The Asia-Pacific region has some of the highest-growth markets and largest populations in the world, yet many of its economies remain under-developed. Two new approaches to accelerate its growth are in negotiations, one led by the United States, one by China:
No matter which proposal comes out on top, new trade and investment rules and regulations are on the way that will affect anyone doing business in or with the Asia region, which could affect the health of the global economy.
Both the AIIB and TPP would involve setting up new regulatory systems across the world’s most heavily populated and fastest-growing region, potentially affecting everything from product standards to employee benefits, environmental legislation to taxes, government procurement to e-commerce. Little wonder they are attracting a lot of attention from governments and businesses alike.
Aside from the U.S., 13 countries are currently in negotiations or have expressed interest in joining TPP, accounting for some 40 percent of global GDP, a third of world trade, and around 792 million people: Australia, Brunei, Canada, Chile, Japan, New Zealand, Malaysia, Mexico, Peru, Singapore, South Korea, Taiwan, and Vietnam. Meanwhile, 57 countries have been named as Prospective Founding Members of the AIIB, including most Asian nations, much of the European Union, Brazil, South Africa, and seven potential members of the TPP. A signing ceremony held in June 2015 saw 50 countries agree to fund the initial US$50 billion of authorized capital.
Reaching a crunch point
Nothing this complicated runs smoothly. Negotiations for TPP started in 2005, but have been stalled in the U.S. Congress, where it faces strong opposition from groups that want to toughen restrictions on currency manipulation that they say could offset the advantages brought by the trade deal’s projected US$295 billion in annual savings. Other critics of TPP have attacked the lack of transparency of its negotiations as well as provisions around Intellectual Property that they claim could restrict growth and innovation in developing countries and drive up prices. It could be months – possibly years – before TPP is able to progress.
While TPP negotiations are stalled, the AIIB is moving fast. Announced by China in 2013, it is currently on track to launch by the end of 2015 – although China’s ongoing territorial disputes with neighbors in the South China Sea and elsewhere could lead to diplomatic issues between key founding members.
So far the U.S. and Japan have refused to support the AIIB, claiming concern over how the new institution will be run – though most analysts say it is really due to fears that the bank may increase China’s economic and political influence in the region. However, the confirmed involvement of numerous western countries – including several close allies of the U.S. – from early 2015 should help ensure high operational standards and transparency for the new bank, so it is possible that the U.S. and Japan may yet join.
At the same time, other deals are bubbling away in the background. The Asia Regional Integration Center lists 24 regional free trade agreements in the Asia-Pacific region, along with dozens of bilateral agreements.
Of these, the ten-state Association of Southeast Asian Nations (ASEAN) is on track to increase integration to create a European Union-style single market, the ASEAN Economic Community, by the end of 2015.
Based on ASEAN and the six states with which ASEAN has existing free trade agreements (China, India, Japan, South Korea, Australia and New Zealand), the Regional Comprehensive Economic Partnership (RCEP) is an alternative Asia-Pacific free trade agreement, in negotiations since November 2012. There should be fewer potential roadblocks to success for this more limited – yet still significant – trade deal, so it may move faster than TPP.
Finally, the Asia-Pacific Economic Cooperation forum (APEC) is due to report on a proposal for a Free Trade Area of the Asia-Pacific (FTAAP) by the end of 2016. Both China and the U.S. are members, so this could provide an opportunity for a Pacific trade partnership involving both the world’s largest two economies.
Whatever approach comes out on top, one thing is clear – the economies of the Asia-Pacific region are growing fast, and are increasingly looking to regulatory cooperation and harmonization to boost their long-term success.
“If we don’t write the rules for trade around the world, guess what? China will. And they’ll write those rules in a way that gives Chinese workers and Chinese businesses the upper hand.” – U.S. President Obama
“[The TPP is] an attempt by the U.S. …to impose its brand of economic model of total free market, laissez-faire approach, deregulation and small government… that promotes primarily the U.S. economic, business and geopolitical interests.” – Malaysian opposition leader Anwar Ibrahim
“The struggle to complete trade agreements seems to have become yet another area of strategic competition between America and China as they tussle for regional influence… this is unwarranted” – The Economist
“Asia-Pacific nations are clinching trade deals among themselves that threaten to leave the United States on the outside looking in. The number of trade accords between Asian countries surged from three in 2000 to more than 50 today. Some 80 more are in the pipeline.” – U.S. Chamber of Commerce
“US opposition to AIIB is harder to fathom, given that infrastructure policy is much less subject to the influence of ideology and special interests than other policymaking areas, such as those dominated by the U.S. at the World Bank. Moreover, the need for environmental and social safeguards in infrastructure investment is more likely to be addressed effectively within a multilateral framework.” – Joseph Stiglitz, Professor, Columbia Business School