China’s absence from the Trans-Pacific Partnership (TPP) trade agreement is seen by critics as potentially costly to all. Yet with the United States and its allies seemingly set on promoting the TPP, will Asia be divided into competing blocs rather than brought together by the biggest attempt at regional free trade?

Launched in 2005 by Chile, New Zealand, Singapore and later Brunei, the TPP now comprises a total of 11 negotiating partners including the United States and Australia. Canada and Mexico joined talks this year, while South Korea and Japan have both expressed interest in participating, along with Taiwan and the Philippines.

Next year is seen as the “pivotal year” for concluding negotiations which commenced in March 2010, with the next round scheduled for next month in New Zealand.

Meanwhile, “ASEAN plus six” negotiations on free trade are set to continue this month, involving the 10 members of the Association of Southeast Asian Nations along with Australia, China, India, Japan, New Zealand and South Korea.

U.S. participation in the TPP has been considered a means of ensuring the continued involvement of the world’s biggest economy in the region, where progress on other multilateral free trade agreements has been mixed.

However, Washington’s push for strong standards on intellectual property, labor and environment along with regulations on state-owned enterprises to ensure a high-standard pact are seen making it difficult for emerging economies to join, along with excluding the region’s strongest economy, China.

Australian National University’s Shiro Armstrong has argued that China is crucial to the TPP, based on the need to encourage the Middle Kingdom’s acceptance of the international rules of the trading game.

“China needs to help set the rules and agree to them so that it has buy-in – not have those rules created around it,” he argued in the East Asia Forum.

“The biggest risk of the TPP is political: that it might divide the region strategically between its members and the rest, with China being on the outside,” he added, urging an agreement with “open accession terms that allow China to meet its own interests” rather than having to accept U.S. terms.

Without a transparent and established process for membership, Armstrong warns that the TPP could become simply a U.S.-led bloc in which its trade liberalization targets are unlikely to be reached.

In an email interview with The Diplomat, Armstrong said: “The big challenge and test for the TPP is whether China can join. As it stands it is looking very unlikely with the hurdle set too high.

“Indonesia is the other big test for the TPP – if it is to be a trade agreement that brings the region together as opposed to an agreement that excludes large developing countries.

“Many of the 21st century economic integration issues that are currently on the negotiating table could be very difficult for developing countries to sign up to and some look quite punitive for them.

“South Korea faces a different set of issues with a political backlash against FTAs after KORUS [Korea-United States Free Trade Agreement]. If that difficulty can be overcome, they won't have too much trouble joining because of KORUS.” 

Japan hesitant

Meanwhile, Japan has yet to confirm whether it will join TPP negotiations despite the support of Prime Minister Yoshihiko Noda, who amid a battle for electoral survival is nevertheless unlikely to expend much political capital on a free trade deal.

Armstrong said Japan was unlikely to join in the near future “given the hold that the Japanese agricultural lobby has on the system in Japan and the lack of leadership.”

However, the Carnegie Council’s Devin T. Stewart said recent tensions between Japan and China may help spur Tokyo lawmakers into joining the TPP.

According to the Dai-ichi Life Research Institute, the United States may even regain its position as Japan’s top export market in 2012/13, amid a slowdown in the Chinese economy and territorial tensions. The increased importance of U.S. trade would seemingly strengthen the hand of lawmakers in favor of closer ties, including the top contender to be Japan’s next prime minister, Shinzo Abe.

“Some elites in Japan fear that if Japan joined the TPP it would only work to divide Asia into blocs. But the recent tensions between Japan and China may dampen some of the skeptics' voices,” he told The Diplomat via email. “Moreover, the strong yen is making the business case for a TPP even more robust.”

“Japanese economic policymakers also understand the strategic case for TPP as a wedge in influencing China's power. The question is whether the agricultural lobby will kill it. To that point, [business lobby] Keidanren has finessed the case by saying that some trade protections will remain in place even if Japan joined the TPP – implying farmers would remain protected,” he added.

‘Either way, the U.S. wins’

Regardless of the outcome of the U.S. Presidential Election, the TPP is likely to be part of the next administration’s Asia trade policy, according to Stewart.

“For both candidates – President Obama and Mitt Romney – the TPP would represent an item in the policy toolkit that promotes American business and pressures China. Romney has attempted to appear hawkish toward China, much as George W. Bush did in the early days of his presidency,” he said.

“Obama also referred to his support for TPP during the presidential debates, saying that the U.S. is forging trade relations in Asia as a way to push China to adopt international standards. In that sense, it is part of Obama's pivot or rebalancing of U.S. foreign policy priorities toward Asia.

“This is to say both Romney and a [second] Obama administration would have interests in promoting the TPP. Some of the thinking behind TPP is that it helps the U.S. balance of power in Asia because China will either be isolated out of the agreement or will feel pressured to adopt reforms on intellectual property and state owned enterprises in order to join. So either way, the U.S. wins.

“Moreover, TPP gives the U.S. a way to respond and hedge against Chinese state capitalism – one of the most important foreign policy issues of our time. Nevertheless, the agreement has been largely negotiated in secret and there are many concerns in the U.S. about increasing corporate welfare at the expense of the average consumer or citizen.

“On top of that, there is not a lot of energy at the moment for more free trade agreements. Yet if I had to guess, I would bet the next administration will push for a stronger TPP.”

For Armstrong though, the best outcome is still a new global trade deal, rather than adding to the “noodle bowl” of overlapping FTAs in the region.

"By far the best option is to resurrect a global deal. Trade policy energy and resources are being diverted in bilateral deals and other agreements like the TPP,” Armstrong said, adding that “more effort needs to be put into strengthening the global trading system and quickly completing Doha.”