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The Rupp Report

The Rupp Report: The Never-ending Story Of Free Trade Negotiations

Jürg Rupp, Executive Editor

In the past few editions, the Rupp Report took a closer look at China and its economy. The obvious reason was ITMA Asia + CITME 2014, which closed its doors at the end of last week. This time, the Rupp Report glances at some rumors and fights around additional agreements concerning the World Trade Organization (WTO) in the different regions of the global economy.
Weak WTO
In spite of the WTO agreements — and the weakness of the WTO — and the Doha round, a lot of regional free trade agreements (FTAs) were concluded in the last few years. Everybody’s trying to save a piece of the cake for his own benefit. An overview is not easy: there are countless numbers of treaties around the world. Among the most important ones concerning the relations between Asia and the Western world are the Regional Comprehensive Economic Partnership (RCEP), the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
Current TPP member states represent more than 40 percent of the world’s gross domestic product (GDP). Those states include the United States, Japan, Mexico, Canada, Australia, Malaysia, Chile, Singapore, Peru, Vietnam, New Zealand and Brunei. To date, 19 formal rounds of TPP negotiations have taken place, plus several further meetings of chief negotiators and ministers.
The EU describes TTIP as follows: “The Transatlantic Trade and Investment Partnership (TTIP) is the name of a trade agreement that is being negotiated between the European Union and the United States. The negotiations aim at removing trade barriers (tariffs, unnecessary regulations, restrictions on investment etc.) in a wide range of economic sectors so as to make it easier to buy and sell goods and services between the EU and the US. The EU and the US also want to make it easier for their companies to invest in each other’s economy.”
Together, TPP and TTIP will cover more than 60 percent of the global GDP.
RCEP would link the ten Association of Southeast Asian Nations (ASEAN) member states and the group’s FTA partners — Australia, China, India, Japan, New Zealand and South Korea — creating the world’s largest trading bloc and accounting for 28 percent of the global GDP. The total population of the 16 countries is more than three billion. These countries have a combined GDP of some US$17 trillion, and together they account for some 40 percent of world trade.
Forming new alliances
To continue their efforts, the RCEP trade delegations will meet this week for the fifth round of negotiations in Singapore. As the counterpart to TPP, this alliance is dominated by China. In the TPP and TTIP, however, the U.S. is the leader and has the say, and the regional economic heavyweights China and India are not members of these alliances. On the other side, the US sees TPP and TTIP as counterweights to RCEP. TPP should allow the U.S. to position itself in a favorable situation to participate in the rapid economic development in Asia on the one hand — and, on the other hand, to bridle China.
The TPP discussions were launched in 2010; the target was to reach a conclusion by the year 2013. However, such a tight schedule proved to be an illusion. The issue of the agreement was not only to reduce tariffs but also to tear down non-tariff barriers. At the last ministerial meeting in May in Singapore, the trade delegations struggled only to publish very general statements without any concrete results. The general release after the meeting said only that “in a series of positive meetings we cemented our shared views on what is needed to bring to close negotiations.” This is not very much indeed.
Already on a simple issue, the dismantling of tariffs, the TPP participants acted like blockheads, because individual sectors insisted on their privileges, depending on the state of global competitiveness. The U.S., for example, continues to strive for the protection of its apparel industry, being afraid of the low-cost competition from Asia. The U.S. shoe industry wants to maintain the high import duties on goods from Vietnam. Such protectionist desire, of course, is rejected by the Southeast Asian country, which is rather pushing for an opening of the U.S. apparel sector. To exclude some sections of the treaty would also be welcomed by other countries. It is a never-ending vicious circle from every point of view.
It Takes Ages
In RCEP too, no significant progress has been achieved so far. Since 2012, China has driven the negotiations with the aim to conclude an agreement by 2015. Apart from trade facilitations in the free movement of goods, the RCEP members are striving for trade liberalization for services as well as regulatory simplifications such as the mutual recognition of standards. The list of further obstacles is endless.
Originally, RCEP derived from the ASEAN confederation, which aimed for deeper political and economic cooperation. The associated free trade zone was founded in early 2003 and comprises mostly developing and emerging countries. The ASEAN community is a dynamic economic area is with a population of around 600 million people; this is a larger region, with a larger population, than the EU. The interest of non-ASEAN countries has grown to establish trade facilitations with this region. Japan, China, South Korea and India have already concluded bilateral free trade agreements with ASEAN. Australia and New Zealand also form a free trade zone with the ASEAN states.
The Gordian Knot
Observers of all the negotiations are more than skeptical. Experts are convinced that there will be no substantial inter-regional trade facilitations. One of the reasons is the domestic political constellation of the U.S.: Without a Trade Promotion Authority (TPA), the U.S. government can’t push trade issues; this mandate must be granted by the Congress. This is another game to play, which is utilized by other TPP members to run out the clock. This is just one side of the coin. On the other side, the main problem is that large countries such as Japan and the U.S. sooner or later will not come to an agreement. So far, countries like the U.S. or Japan were used to the fact that bilateral negotiations were always accepted by smaller countries with less trading power. This fact is no longer the case in the new TPP and TTIP constellations that encompasses many parties. In such a large association, similar to the WTO, it is not easy to reconcile diverse interests. In the future, the major task must be how to achieve results in a much shorter way. Some trade diplomats currently cherish big ambitions, but these are still visions and far away from reality. Will the Gordian knot of different interests ever been sliced through?
June 24, 2014