Mega-Regional Trading Arrangements: TPP and TTIP - how China and other emerging economy react to the new rules governing the trade and investment? Jiang, Qing-Yun Shanghai University of International Business and Economics & Co-Effort LLP, Shanghai
Mega-Regional Trading Arrangements: TPP and TTIP How should China React?
Problems with Regionalism Trade diversion tendency to favour over trade creation Discrimination (Cordell Hull) Inward focus Market development small and local Cost to multilateral system Competing blocs less flexible than countries 3
Today s Mega-Regionals RCEP 10 ASEAN members plus China, Japan, Korea, Australia, India and New Zealand (by 2016?) TPP Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, Vietnam (P4 2005, TPP by 2015?) T-TIP United States and European Union (by 2015?) 4
TPP combines existing RTAs Source: Fergusson et al (2013) 5
Comprehensive High Quality RTA Source: Fergusson et al (2013) 6
Why TPP in 2008-2012? Doha failing, TPP signals pivot to Asia TPP preferences may attract US business Counter China s influence in WTO via East Asians Europe failing to grow or influence Asia is the dynamic bit of the world economy Force the Democrats to state their position on trade Cement in the US template 7
Benefits of a Single Agreement More trade and more advantage over excluded US model harder to change ex post Eclipse models offered by..china..eu- Japan (Fergusson et al, 2013) 8
US vs. Asian Templates 9
Key implications of the US template Small partners small voices; little differentiation by income level Excluded countries no voice; IP provisions extended even beyond US-Korea Dispute settlement more legalistic Investor-State arbitration SOEs Secret negotiations 10
TTIP ambitious outcomes in Market access; Regulatory issues and non-tariff barriers; and Rules, principles, and new modes of cooperation to address shared global trade challenges and opportunities. 11
TTIP Main Areas market access for agricultural and industrial goods, government procurement, investment, intellectual property rights, energy raw materials, sanitary and phytosanitary measures, regulatory issues, Living agreement small- and medium-sized enterprises, sustainable development services, dispute settlement, competition, customs/trade facilitation, state-owned enterprises. 12
Why TTIP? EU Stagnation parallel of Single Market Counter the pivot Fear of trade exclusion US Access to sensitive markets Extend US template or at least prevent emergence of an alternative Even if not, reinforce standards in WTS justified by interest in GVCs 13
What are these RTAs worth? TPP Without Japan and Korea 0.4% of world trade USA 1.9%, Mexico 3.9%, Vietnam 19.8% of exports With Japan and Korea 1.6% of world trade USA 4.4%, Mexico 6.2%, Vietnam 37.3% - exports Japan 14.0%, Korea 12.4% - exports Big effects for big reformers Non-members lose somewhat Source: Petri,Plummer and Zhai (2012) 14
What are these RTAs worth? TPP Without Japan and Korea 0.1% of world GDP USA 0.1%, Mexico 0.7%, Vietnam 7.7% With Japan and Korea 0.3% of world GDP USA 0.4%, Mexico 1.0%, Vietnam 13.6% Japan 2.2%, Korea 2.2% Source: Petri,Plummer and Zhai (2012) 15
What is TTIP worth (A) Trade? Source: Francois et al, (2013) % change in exports by 2027, high spill-overs RoW converges onto US-EU standards, thus reducing trade costs everywhere; everyone gains something 16
What is TTIP worth (A) - GDP? Source: Francois et al, (2013) % change in GDP by 2027, high spill-overs RoW converges onto US-EU standards, thus reducing trade costs everywhere; everyone gains something 17
Effects on China - % of GDP RTA TPP TPP and TTIP TPP and TTIP, China accedes Liberalisation Tariffs only -0.17-0.60 1.01 Tariffs and some NTBs -0.40-0.90 1.43 Tariffs and all NTBs -0.67-2.26 2.10 Tariffs, NTBs, spillovers Source: Aslan, Mavus and Oduncu, 2014-0.41-1.51 2.44 18
How realistic are these plans? Less than 50:50 chance of TPP or TTIP occurring effectively Lack of US Trade Promotion Authority Opposition probably growing in USA and in partners But high commitment from some TPP governments EU/US political challenges massive 19
How to react at a world level? Mega-RTAs are discriminatory Multilateralism has served the world well especially the smaller powers More voice and rights Strength in numbers Complete Doha and start on WTO 2.0 Keep agenda relatively simple Create genuine alliances among challenger powers Try to make more use of Article 24 reviews 20
China China is excluded Enter TPP? TPP created fails Expected Probability 25% 75% Value China in 1 N/A 0.25 China out 0 2 1.50 21
China China is excluded Enter TPP? TPP created fails Expected Probability 25% 75% Value China in 1 N/A 0.25 China out 0 2 1.50 TPP created fails Expected Probability 75% 25% Value China in 1 N/A 0.75 China out 0 2 0.50 22
China: Macro responses Emerging market group Large growing market Shallower integration; Less demanding standards based on China s EU-China Counter-force? Constrain Europe options under TTIP But what do you have to offer? 23
China: Micro responses Press to be included in TPP? Likely influence on outcome small Press for information? Not successful so far Therefore - wait and see Try to keep standards-deep processes flexible Continue domestic reform process anyway Press for WTO engagement Establish US branches to use US law 24
Thank you Questions and Comments? 25