U.S.-PRC Trade Webs:TPP vs. China-Japan-Korea FTA ― Implications for Taiwan Chen-Dong Tso Visiting Fellow, East Asia Program Stimson Center July 27, 2012
Main Thesis1. TPP has visible impact on China, especially at the sectoral level.2. China pursues CJK for its own reasons. The recent speedup of CJK has more to do with increasing interest of Japan and Korea.3. China and Taiwan see complementary interest in joining TPP.
Chronicle of TPP∗ 2003 -- Singapore, New Zealand, and Chile initiated TPP∗ 2005 -- Brunei joined∗ Sep. 2008 -- Bush administration notified Congress of negotiation intention∗ Dec. 2008 -- Australia, Peru, and Vietnam joined∗ Mar. 2009 -- Obama administration called off meeting with interested parties∗ Jul. 2009 – Secretary of State Clinton: US is back∗ Nov. 2009 – Obama: US would engage TPP, aiming at broad-based membership and high standard∗ Dec, 2009 – Obama administration notified Congress of intention to join the negotiation∗ Oct. 2010 -- Malaysia joined∗ June 2012 – Mexico and Canada joined
US Strategic Thinking on TPP∗ Regional institution-building - Multilateral trade negotiation∗ Effect of export promotion - Direct effect – hybrid approach to seek market expansion of new partners - Indirect effect - competition between TPP members and non-TPP members∗ Alliance broadening - Bringing new partners through TPP (Vietnam, Malaysia)
TPP’s effect on China: rule-making competition∗ Rule-making competition∗ Competition between US-led deep-integration TPP and China’s shallow-integration approach (ASEAN+) is inevitable but good (competitive liberalization)∗ China will be on the negotiation table eventually∗ Question: whether in the latter stage of TPP or in the multilateral negotiation∗ Benchmark: SOE clause as deterring China’s entry or SOE clause as stimulus China’s reform
TPP’s effect on China: sectoral competition Comparison of major exports to U.S. (Source: ITC, Year: 2011)China Malaysia Mexico VietnamElectrical, electronic equipment Electrical, electronic equipment Electrical, electronic equipment Articles of apparel, accessories, knit or crochetMachinery, nuclear reactors, boilers, Machinery, nuclear reactors, boilers, Vehicles other than railway, Articles of apparel, accessories, notetc etc tramway knit or crochetToys, games, sports requisites Animal, vegetable fats and oils, Mineral fuels, oils, distillation Footwear, gaiters and the like, parts cleavage products, etc products, etc thereofFurniture, lighting, signs, Optical, photo, technical, medical, etc Machinery, nuclear reactors, boilers, Furniture, lighting, signs,prefabricated buildings apparatus etc prefabricated buildingsFootwear, gaiters and the like, parts Rubber and articles thereof Optical, photo, technical, medical, etc Electrical, electronic equipmentthereof apparatusArticles of apparel, accessories, knit Commodities not elsewhere specified Pearls, precious stones, metals, coins, Fish, crustaceans, molluscs, aquaticor crochet etc invertebrates nesArticles of apparel, accessories, not Furniture, lighting, signs, Furniture, lighting, signs, Coffee, tea, mate and spicesknit or crochet prefabricated buildings prefabricated buildingsPlastics and articles thereof Miscellaneous chemical products Edible vegetables and certain roots and Machinery, nuclear reactors, boilers, tubers etcArticles of iron or steel Articles of apparel, accessories, knit Plastics and articles thereof Mineral fuels, oils, distillation or crochet products, etcVehicles other than railway, Cocoa and cocoa preparations Articles of iron or steel Edible fruit, nuts, peel of citrus fruit,tramway melons
TPP’s effect on China: sectoral competition China’s Export to Vietnam and Mexico (Source: ITC, Year: 2011) Vietnam Mexico Electrical, electronic equipment Electrical, electronic equipment Machinery, nuclear reactors, boilers, etc Machinery, nuclear reactors, boilers, etc Mineral fuels, oils, distillation products, etc Optical, photo, technical, medical, etc apparatus Cotton Aluminium and articles thereof Articles of apparel, accessories, knit or crochet Vehicles other than railway, tramway Iron and steel Organic chemicals Knitted or crocheted fabric Furniture, lighting, signs, prefabricated buildings Edible vegetables and certain roots and tubers Rubber and articles thereof Plastics and articles thereof Plastics and articles thereof Articles of iron or steel Toys, games, sports requisites
China’s Evaluation on TPP∗ No consensus on TPP∗ Skeptics: - TPP is difficult to succeed - TPP escalates competition in rule-making - TPP interferes in regional production chain∗ Cautious supporters: - TPP offers more market-opening - TPP is the way to go - Vietnam as the test case
China’s Response to TPP∗ Bilateral approach∗ Strengthening China-ASEAN∗ Continuing FTA negotiation with Australia∗ Signing China-Canada Foreign Investment Protection Agreement (FIPA)∗ Speeding up China-Japan-Korea(CJK) FTA∗ Starting negotiation on China-Korea FTA
Chronicle of CJK FTA∗ 2001 – Trilateral joint research on economic cooperation launched (KIEP, NIRA, DRC)∗ 2003 - Joint declaration on CJK cooperation∗ 2003 – Trilateral joint research (unofficial) on CJK FTA launched∗ 2004 – Joint research (unofficial) on China-Korea FTA∗ 2006 – Joint study (official) on China-Korea FTA∗ 2007 - Prioritizing trilateral investment agreement∗ 2009 – Joint research project concluded (scheduled to finish in 2008) (Japan’s partner became JETRO)∗ 2010 - Joint feasibility study on China-Korea FTA is finished∗ 2010 – Joint study committee (official) launched∗ 2011 – Joint feasibility study finished (scheduled to finish in 2012)∗ 2012 - China-Korea FTA negotiation launched∗ 2012 – Trilateral investment agreement signed
China’s Priorities and Sensitivities∗ Priorities: ∗ Agriculture ∗ professional services, environmental services, space-transportation and medical services; qualified service providers under the mode 4∗ Sensitivities: ∗ automobile, machinery and petrochemical (Korea) ∗ vehicles, trailers and semi-trailers (Japan) ∗ medical, precision and optical instruments and chemistry ∗ Electronics, iron and steel; and ship-building ∗ financial services, telecommunications services, computer-related services, construction services, broadcasting and publishing services, and audio- visual entertainment services.
Japan’s Priorities∗ automobiles and related parts; industrial machinery and related parts; steel; chemical products; televisions and related parts; audio-visual equipment and related parts; MCO (multi-component IC); electrical machinery and related parts; home electrical appliances and related parts; batteries and related parts; and paper and paperboard.∗ financial services, ICT and its related services (including telecommunications and computer-related services), audio-visual, entertainment services (movie, music, game, animation, drama and content services), distribution services, construction services, architectural services, engineering services, maritime transport services and private education industry
Japan’s Sensitivities∗ Food products and beverages, apparel and fur and textiles (with China)∗ Broadcasting services, public education services including those provided by private institutions, healthcare and medical services, space launching services and services incidental to energy.
Korea’s Priorities∗ professional services including legal services, financial services, telecommunications services, audio-visual and entertainment services (movie, music, game, animation, drama and content services), distribution services and construction services.
Korea’s Sensitivities∗ Agriculture and Fishery∗ textiles, consumer goods, and electrical and electronics equipments (China); machineries, electrical and electronics equipments and non-ferrous metals (Japan)∗ Other possible sensitive items: food products and beverages, apparel and fur, textiles, and leather and footwear (with China) motor vehicles, trailers and semi-trailers and other transport equipment industries (with Japan)∗ healthcare and medical services, social services, environmental services, energy services, broadcasting and publishing services, and education services
China’s Motives and Concerns∗ Motives: ∗ High economic potential for Trade diversification ∗ Internationalizing renminbi ∗ High expectations from Chinese business ∗ New thinking in development strategy (link to advanced economies) ∗ Stimulating China-Japan or CJK FTA (China-Korea FTA)∗ Concerns: ∗ Increasing trade deficit ∗ Lock-in effect on China’s position in global production chain
Korea and Japan: Motives and ConcernsKorea∗Sino-Korea FTA:∗Economic returns by taking advantage of China’s eagerness∗Improving Korea’s position in CJK FTA∗Strategic returns: leverage over DPRK∗Concerns:∗Popular sentiment against Japan (CJK)Japan:∗Recent interest after the prospect for joining TPP turning opaque (Apr. 2012)
Negotiation bottleneck∗ Japan and Korea demand CJK to be higher standard∗ CJK Investment Agreement is signed with two standing issues unresolved (pre-entry national treatment and negative listing)∗ Rising Interest from Korea and Japan∗ All three are seeking economic returns despite some strategic reasons to have the deal done.
Comparing tracks and players Welfare Gain of Alternative Integration Track as a percentage of GDP (2025) TPP Asian Track Two-tracks FTAAPChina -0.09% 0.50% 0.42% 1.89%Japan 0.58% 0.80% 1.26% 1.38%Korea 0.73% 1.63% 2.09% 2.34%Taiwan -0.20% -0.95% -1.05% 3.77% Source: Peri, Plummer, and Zhai, 2011, East-West Center
Barrier 1: Misperception about Taiwan∗ Taiwan wants agreement but not free trade solely for the purpose of creating the image of statehood∗ FTA with U.S. or other major trading partners are much less important for Taiwan than cross-Strait economic relation∗ Taiwan can reap the fruit of FTA by lowering its trade barrier unilaterally without FTA
Barrier 2: Domestic Constraint∗ Lack of momentum (10 years after WTO entry)∗ Industrial structure (small and medium sized enterprises take the lion’s share) as impediment to trade liberalization in manufacture∗ Regulatory structure as impediment to liberalization of service industry
Complementarity of Interests across the Strait∗ As a member of APEC, China will benefit by joining TPP∗ TPP offer strong momentum to sustain economic reform∗ Taking a better position in rule-making competition