The TPP and its implications for Beijing

The Trans-Pacific Partnership signed at Auckland, New Zealand, earlier this month has 12 APEC members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States). Led by the US, the TPP is one of the largest free trade agreements in the world with its members accounting for about 40 percent of the global economic output.

Though all negotiating members have signed the TPP, it will need to be ratified by each member country, which could take a couple of years because their legislatures will minutely scrutinize it before doing so.

The implementation of the TPP will have major implications for the Asia-Pacific region, many of which are particularly significant for China. All TPP member countries are also members of Asia-Pacific Economic Cooperation, and some other APEC members, such as the Philippines, Thailand, the Republic of Korea and Colombia, have expressed interest in joining the TPP.

If the majority of APEC members decide to sign the agreement, the TPP could isolate the remaining members, particularly China, because most APEC members will come under common trade rules of the TPP and the APEC members will do business according to these rules. And as an APEC member, but not a TPP member, China might have problems in doing business with TPP members, because the US-led trade partnership will have many different rules and standards.

The TPP is moving on to trade standards that are higher than those in the World Trade Organization and most FTAs across the world. Its implementation will also require members to change their domestic policies in a number of fields. These include quality standards, intellectual property rules, government procurement laws, and laws relating to labor, investment and the environment.

While there are challenges, the TPP also gives many countries the opportunity to reform their existing policies. Joining the TPP could give China the opportunity to change many of its domestic rules and move to more market-oriented trade and business systems - similar to the opportunity China had in 2001 while joining the WTO. In this regard, the TPP can help usher in the second phase of domestic reforms in China.

But the TPP has another dimension that might be a greater challenge for China. It comprises the US and several of its political allies and partners. The US played the leading role in the TPP negotiations with the Barack Obama administration making it a top priority. The trade agreement is consistent with the Obama administration's strategic emphasis on the US becoming a major actor in the Asia-Pacific region. Indeed, the US has made it clear that by pushing the TPP it wants to ensure that it is able to write the rules of trade in Asia-Pacific, which makes joining the TPP an uncomfortable proposition for China.

Apart from being a US-led agreement, the TPP also includes several members with whom China has difficult political relations and territorial disputes in the East China Sea and the South China Sea such as Japan, Vietnam, Brunei and Malaysia. This makes the TPP an even greater political challenge for China.

What then are the options for China? One possibility is quick conclusion of the Regional Comprehensive Economic Partnership negotiations that include China, Japan, the Republic of Korea, India, Australia and New Zealand and member states of the Association of Southeast Asian Nations. But the RCEP might not be as ambitious as the TPP. Many RCEP members, who are members of the TPP, might see more economic gains from the TPP, which could make the RCEP insignificant in the long term.

Perhaps a better option for China would be to press for convergence of the RCEP with the TPP and push for a Free Trade Area for the Asia-Pacific, which it has already proposed. But the FTAAP must be as ambitious as the TPP to make it a credible alternative. Otherwise, more regional economies will choose the US-led TPP leading to strategic complications for China.

The author is senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies in the National University of Singapore.