Pacific Money

China and the TPP: The Trojan Horse Option

China is thinking of joining the TPP talks. The more skeptical might question its motives.

The Trans-Pacific Partnership (TPP) has rightly been getting a lot of attention given the potential impact of the talks on the global economic and trading landscape. Indeed, one of the most important aspects of the TPP may well be its role as a divider, with who may be excluded perhaps as important as who may end up on the inside.

Given these facts, an announcement back in May that China was studying the possibility of joining the TPP talks caused quite a bit of commentary and interest. Some more Machiavellian-minded observers would see such a move more as China trying to sabotage or dilute the content of the talks from the inside – the Trojan Horse option – rather than as a sincere attempt to meet current goals of the TPP members.

Supporting this more conspiratorial view are the events that befell another trade agreement – the Information Technology Agreement (ITA) in July of this year. Talks were underway to expand the number of IT goods that could be shipped duty-free, but were suspended by a diverse group of negotiating members after China made what most considered to be unreasonable demands about nearly 150 products it wanted to exclude from tariff cuts.

Now concerns are being raised that China might be trying to join yet another set of trade negotiations with the possible of goal of spoiling them or rendering them impotent.

The proposed “Trade in Services Agreement” (TiSA, outlined in an EU document here), unlike the recently collapsed ITA talks, is not being negotiated under the auspices of the World Trade Organization (WTO), with its member rights and rules and difficulties in reaching a consensus. In fact, like the TPP, the TiSA is being held up as one possible way of making progress on trade agreements outside the WTO framework. Many countries (especially those with more developed economies and some more specialized ones) feel that progress is being “held hostage” at the latter by certain developing economies (basically China and India).  

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Of course, suspicions about a Chinese “Trojan horse” strategy could turn out to be misplaced. Perhaps China, with its new president and premier, has genuinely undergone a volte-face and abandoned its previous opposition to any and all trade deals outside of the WTO – where China has relatively more influence.

Perhaps… but after the experience of the ITA talks earlier this summer, the other members will take quite a bit of persuading before they drop their suspicions of Chinese intentions. With the current TiSA scope covering an annual $4 trillion of trade, the stakes are certainly high enough for the members to think very hard before coming to any decisions.