TPP: Co-operation or Containment

 

As a viable free-trade zone in Asia-Pacific, president Obama has announced Trans-Pacific Partnership (TPP), to promote trade and investment between the U.S. and eight Pacific economies. Presented before the Asia Pacific Economic Cooperation (APEC) summit in Hawaii last November, TPP has generated a lot of interest among countries in the region.

No sooner than TPP was unveiled that some strong advocates of free trade have expressed skepticism about this initiative. Jagdish Bhagwati, a professor of Economics at Columbia University believes that TPP will undermine the World Trade Organization’s Doha round of global free trade talks. These negotiations started in 2001 have stalemated due to obstruction mainly from the developed economies.

Economists opine that free trade agreements are discriminatory. Countries do not treat all trading partners at par with those that are members of the free trade agreement. The concessions in trade provided under such arrangements are exclusive. Therefore, some economists typically call regional trade initiatives as the Preferential Trade Agreements (PTA).

FTAs or PTAs whatever we call them could be either bilateral or plurilateral. Bilateral agreement is between two countries but plurilateral agreement covers more than two countries but fewer than all.

In his essay “America’s Free Trade Abdication” Professor Jagdish Bhagwati has criticised the American government’s role in advancing global free trade talks launched in Doha almost a decade earlier. Known as Doha Round, these talks have languished for several years. According to Jagdish Bhagwati, both the U.S. administration and the Congress have been enthusiastic about concluding bilateral free trade agreements at the expense of multilateral trade negotiations.

It is ironical that as a global leader of the 21st century, America is busy negotiating trade concessions under the framework of FTAs, particularly with South Korea and Colombia while paying scant attention to Doha Round of trade talks. This is even at odds with U.S.’s commitment to the Millennium Development Goals (MDGs). These goals covering eight important segments of development were adopted by the UN General Assembly during its 55th session with consensus. Targets of development are time bound meaning that all UN members have committed to fulfill them by 2015.

MDG 8 is about instruments, such as trade and aid. This goal commits the UN members to “develop further an open, rule-based, predictable, and non-discriminatory trading and financial system”. Judged against this, regional trade agreements are not the solutions.

Furthermore, an analysis of the background leading to the emergence of Trans-Pacific Partnership demonstrates that it is not confined to economic sector alone. Evidently, TPP cannot just be regarded as an outcome resultant from the collapse of Doha Development Round of multilateral trade negotiations. The Obama administration has presented TPP as an initiative of free trade in Pacific region that stretches from the Indian Ocean in the east to the Pacific Ocean to the west.

The sponsors of TPP with the U.S. as the leader are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam with a combined population of 200 million. More importantly, these eight Pacific economies constitute U.S.’s fourth largest export market behind only China, the European Union, and Japan. Encouragingly, both Japan and Canada have shown their desire to join TPP, which will boost its economic competitiveness.

Notwithstanding this reality, inclusion of non-trade subjects dubbed as social and environmental issues in U.S.-led TPP has reasonably caused alarms particularly in China. In addition to traditional issues like industrial goods etc. the new regional trade zone also provides for protection of intellectual property and emerging issues like digital technologies. The social and environmental issues have become the bone of contention between the developing and the developed economies. In WTO negotiations the developing economies have been consistently resisting the provision for intellectual property protection, among others.

What is more troubling for the non-sponsors of TPP in Asia-pacific region is the strategic context elaborated by U.S. Secretary of State Hillary Clinton on the eve of APEC meeting in Hawaii. She said “The U.S. will continue to make the case that…(the region) must pursue not just more growth, but better growth”.

Sanjaya Baru of International Institute of Strategic Studies (IISS) in “The Economics of Strategic Containment” has observed that crisis-weary Europe and America face a rising tide of protectionism at home, and are trying to find ways to blunt the edge of China’s non-transparent trade competitiveness. In defense of his contention he quotes president Obama who has drawn attention to persistent U.S. concern about China’s exchange-rate policy, inadequate protection of intellectual property, and impediments to market access.

President Obama further explains “For an economy like the U.S.—where our biggest competitive advantage is our knowledge, our innovation, our patents, our copyrights—for us not to get the kind of protection we need in a large marketplace like China is not acceptable”.

The above remarks are self-explanatory. It is obvious that TPP, under the cloak of another free trade area accommodating major Pacific economies, has been designed to form an exclusive group of nations that are seemingly worried about China’s “beggar thy neighbor trade and exchange-rate policies”.

Given such apprehension associated with this newly unveiled Pacific regional trade agreement, the growing anxiety of the developing economies including the least developed countries has been reinforced that the developed world is least interested in finalizing the languishing multilateral trade talks under the WTO.

TPP has to be viewed against the background of the collapse of the Doha Development Round of global trade negotiations. But strategic economist like Sanjaya Baru does not fully subscribe to this conclusion. He argues that the nine sponsors of TPP have resolved “to establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new traditional trade issues and twenty-first century challenges”.

In view of objectives of the launching of TPP, it is difficult to disagree with the observation that nations in Asia-Pacific region seek an alternative to excessive and growing dependence on a rising China though peacefully.

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