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Commentary: TPP should expand throughout Asia Pacific region

  • 2015-11-27 15:00:00
  • , Sankei
  • Translation
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(Sankei: November 26, 2015 – p. 7)

 

 By Tatsuhiko Yoshizaki, chief economist at Sojitz Research Institute

 

 The leaders of the G-20 nations, the Asia Pacific Economic Cooperation members, and the East Asia Summit had a busy November holding talks with each other as groups or individuals. Out of these talks, the biggest accomplishment for Japan’s foreign policy was produced at the APEC summit.

 

 The centerpiece of the talks among the APEC leaders was how to chart a path toward the creation of a Free Trade Area of the Asia-Pacific (FTAAP). Japan and the U.S. are looking to establish rules with high standards of transparency based on the Trans-Pacific Partnership free trade pact, on which an agreement has just been reached. In contrast, China is trying to take the initiative by proposing a Regional Comprehensive Economic Partnership (RCEP) free trade mechanism. It could have had in mind winning support from Southeast Asian countries by using the Asian Infrastructure Investment Bank as a means.

 

 But many APEC members favored the creation of the TPP-based FTAAP. South Korea, the Philippines, Indonesia, Thailand and several other countries expressed their willingness to join the TPP.

 

 The TPP must be ratified before it goes into effect. But it is largely expected that a global supply chain will be built among the TPP members in the future due to the advantages it offers in terms of tariffs. Companies look ahead several years to decide on their capital spending plans. Not participating in the trade pact now means that the chances of not being included in this new global supply chain will grow.

 

 China and Russia remain wary about the TPP, as the trade pact calls for eliminating preferential treatment of state-owned enterprises and protecting intellectual property rights. It is aimed at creating a free trade bloc; thus it is not designed to suit authoritarian regimes.

 

 China is welcome to join the TPP, but it would have to overhaul state-owned enterprises, which currently monopolize energy, finance and other key industries. This could undermine the foundation of the Communist Party of China.

 

 If China opts to reject the the TPP, it could be left out of economic integration movements in Asia. This must be a difficult choice for China.

 

 The TPP took off as a small free trade framework among Singapore, New Zealand, and two other countries. The populations of the four countries added up to 26.6 million and their combined gross domestic product was less than 500 billion dollars. But the pact expanded to include 12 countries, covering a population of 770 million and GDP worth 24 trillion dollars. This success can be largely attributed to the loose requirements for entry into the trade agreement.

 

 The TPP is “open to an APEC economy or other state,” according to conditions it set forth for entry in 2005. What is interesting is that it uses the word “APEC economy.” The APEC substitutes “country” for “economy” in all of its official documents. This is the reason why Taiwan and Hong Kong, which are not recognized as “states,” can be members of this economic group.

 

 It is widely expected that Taiwan will announce its participation in the TPP. Its economy is mainly underpinned by high-tech industries, suggesting its trade barriers are relatively low. By volume, it is Japan’s fourth largest trade partner. It is a member of the World Trade Organization and has signed free trade agreements with Singapore and New Zealand.

 

 In January, Taiwan will hold a general election. The government of Ma Ying-Jeou is interested in joining the TPP, but once Democratic Progressive Party leader Tsai Ing-wen seizes power, the momentum will grow.

 

 The ultimate goal of the TPP is to share rules based on such values as freedom, democracy, and market economy throughout Asia. It makes sense for Taiwan to become a member. While efforts to ratify the TPP should be accelerated, its membership should be expanded further. (Abridged)

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