In a major step towards inter-continental economic integration, nine member-countries of the Asia-Pacific Economic Cooperation (APEC) joined hands together on 13 November at Hawaii to create one of the largest global trade blocs, involving three continents — Asia, South America and North America. This initiative is known as the Trans-Pacific Strategic and Economic Partnership (TPP). Such an initiative, it is anticipated, would allow the member-countries to benefit from each other’s economic growth through mutual exploration of markets, innovation, and job-creation. The Singapore Prime Minister has characterised the initiative as an ‘additional safety raft’ in a time of global crisis.
The TPP, conceived in 2005 by Singapore Prime Minister Lee Hsien Loong as a ‘little seed’, has brought home the point that it is not merely the material power of the actors but also their persuasive powers, that can determine the success of diplomacy. If played carefully and efficaciously, even small powers can effect major global change in today’s globalised and interdependent world. The TPP was started in 2005 by four small countries — Brunei, Chile, New Zealand and Singapore — with a combined population of approximately 25 million. In other words, the TPP represents a major victory for small-power diplomacy. The grouping today covers more than one-fourth of global GDP and one-tenth of the global population.
Five economies — Australia, Malaysia, Peru, the United States and Vietnam — joined the initiative on 11 November. It took nine rounds of tough negotiations for the initiative to take its current shape. The member-states have agreed to speed up the process of integration and come up with a workable solution within eight months. Moreover, other big economies — such as Japan, Mexico and Canada — have shown enthusiasm in joining the initiative and if future negotiations are successful, we might see more players joining in. The grouping, with their inclusion, would create an integrated market of 750 million people and an economy of about $25 trillion, or 40 per cent of total global output.
The TPP received a major boost in January 2008 when the US decided to become a part of this free-trade initiative. There are several other underlying currents of US involvement in the TPP process. First, Washington needed to compete more effectively and proactively with the rising Asian economies and the idea of select free trade agreements (FTAs) provided appropriate avenues for the US to capture the emerging markets. Second, it is an effort by the US to offset the European shock by diversifying its market. Moreover, it has helped the Obama government to shun the growing liberal criticism of increasing US protectionism going against the Liberal principle of free-trade.
Finally, the exclusion of China, the world’s second largest economy and one of the most powerful players in the APEC, reflects growing Sino-US rivalry over the evolving dynamic of their economic relations. The two countries have already been involved in a ‘currency war’, with the US labelling China a ‘currency manipulator’ and printing more money as a countermove against Chinese obstinacy. Viewed in this perspective, the TPP aims to work as an exclusive anti-China economic grouping. While responding to the issue of Chinese exclusion, Australian Prime Minister Julia Gillard declared that the TPP was not an invitation-based initiative; rather, it was based on self-expression of interest by the individual countries.
The fundamental structure of the TPP remains unclear and undefined, with member-countries agreeing to an ambitious timeline of finishing the negotiations and giving it final shape within eight months. Moreover, the TPP represents a disparate membership with divergent modes of operations and differential levels of protection and openness. It envisages a comprehensive free-trade agreement in goods, services and investment. This implies that member-countries will have to eliminate tariffs — a proposition that might face stiff resistance once the members begin negotiations.
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Almost every important economy has at least one or two sectors voicing concerns over the negative impact of the proposed initiative. For example, Japan has followed a strong protectionist policy towards its agricultural sector. Similarly, the US suggestion of bringing parity in the operations and privileges of state-owned enterprises and private firms might face strong opposition from countries such as Vietnam, Singapore and even Malaysia. The US automobile sector has expressed concern over the entry of Japan into the grouping. Some sectors of the Australian economy have voiced concern over the side-effects of this initiative.
Such an initiative has offered a major challenge to the two rising economies of the Asia-Pacific — China and India — since both of them have been excluded from this process. India is not a member of the APEC and therefore cannot do more than be a bystander in the whole process. The Chinese exclusion may last for a longer time, given growing Sino-US trade rivalry. Therefore, their exclusion from the TPP offers a common point for them to actively pursue quicker implementation of the Comprehensive Economic Partnership in East Asia (CEPEA) — an initiative being pursued under the East Asia Summit (EAS). The two economies have already signed FTAs with a majority of the member-countries, or are negotiating FTAs with other members of the EAS.
The author is a Research Fellow at the Indian Council of World Affairs,
New Delhi. He can be reached at vibesjnu@gmail.com