US-led trade deal puts pressure on China and Thailand
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This month's signing of the Trans-Pacific Partnership (TPP) has put extra pressure on China to finish upgrading its own free-trade agreement with Asean, and the Regional Comprehensive Economic Partnership (RCEP).
It has also prompted calls for Thailand to consider joining the US-led TPP at a time when the country’s struggling economy could sorely do with a boost.
I believe both outcomes would be positive for Thailand.
The TPP involves the US, Japan and 10 other Pacific Rim countries, and aims to free up commerce in 40 per cent of the world’s economy by reducing or eliminating tariffs on almost 18,000 categories of goods.
The Obama administration hopes the pact will help the US boost its influence in East Asia while countering the rise of China.
The RCEP covers 16 countries – Asean plus six – and accounts for about the same proportion of global trade.
A year ago, it seemed highly unlikely that the TPP negotiations would be concluded before the RCEP, but that has not been the case.
Four Asean countries are already signatories to the TPP – Singapore, Vietnam, Malaysia and Brunei – while the Philippines and Indonesia have said they will be ready to join in a year or so.
Thailand should also consider joining, otherwise it is likely to lose out on foreign direct investment that will now flow to Malaysia and Vietnam, given their enhanced access to major markets under the FTA, while Singapore will attract even more investment aimed at the services sector.
The stakes are high – some commentators believe the impact of the TPP on Asean will be greater than that of the Asean Economic Community, due be introduced at the end of this year.
Certainly the signatories to the TPP have had to implement many regulatory and economic reforms to enable them to join, whereas changes within Asean in the lead-up to the AEC have been largely superficial, and the goal of meaningful regional integration remains distant.
Of the two rival trade agreements, 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 good news for Thailand is that the TPP still has to be ratified by the legislatures in all the countries that are signatories – and that could take the best part of two years.
While meeting the TPP’s requirements would take a major effort by Thailand, the alternative is staying on the sidelines while our Asean competitors benefit from membership – something which few of us would want.
Looking further ahead, Apec – the Asia-Pacific Economic Cooperation forum – is talking of setting up a Free Trade Area of the Asia-Pacific, which would effectively supersede the TPP and also include China.
When all countries in the region are part of the same free-trade pact, that should at least ensure no one is at a disadvantage.
