India and China are having dialogues this week regarding economic strategy toward TPP. As we all know, TPP is Trans-Pacific Partnership between 12 countries, including Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. US’ largest trading partner, China’s nonparticipation in the TPP has always been of big controversial. At the beginning of year 2014, US President Obama started considering Chinese participation, and TPP members are expected to rise to 14 after the joining of China and South Korea. Was China left out deliberately? Or is it because US was not ready to invite China to join the TPP yet?
One explanation is that TPP is more a political agreement than trade agreement, which has been a big debate since US became an official member in 2001. One component of TPP is to remove trade barriers on almost all products. Consequently, domestic producers in emerging markets would suffer most due to relatively higher cost and outmoded technology. Additionally, non-like other exciting free trade agreement, such as NAFTA, that US has with some of the TPP participates, above 80% of TPP touch on other issues including global health, labor standards, and property rights, and internet freedom.
Obviously, the reason for inviting China to join TPP is because of the potential trade flows China could bring as the world’s second largest economy and American’s biggest creditor. According to US Census Bureau, China, flowing Canada and Mexico, ranked the third country that has largest trade flows. For the month of April 2013, China and US had $42.1 billion imports and exports. Moreover, US has failed to participate in Asia’s, especially China’s rapid growth in the past two decades. And TPP would be a chance for US to expand the trade flows, increase its net export with China, and therefore promote its economic growth. With an annual growth rate of 7.8% from 2009 to 2013, China can surely bring trade expannsion within TPP.
At the same time, there are issues, being Labor matters, environmental laws and intellectual property rights, need to be solved before US inviting China to participate. US cannot just invite China to join TPP without giving up some rights as a tradeoff. As American economist Paul Krugman argues “the trade benefits of the TPP are much less important than behind-the-border issues such as property rights for makers of pharmaceuticals, movies and software. These are rights designed to divide the spoils of intellectual-property monopolies rather than enhance the benefits of freer trade, and they comprise 24 of the TPP’s 29 draft chapters.”
Issues of labor standards and property rights also apply for exciting TPP members. For example, Obama administration demanded that TPP members enforce the creation of labor union to overlook labor rights and supervise the implementation of international labor standards, in order to offset the negative impact on American workers. Nonetheless, Vietnam, in which labor union is illegal, still joined TPP anyhow. Small countries like Vietnam signed up even if the TPP is unfavorable to them, seeing it as part of a wider relationship with the US. They have to sign up to be a part of the “global game” dominated by US. For the case of China, implementation of labor standards and property rights is much complicated due to the large population and limited education statue. China did establish an intellectual property law in the 1990s, but it was never put into effort since China has been focusing entirely on the economic growth.
An alternative explanation for China’s non-participation is that TPP is a chance for US to define the rules with other small countries, and China would have to follow those rules if it decides to join the TPP later. The rationality is to give China an invidious choice of either to remain as an outsider or to follow the game based o rules that are more fit for other countries’ benefits.
On the other hand, whether China is ready to join current TPP right is undetermined. Beyond doubt, TPP’s rules in intellectual property rights, labor rights, and environmental issues, all do not serve current Chinese interests. US would have to either give up some rules or provide other attractive advent ages for inviting China to join the TPP. As the research director from India, China, and America Institute Dan Steinbock says, “Geopolitically, China’s participation in the process would weaken containment policies strategically and U.S. bargaining position economically. In the long-term, however, it would serve U.S. interests by leading to a more cohesive final pact.”