFggkMAA&url=http%3A%2F%2Fwww.trade.gov.tw%2FApp_Ashx%2FFile.ashx%3FFilePath%3D..%2FFiles%2FDoc%2Fb5318294-046b-4dea-a445-b12d26afcade.pdf&usg=AFQjCNGXjaLeH5-FzV_AmuVSG5oXOnN7DA.

[10]Asean Minus X formula to fast-track RCEP–PHL //http://www.bilaterals.org/?asean-minus-x-formula-to-fast&lang=en.

[11] Катасонов Ю. Транстихоокеанское партнёрство: США уходят, Китай приходит //https://glav.su/forum/4/123/threads/1183060.

[12]Катасонов Ю. Транстихоокеанское партнёрство: США уходят, Китай приходит //https://glav.su/forum/4/123/threads/1183060.

[13] Мануков С. Токио возрождает TPP //http://expert.ru/2017/05/2/tokio-hochet-vozrodit-trr.

[14] Пак С.Ч. Политика Южной Кореи в сфере торговли и стратегия страны в отношении региональных и глобальных инициатив экономической интеграции на примере Всеобъемлющего регионального экономического партнерства (ВРЭП) и Транстихоокеанского партнерства (ТТП) //https://iorj.hse.ru/data/2016/12/08/1111907093/С.Ч.%20Пак.pdf.

[15] Fukunaga Y, Isono I. Taking ASEAN+1 FTAs towards the RCEP: A Mapping Study1 //http://www.eria.org/ERIA-DP-2013-02.pdf.