Sunday, November 23, 2014

Win-win regional trade pact choices for Korea

First published in The Korea Herald.

After dillydallying for several years, China has thrown the cat among the pigeons by aggressively pushing for the Free Trade Area of the Asia-Pacific at the recently concluded APEC summit in Beijing.

Threatened by China’s urgency, the United States, which has been driving its own Trans-Pacific Partnership minus China, was seen making backroom maneuvers to dilute any reference to the FTAAP in the Leaders’ Declaration. It did manage to take out the deadline of 2025 that was in the draft and what was finally released had no real specifics, except that a collective feasibility study will be concluded by 2016. 

The final declaration noted: “we decide to accelerate our efforts on realizing the FTAAP on the basis of the conclusion of the ongoing pathways, and affirm our commitment to the eventual realization of the FTAAP as early as possible by building on ongoing regional undertakings, which will contribute significantly to regional economic integration, sustained growth and common prosperity in the Asia-Pacific region.”

The idea of creating the FTAAP has been discussed for many years at the annual APEC gatherings, but it is only recently that China has stepped up diplomatic efforts. It would not be wrong to say that it wants to assert its economic clout and neutralize the U.S.’ efforts to forge the TPP in its own backyard.

“Having reached an important consensus on starting the FTAAP process ... What we should do now is translate the consensus into action,” Chinese President Xi Jinping said in his speech at the opening session of the summit on Nov. 11.

Just a day earlier, U.S. President Barack Obama expressed his desire to make the TPP a reality. “We’re going to keep on working to get it done,” he said, describing it as “the model for trade in the 21st century.”

While the two countries battle it out for influence, another regional trade agreement is slowly making progress ― the Regional Comprehensive Economic Partnership.

The three RTAs ― the FTAAP, TTP and RCEP ― are all focused on the Asia-Pacific region. 

APEC ― comprised of 21 member states including China and the U.S. ― first formally began discussing the concept of the FTAAP at the 2006 Hanoi summit, although proposals for such an agreement have been around for a long time. In 2010, APEC leaders issued its “Pathways to FTAAP,” and instructed members to take concrete steps toward the realization of the RTA.

Over the past several years, members have discussed a broad range of issues relevant to the prospects for the deal, conducted analytical work, addressed a number of next-generation trade and investment issues, and undertaken sectoral initiatives. However, China was not really keen to push ahead with the deal.

Sensing this, in November 2011 the U.S and eight other countries (Brunei, Chile, New Zealand, Singapore, the U.S., Australia, Peru and Vietnam) formally announced the TPP, which is intended to “enhance trade and investment among the partner countries, to promote innovation, economic growth and development, and to support the creation and retention of jobs.”

Malaysia officially joined in October 2010, Canada and Mexico in October 2012, and Japan in July 2013.

So far 20 formal rounds of TPP negotiations have been held. However, the members have been unable to reach a consensus on a number of contentious issues like intellectual property and the liberalization of agricultural markets. Adding to this, the U.S. could not make forward progress because of political difficulties at home regarding the passage of a Trade Promotion Authority by Congress. Perhaps this is why China is suddenly showing interest in the FTAAP.

As for the RCEP, it is a proposed trade deal between 10 ASEAN member states: Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Australia, China, India, Japan, Korea and New Zealand.

It was announced at the 19th ASEAN Summit in November 2011, and negotiations began a year later, aimed at concluding talks by end-2015. The sixth round of negotiations are due to take place in New Delhi in the first week of December. It remains to be seen whether the negotiations will be successful and the targeted deadline reached, which at present seems unlikely. 

So, where does that leave Korea in the grand scheme of things?

It is already a part of the FTAAP and RCEP, and has also expressed its interest in joining the TPP. While the two largest economies fight it out for dominance, Korea can gain by participating in all three RTAs. Even if one of them falls by the wayside, it has nothing to lose. Being an export-driven economy, it has already been actively pursuing FTAs with its biggest trading partners, and has made quite a few notable achievements.

It makes sense for Korea to ask to join the TPP as soon as possible, instead of sitting on the fence because of its bilateral issues with Japan. The country can pursue the TPP side by side with other RTAs since they are mostly complementary and will only reinforce each other.

Come to think of it, all three RTAs are quite different in scope. Experts have noted that the TPP deal is likely to be much more substantial in terms of depth of prospective trade liberalization and rule-making obligations compared to the other two. It includes stipulations for labor and environmental protection, intellectual property protection and rules for state-owned enterprises.

Compared to the TPP, the standards and degree of liberalization sought in the RCEP are low. The founding document states: “individual and diverse circumstances” of its members, and provisions on labor rights, intellectual property, SOEs and other behind-the-border issues will either be left out or only lightly addressed.”

However, the RCEP could produce significant economic results. The members represent 49 percent of the world’s population and account for 30 percent of world GDP. It also makes up 29 percent of world trade and 26 percent of world FDI inflows. 

Also, according to a recent study, the FTAAP would result in income gains of about $2 trillion, or nearly 2 percent of the world’s GDP in 2025. The biggest winners would be China, the U.S., Japan, Russia and Korea.

Whichever of these deals is wrapped up first will be the foundation for the next deal and finally the total economic integration of the Asia-Pacific region. Either way it is a win-win situation for Korea.