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China’s regional vision gathers momentum

chinaskyline

19 Nov China’s regional vision gathers momentum

The key global economies met in Brisbane for the Group of 20, following recent summits for ASEAN, East Asia and the wider Asia-Pacific region. These are not just about politics but growth, trade and investment. In our region, a range of agreements are under negotiation with varying and overlapping memberships. Most notable is the Trans-Pacific Partnership (TPP), which is led by the United States and includes Japan, but notably has left China out.

The newest proposal from China’s President Xi Jinping may eclipse them. While hosting the Asia-Pacific Economic Cooperation (APEC) summit, he has ambitiously raised an even bigger and more inclusive Free Trade Area of the Asia Pacific (FTAAP) and set this in the context of China’s “Asia-Pacific Dream”.

Yet the idea of the FTAAP is not new. APEC Ministers initiated it back in 2006, with leaders’ endorsements coming in 2010. As such, no one has said “No” to Xi. But the reception has been cool. A feasibility study on FTAAP was proposed in May, when the trade ministers met in Qingdao. Nonetheless, the U.S. and Japan have watered this down to a “collective strategic study” to indicate they have yet to decide whether to enter into actual negotiations.

The hesitance relates to the problems faced in the TPP, meant to be the economic centerpiece of the Obama administration. Negotiations are now into their fourth year — long overdue and in danger of floundering.

This is not only because of sticking points with Japan over automobiles and some agricultural products. Domestic American politics is another factor. Following the midterm election results, Republicans control the two houses of Congress and may not sign off on any deal brought by the Obama administration.

Both the U.S. and Japan must push through. Otherwise, their credibility to offer leadership in the region will suffer. But, this does not mean they should cold-shoulder China’s proposal for an FTAAP.

Trade agreements need not be oppositional. The logic emphasizes interdependence and win-win outcomes. The FTAAP offers a long-term perspective to deepen regional economic integration. It is also a possible road map to converge the TPP and the ongoing patchwork of other trade and economic agreements.

The idea is worth exploring, whether put forward by China or any other country. But, coming from Xi, the proposal underlines an emerging truth: China is emerging as the region’s central economy and cannot be easily excluded.

Since becoming a World Trade Organization member in 2001, China has been actively pursuing economic cooperation and free trade agreements (FTAs) across the region. FTAs with ASEAN, Singapore, New Zealand and Peru are done.

With South Korea, Beijing has just completed FTA negotiations that, once in force, will eliminate tariffs on the vast majority of traded goods. Prospects with Australia are that service industries like tourism, finance and education will be liberalized, and further steps likely took place at the sidelines of the G-20 meetings in Brisbane. With ASEAN, while differences continue over the South China Sea, expect an upgrade of the ASEAN-China FTA.

But to achieve the FTAAP, several bridges need to be crossed, and indeed to be built.

First, there is the Regional Comprehensive Economic Partnership (RCEP) that seeks to build on existing FTAs that ASEAN has, separately, with Australia-New Zealand, China, India, Japan and South Korea. If this all-Asian agreement can be forged, this will be a step forward.

Second, an FTA among China, Japan and South Korea (CJK) is due. Talks are into their fifth round, but prospects have been mixed. On one hand, a boost has come from the conclusion of China-South Korea deal. Tense Sino-Japanese ties over political and security issues however remain a problem. This was evidenced in the brief and uneasy meeting between Prime Minister Shinzo Abe and Xi at the sidelines of the APEC summit. However, the fact that both leaders did at last meet is some signal that they recognize the rationale to get on. Only if Sino-Japanese ties are normalized can the RCEP and CJK move ahead.

Third, and the most important for the FTAAP to have a chance, is for better ties between the U.S. and China. Relations between the two sides in the last year seemed to be in something of a free fall. But the Xi-Obama meeting at the APEC summit has shown that, despite ongoing differences, something positive can be achieved.

Their agreement on climate change has been heralded by both sides and could be a foundation to develop common understanding and collaboration. The elimination of duties on $1 trillion on technology products has signaled that the two largest economies are poised for an investment treaty. Given the deep interdependencies between the two, further cooperation would make sense.

Moving ahead with these initiatives will take not only time, but also political will and courage. Political mindsets about great power relations must shift. In the meantime, expect that China will play a greater role with other neighbors.

This is the uniting logic in Xi’s ambitions for maritime and land-based Silk Roads to connect the region as well as to create the Asian Infrastructure Investment Bank to accelerate infrastructure development. All this can and will be done, whether or not there is an FTAAP.

The G-20 has targeted global growth and Asia is searching for engines to keep up its momentum. China is pursuing agreements with those nearby who are willing. Few welcome Beijing as the Middle Kingdom but many must recognize that China is increasingly the central economy.

ABOUT THE AUTHORS

Simon Tay and Gina Guo are, respectively, chairman and policy research senior executive at the Singapore Institute of International Affairs. The SIIA will co-organise the Asia Pacific Forum 2014, with the Japan Economic Foundation on 24 November 2014 to engage international participants on a dialogue on trade and economic development in Asia Pacific.

This commentary was published in The Japan Times and TODAYonline on 18 and 19 Nov 2014 respectively. It was further published in The Nation on 20 Nov 2014, China Daily (Europe) on 21 Nov 2014 and The Establishment Post on 27 Nov 2014.