Pacific Money

China Deals Up Pressure On TPP

Recent Features

Pacific Money

China Deals Up Pressure On TPP

Beijing’s latest agreements leave the Trans-Pacific Partnership at risk of losing relevance.

China Deals Up Pressure On TPP
Credit: Port via

Asia’s “noodle bowl” of bilateral trade deals has become even more entangled, after China’s latest agreements with South Korea and Australia. With Beijing pushing for a broader Asian trade pact, the U.S.-led Trans-Pacific Partnership (TPP) talks face an increasing battle to remain relevant.

On Wednesday, China followed up its recent pact with its top import supplier, South Korea by inking a free trade agreement (FTA) with Australia, ranked as its sixth-largest import source and a major provider of resources such as iron ore, coal and gold.

Following 10 years of negotiations, Australian Prime Minister Tony Abbott described the deal’s signing in Canberra as a “momentous day,” saying it would “change our world for the better.”

For Abbott, the China deal also marked a “historic trifecta” of trade deals with the nation’s major trading partners, following last year’s agreement with second-largest trading partner, Japan and previously with fourth-ranked South Korea. Under the China-Australia Free Trade Agreement (ChAFTA), more than 85 percent of Australian goods exports will be tariff-free, rising to 95 percent on full implementation, while Australian tariffs on Chinese imports will be virtually eliminated within four years.

Two-way trade between Australia and China totaled around A$160 billion ($124 billion) in fiscal 2014, with Chinese investment also expanding rapidly in recent years to become the fifth-largest accumulated investor in Australia. According to the Centre for International Economics, the three Asian trade deals could deliver an extra A$17 billion in exports and 178,000 new jobs for Australia by 2035.

“Given what’s going on with the region and the extraordinary explosion of people going into the middle class, this is I think a landmark set of agreements and it will see literally billions of dollars, thousands, many more hundreds of thousands of jobs and will underpin a lot our prosperity in the years ahead,” Trade Minister Andrew Robb told the ABC prior to the China pact’s signing.

Chinese Commerce Minister Gao Hucheng said the agreement would “provide a strong impetus for growth for both our countries.

Regional Ambitions

Yet speaking after the ceremony, China’s Vice Minister of Commerce Wang Shouwen pointed to the deal’s significance for the communist-ruled giant’s regional ambitions.

According to the Australian Financial Review (AFR), Wang noted the deal was Beijing’s first with a developed nation and had provided it with several lessons concerning its planned Regional Comprehensive Economic Partnership (RCEP). As noted by The Diplomat’s Shannon Tiezzi, China aims to complete negotiations this year on RCEP, which would link the 10 ASEAN member nations with Australia, China, India, Japan, New Zealand and South Korea, accounting for a third of global gross domestic product (GDP).

“In relation to the RCEP we need to be realistic about how ambitious you can be about a trade liberalization agenda. Some of the countries in the RCEP have very high tariffs but we need to be more ambitious in some areas than others,” Wang was quoted saying.

“Secondly, we [RCEP] countries are so diverse we need to accommodate the sensitivities of each other on a step-by-step basis. We need to look at why it took 10 years and a protracted process to get [ChAFTA] done and identify why the negotiations accelerated in the last two years and examine how those lessons or experience could be applied to the RCEP.”

Earlier this month, the RCEP concluded its eighth round of talks in Kyoto without reaching agreement on cutting tariffs, with the AFR’s John Kerin describing it as “in danger of missing an end 2015 target.”

In contrast, the TPP accounts for 40 percent of global GDP, comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Despite earlier media speculation that a deal could be concluded as early as July, U.S. President Barack Obama’s recent failure to win fast-track negotiating authority has led to comments that the pact could already be dead.

According to the Economist, “the row over TPP risks undermining American leadership in Asia and beyond…If TPP crumbles, Mr Obama’s talk of a pivot to Asia will ring hollow.”

China reportedly has been invited to join the TPP, and the economic newspaper said Washington’s long-term interests would be best served by “knitting China into a rules-based economic system.”

While Australia’s trade minister Robb has expressed optimism that the U.S. Congress could yet help deliver the TPP, any further stalling would add to perceptions of Washington falling behind in the battle over rival regional trade pacts. In the meantime though, bilateral deals are the order of the day as Asia’s noodle bowl of agreements gets even more congested.