Can trade deals lift the global economy?

Two other important trade agreements for our region are the proposed Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP). The first is backed by the US, the second by China.

 

Free-trade bloc

The TPP would establish a free-trade bloc featuring the US and 11 other countries. It would include 800 million people and covers nearly 30 per cent of global trade. 

The RCEP would cover 16 countries (Asean plus six), three billion people and about 40 per cent of global trade. 

Four members of Asean (Vietnam, Singapore, Malaysia and Brunei) plus Japan, Australia and New Zealand are also parties to the TPP, while other countries such as Thailand, China and South Korea have said they may also join.

The TPP is more controversial due to tough requirements in areas such as intellectual property, state-owned enterprises and subsidies for agriculture. The RCEP is more pragmatic, with guiding principles similar to the AEC. 

The RCEP is making good progress and the 16 signatory countries expect to conclude it by the end of next year. 

However it is a different story with the TPP. Following the November G20 meeting in Canberra in November, ministers from participating countries used vague language to describe its progress such as “the shape is crystallising”, they would “consult widely to resolve outstanding issues” and “momentum is building”. 

Ironically the biggest stumbling blocks for the TPP are the US and Japan which, as the two biggest economies in the partnership, should have been pushing it along. 

Although Japanese Prime Minister Shinzo Abe has been safely re-elected, the TPP doesn’t seem to be top of his agenda. It was barely mentioned during the election campaign and there is strong political opposition to it from within his own Liberal Democratic Party. 

 

RCEP before TPP?

US President Barack Obama also has political difficulties, as he needs to receive fast-track trade-promotion authority from the US Congress to secure the TPP’s passage. Since he doesn’t control Congress this won’t be easy, and he faces opposition from among his own Democrats as well.

So it seems we will get the RCEP before the TPP. 

For China, this is good news, as it does not want to be shut out of the TPP but isn’t ready to join. 

Some suggest that the Free Trade Zone in Shanghai will be a testing ground for wider reforms that will prepare China for a more open and competitive environment which is required under the TPP.

Meanwhile the Free Trade Agreement Asia Pacific proposed by China at the recent APEC meeting in Beijing is proceeding. This is an all-embracing agreement that could include both the TPP and RCEP with a minimum of 21 APEC countries which produce more than half the world’s GDP. 

So can these new trade deals lift the global economy? Certainly, they would help.