Even the Chinese Can Tell the TransPacific Partnership is Unlikely to Get Done

You know it’s bad when parties who aren’t at the negotiating table can tell a deal is going pear-shaped.

The Chinese have good cause for being interested in the toxic, inaccurately labeled trade treaty known as the TransPacific Partnership. The big reason is that it is designed to be an “anybody but China” deal, in order to crimp the growing power and influence of the Middle Kingdom over its neighbors.

China was sufficiently worried about the TPP that it tried throwing a spanner in the works last October. The critical bit to keep in mind is that Obama was supposed to come to a negotiating session in Bali, which happened to overlap with an Asia-Pacific Economic Cooperation (APEC) meeting, also in Bali. Obama cancelled so he could deal with budget talks in the US personally.

China used the APEC meeting and Obama’s absence from the TPP session to have a go at the TPP negotiations. As we wrote:

Now bruised official egos are likely not enough in and of themselves to derail a trade deal. But the Asian nations are also playing a careful balancing act between the current hegemon, the US, and its presumed successor, at least in the region, if not globally, China. Now remember, the whole point of the TPP is that it is an “everybody but China” deal. So what did China do at the APEC summit when Obama was detained in Washington? Step up its efforts to undermine the TPP. From Agence France-Presse:

The United States stepped up efforts to reinforce its economic might in the Asia-Pacific at a regional leaders’ summit in Indonesia on Tuesday, amid warnings from an increasingly bold China…. 

But China and even some developing nations included in the TPP have expressed concern that it will set down trade rules primarily benefiting the richest countries and most powerful firms. 

“China will commit itself to building a trans-Pacific regional cooperation framework that benefits all parties,” Chinese President Xi Jinping said in a speech following Kerry at the Apec business forum…. 

“The Trans-Pacific Partnership, featuring confidential talks and the highest free trade standard beyond mere lower tariffs, is widely considered a new step for the US to dominate the economy in the Asia-Pacific region,” the China Daily newspaper said in a front-page report on Xi’s speech. 

Indonesia also signalled its irritation at the huge focus on TPP at the Apec summit, shunting the planned meeting on Tuesday afternoon of the 12 nations involved to a hotel outside the official venue… 

Meanwhile, China and Indonesia are involved in plans for a rival free trade pact involving 16 countries around the region and being spearheaded by the Association of Southeast Asian Nations. 

Negotiations for that pact are expected to be discussed at an East Asia Summit in Brunei this week.

Back to the present post. We didn’t think the Chinese gambit would work. It seemed more like a poke in the eye than a serious effort. But we also thought the Administration was hurting its credibility by pushing in Bali (in October!) to get a deal done by year end when there were plenty of signs that a lot of issues remained unresolved. Mind you, this was before the Wikileaks disclosure of the chapters on intellectual property and the environment showed that the state of the negotiations was even worse than we suspected.

Late last week, the Nikkei reported, in With TPP stalled, China more confident in own free trade plans, that even China is not all that worried about the TPP getting done:

His [Commerce Minister Gao Hucheng's] statements suggest that, with TPP negotiations stalled amid disagreements between the U.S. and Japan, Beijing senses more leeway to wait and see how things turn out. The tone is a step down from last summer, when President Xi Jinping suggested that China would consider participating in the TPP. 

Beijing has been greatly concerned that U.S.-led free trade deals across the region would effectively amount to a containment policy against China. Japan’s decision to get on board with the TPP prompted Beijing to become the driving force behind a free trade agreement with Tokyo and Seoul. But at the same time, China left open the option of signing on to the TPP.

Yves here. As if the US would really have indulged that idea. Back to the article:

Gao emphasized ongoing efforts by China to establish its own free trade area, suggesting confidence in the strategy. As examples, he gave pending bilateral agreements with Australia and South Korea; a three-way pact between China, Japan, and South Korea; and the Regional Comprehensive Economic Partnership agreement, which includes 10 Southeast Asian countries as well as Japan, South Korea, and a handful of others. 

Still, it would be unwise to assume that China will push forward in the three-way talks with Japan and South Korea as proactively as in the past. For starters, China’s willingness to partner with Japan in those negotiations came in reaction to the American decision to welcome Japan into the TPP. But now, Tokyo and Washington cannot see eye to eye, and Beijing has fewer reasons to hurry and include Japan in a deal.

The rest of the story makes clear that China regards trade deals with South Korea and its new raw materials colony, Australia, as higher priorities. And given China’s territorial dispute with Japan, a trade deal of any consequence seems like a stretch.

As Clive indicated in his translation and analysis of a story in the Asahi Shimbun on the TPP, the Japanese view the American posture as tantamount to dictating terms rather than negotiating, and they aren’t prepared to accept what the US is offering. The one sweetener that might get the Japanese to budge isn’t on the economic side of the ledger, but the military. Japan clearly wants stronger assurances from the US vis-a-vis China. But what might those be, exactly? The US is already bound to defend Japan if attacked (and that would include an attack on the disputed Senkaku/Diaoyu islands). The US has not taken any official position, but has repeatedly sent strong messages that it sees increasingly aggressive Chinese actions (such as asserting control over the related airspace) as unjustified and provocative.

So even though the Americans could in theory give the Japanese stronger commitments regarding the territorial dispute, it’s not clear we can afford to, particularly given that we have now allowed China to become a sole or critical provider of essential goods, ranging from ascorbic acid to rare earths to chips. In other words, it remains to be seen whether the US can come up with enough sweetners to get the Japanese on board with the TPP. 

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