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Free Trade Area of the Asia-Pacific: Best Option in Post-TPP Era?

Thursday,Dec 15, 2016

By: CCG

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Introduction:

“Free Trade Area of the Asia-Pacific: Best Option in Post-TPP Era?” was published after the US President-elect Donald Trump announced to retreat from TPP in the first day of his presidency. The report points out that a TPP without the United States will lose the potential to set rules for global trade in the 21st Century. The Regional Comprehensive Economic Partnership may be a replacement in Asia Pacific in the short term but not an ideal alternative to TPP in a long run.

The report suggests that the United States and China, as the world’s two largest economies, are playing decisive roles in the future of global economy. Whether they can cooperate well with each other determines if it will move towards a more open/integrated or divisive/isolated economy. The two countries are advised to seek consensus on global economic norms and jointly push forward the FTAAP establishment to eventually benefit from the integration of value chain in Asian Pacific and create more benefits to the people in the region and the world.

 

Summary:

In the recent years, within the scope of the APEC summits, China has more than once put forward the proposal for the establishment of a Free Trade Agreement of the Asia-Pacific (FTAAP), in order to favor the integration of the Chinese and the American economic systems and to bring extra dividends to both the Asia Pacific and global economies. In the meanwhile, the Asia Pacific countries seeking an increase in economic cooperation and in the integration of the supply chain have gradually turned to negotiating two “supra-regional Free Trade Areas”: the US-led TPP, and the ASEAN-guided RCEP, both characterized by competitiveness and a certain degree of complementarity. The negotiations have been accelerating in recent years, but in the end have both proved to be the paths for the realization of the FTAAP.

The TPP agreement is though to be characterized by great inclusiveness, wide coverage and high standards: the twelve original members are located in the whole area of the Pacific Rim, including both big manufacturer countries as well as areas rich in resources. The thirty chapters of the TTP agreement contain rules about the regulation of multiple “beyond-boundaries” relations and “topics for discussion of the 21st century”, setting the zero tariff policy as ultimate goal for the trade in goods. In comparison, the RCEP is based on five basic rules of free trade (“10+1”). It underlines that ASEAN has a crucial importance in the regional integration program, being able to further strengthening the East Asia production network and its integration in the global value chain. It is open, flexible, in constant evolution and keeps into consideration the different features of each country. Thanks to its increasing openness, comprehensive nature and gradual development, it can meet the needs of countries with different levels of growth, and help buinding the technical cooperation that the developing economies need. Despite this, the contents of the RCEP related to free trade are quite traditional, and do not include any multiple “beyond-borders” mentions.

The twelve potential members of the TPP reached a basic agreement on October 2015, and met on February 4th 2016 to sign it. But the result of the American Presidential Elections have changed the future of the agreement. In the evening of the last 21st November, the incoming President Donald Trump released his “Hundred Days” program, where the “US drop out of the TPP” appeared among the listed plans.

Because of the American retreat, the TPP is no longer a potential “global economic rule for the 21st century”. However, even if the TPP is facing a “stranding”, the RCEP will probably not be able to fully replace it in the future. The TPP would play an important role in stimulating agricultural reforms in Japan and other countries, and in promoting the increasing share of the service sector in the world economies. Looking at RCEP, a huge distance exists between its five “10+1” rules, ASEAN is the main member of it, and many member countries lack any leadership skill: these reasons explain why RCEP has no chance to become the “global economic rule of the 21st century”.

In the era of the “global value chains”, companies all over the world are linked together through the chain “trade – investments – services – IPR”, and bring to the customers’ door punctual high quality and cost-effective products thanks to the constant bidirectional flow of goods, people, creativity and investments. This is the reason why the economic policies of the 21st century should reduce the obstacles to any of these flows and increase the stability of the supply chain by means of common rules and universal standards, so as to benefit all of its participants.

The common participation of the first and second world economies – the US and China – is fundamental to set the “global economic rules of the 21st century”. The two countries have established diplomatic relations 30 years ago, and since then the trade value between the two sides has increased by 200 times. The US investments to China total more than 200 billion dollars, while the opposite flow of investments amounts to 64 billion dollars, surpassing in 2015 the US direct investments of the same year towards China. The cooperation between US and China in the scope of the governance of the global economy is going to decide whether the future economy will be more open and integrated or will go towards isolationism and beggar-thy-neighbor policies. This is a crucial historical period, where China is searching for a structural transformation of the economy and the new American government is implementing new economic strategies: the common promotion of the FTAAP is well aligned with both countries’ economic and strategic interests. FTAAP is then the best option in the “post-TPP era”.

 

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