The Trans-Pacific Partnership in the Asia-Pacific

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By Sara Itagaki

As the economic centerpiece of the Obama administration’s rebalance to Asia, the Trans-Pacific Partnership (TPP) is a prerequisite for ensuring U.S. economic access to the world’s most dynamic region. In Obama’s Asia strategy, the TPP serves the dual purposes of balancing China’s expanding economic influence and deepening U.S. trade and investment ties to the region.

The region is acutely aware of China’s growing economic power, as Japan, South Korea, and the Association of Southeast Asian (ASEAN) countries become increasingly dependent on China as a trading partner. Moreover, growing Chinese dominance and waning relative U.S. economic power after the 2008 financial crisis have prompted Asian countries to pursue regional economic agreements among themselves, which exclude the United States. The conclusion of an expansive free trade agreement (FTA) representing over 40% of global output—the most expansive pact involving the United States since the North American Free Trade Agreement in 1994—would counteract these trends and reinvigorate the U.S. presence in Asia.

 

Roadblocks to Achieving Strategic Economic Objectives in Asia

The United States entered TPP negotiations claiming it would seek a new “platinum standard” for regulations. Going beyond traditional market access issues, the agreement attempts to safeguard the environment, eliminate preferential treatment for state-owned enterprises, coordinate national macroeconomic policies, and protect foreign investors. This ambitious agenda resulted in slow negotiations over several contentious issues, such as protection periods for pharmaceutical patents and market access for agricultural products. The depth of the agreement may make it difficult for domestic constituencies across all TPP signatories to accept the deal. Even in the United States, a traditional advocate of free trade, mixed reviews from the Democratic and Republican camps demonstrate the soft support for the TPP.

Beyond the obvious need for political will to push the agreement through dense domestic opposition during an election year, the success of the TPP in fulfilling its role in the rebalance to Asia depends on both achieving unprecedented standards of trade and bringing on board as many countries in the Asia-Pacific as possible. Although some Asian states, such as India, have signaled that they are not ready to join the pact, the current twelve-country membership, which includes Japan, Australia, Canada, Singapore, and Vietnam, is a promising start toward the goal of regional inclusiveness.

The key country on this list is Japan. Although half of the prospective parties already have some form of an FTA with the United States, Japan does not, despite being an ally and key security partner. Japan’s membership in the agreement will allow it to increase its economic penetration within Asia by leveraging market size, sophistication, and influence. Japan’s participation also signaled its leadership’s commitment to economic liberalization, marking a departure from past skepticism of trade liberalization initiatives. The U.S.-Japan bilateral agreement following the passage of trade promotion authority in Congress was a breakthrough that cleared the way for other countries to negotiate from this baseline. The successful conclusion of talks, despite predictions of friction with Japan, and signs of positive interest from non-negotiating states such as South Korea and the remaining ASEAN countries show that the TPP is an attractive proposition for the region’s economies.

Looming large over TPP ratification debates is the omission of large markets such as China and India. Although the current twelve-country list is substantial, the absence of these two major Asian markets will limit the agreement’s impact. While TPP negotiations progressed, alternative regional economic cooperation initiatives emerged. Partially in response to the TPP, China has promoted its own FTAs and alternative financial institutions like the Asian Infrastructure Investment Bank. After the public announcement of Japan’s interest in joining the TPP framework in 2010, China immediately agreed to Japan’s proposal for a trilateral FTA between China, South Korea, and Japan, despite prior hesitation over higher regulations for investments demanded by Japanese negotiators. Although the trilateral FTA is still far from realization, China recently negotiated a bilateral FTA with South Korea, which entered into force in December 2015. China has also pushed to conclude negotiations on a Regional Comprehensive Economic Partnership (RCEP), which emphasizes inter-Asian trade integration, in 2016.

Moving Toward Deeper Economic Integration

With numerous alternative trade agendas in play, regional harmonization of trade standards will become a source of competition among key economic actors, as each attempts to shape the future direction of intraregional trade. The alternatives to the TPP highlight resurfacing tensions between divergent views on the future of Asia’s regional trade architecture. Historically the region’s efforts to improve economic integration have swung back and forth between two visions parallel to regional confidence in U.S. economic leadership: an Asia-Pacific arrangement with the United States included and an exclusive East Asian economic bloc. China’s rise as an economic superpower has invigorated efforts on both tracks.

To achieve the ultimate goal of creating a Free Trade Area of the Asia-Pacific, the TPP and RCEP have followed different strategies. The TPP has sought depth first and will focus next on convincing more countries in the region to join, including China and India. The RCEP framework has inverted these priorities, achieving first the inclusion of key economies such as China, India, and the ASEAN countries not already in the TPP, but with shallow initial requirements. Whether the TPP can attract more countries will be key to the evolution of both trade frameworks in the next year.

Originally appeared at the National Bureau of Asian Research