China will later this month enter talks to create an Asian free-trade bloc covering 28 percent of world GDP, a reaction to U.S. progress in forming a Trans-Pacific Partnership that excludes China, South Korean Trade Minister Taeho Bark said on Monday.
The RCEP, or Regional Comprehensive Economic Partnership, will be comprised of the 10-nation ASEAN club plus six others: China, India, Japan, South Korea, Australia and New Zealand.
Its launch is to be formally announced at the ASEAN summit in Phnom Penh later this month, with a goal of reaching a deal to lower trade barriers across the region by the end of 2015.
RCEP adds to a growing web of regional and sectoral trade negotiations that has sprung up after a decade of talks failed to conclude a global trade deal, the so-called Doha Round.
The Trans-Pacific Partnership (TPP) championed by President Barack Obama's administration aims to tear down traditional trade barriers and break ground in new areas, streamlining trade between the United States and 10 other countries.
"We're organising trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards," Obama said in a presidential debate with Governor Mitt Romney two weeks ago.
Bark said RCEP had grown out of a plan to launch trilateral trade talks between China, Japan and South Korea. Some ASEAN countries, worried about the trilateral initiative, pushed for a wider deal.
"China's position on this economic integration in East Asia was pushed by TPP," Bark said in a lecture organised by the Centre for Trade and Economic Integration in Geneva.
"In the past, China didn't want to have ASEAN plus six, they only wanted plus three. Japan preferred ASEAN plus six. China preferred anything without the United States," he said.
"I don't know how much they hope to get but they want to do it because of the TPP."
Spaghetti
If both RCEP and the TPP came into existence, they would be similar in economic size to the European Union.
"Those are the three big blocks in the future," Bark said.
In the long run, the goal of the 21-member Asia-Pacific Economic Cooperation (APEC) group is to merge RCEP and the TPP, he said. That would bring the United States and China into an agreement to deepen trade liberalisation, succeeding where 10 years of talks at the World Trade Organization failed.
But achieving that final goal depends on RCEP achieving a "high quality" deal, not just simplifying an existing tangle of bilateral agreements, which Bark called "the spaghetti bowl".
"At this moment we are setting very high ambitions. We include all tariff lines," he said.
But many developing country members might want to water down RCEP by asking for special treatment. South Korea will demand an exemption to protect its rice farmers, while Japan is also likely to want carve-outs for agriculture.
If the signatories' squeamishness at opening their markets does not devalue RCEP, they might be forced to lower their sights in any case to meet the three-year schedule. If so, RCEP could end up having little influence on regional trade.
The trilateral talks are still expected to go ahead, although the planned launch, originally set for the Phnom Penh summit, is likely to be postponed to later in the year due to a territorial dispute between China and Japan, Bark said.
South Korea is also separately negotiating a bilateral free trade agreement with China, which would enable some 25,000 South Korean firms operating in China to supply the domestic market, rather than exporting their Chinese-produced goods as they are obliged to do now, he said.
China wanted quick negotiations, Bark said, while South Korea hoped for a bilateral deal within two or three years.
