U.S.-PRC Trade Webs: TPP vs. China-Japan-Korea FTA

― Implications for TaiwanChen-Dong Tso

Visiting Fellow, East Asia ProgramStimson CenterJuly 27, 2012

Main Thesis

1. TPP has visible impact on China, especially at the sectoral level.

2. China pursues CJK for its own reasons. The recent speedup of CJK has more to do with increasing interest of Japan and Korea.

3. China and Taiwan see complementary interest in joining TPP. 

2003 -- Singapore, New Zealand, and Chile initiated TPP 2005 -- Brunei joined Sep. 2008 -- Bush administration notified Congress of

negotiation intention Dec. 2008 -- Australia, Peru, and Vietnam joined Mar. 2009 -- Obama administration called off meeting

with interested parties Jul. 2009 – Secretary of State Clinton: US is back Nov. 2009 – Obama: US would engage TPP, aiming at

broad-based membership and high standard Dec, 2009 – Obama administration notified Congress of

intention to join the negotiation Oct. 2010 -- Malaysia joined June 2012 – Mexico and Canada joined

Chronicle of TPP

Regional institution-building - Multilateral trade negotiation

Effect of export promotion- Direct effect – hybrid approach to seek market

expansion of new partners- Indirect effect - competition between TPP

members and non-TPP members Alliance broadening

- Bringing new partners through TPP (Vietnam, Malaysia)

US Strategic Thinking on TPP

Rule-making competition Competition between US-led deep-integration TPP

and China’s shallow-integration approach (ASEAN+) is inevitable but good (competitive liberalization)

China will be on the negotiation table eventually Question: whether in the latter stage of TPP or in

the multilateral negotiation Benchmark: SOE clause as deterring China’s entry

or SOE clause as stimulus China’s reform

TPP’s effect on China:rule-making competition

TPP’s effect on China: sectoral competition

Comparison of major exports to U.S. (Source: ITC, Year: 2011)

China Malaysia Mexico VietnamElectrical, electronic equipment Electrical, electronic equipment Electrical, electronic equipment Articles of apparel, accessories, knit

or crochet

Machinery, nuclear reactors, boilers, etc

Machinery, nuclear reactors, boilers, etc

Vehicles other than railway, tramway

Articles of apparel, accessories, not knit or crochet

Toys, games, sports requisites Animal, vegetable fats and oils, cleavage products, etc

Mineral fuels, oils, distillation products, etc

Footwear, gaiters and the like, parts thereof

Furniture, lighting, signs, prefabricated buildings

Optical, photo, technical, medical, etc apparatus

Machinery, nuclear reactors, boilers, etc

Furniture, lighting, signs, prefabricated buildings

Footwear, gaiters and the like, parts thereof

Rubber and articles thereof Optical, photo, technical, medical, etc apparatus

Electrical, electronic equipment

Articles of apparel, accessories, knit or crochet

Commodities not elsewhere specified Pearls, precious stones, metals, coins, etc

Fish, crustaceans, molluscs, aquatic invertebrates nes

Articles of apparel, accessories, not knit or crochet

Furniture, lighting, signs, prefabricated buildings

Furniture, lighting, signs, prefabricated buildings

Coffee, tea, mate and spices

Plastics and articles thereof Miscellaneous chemical products Edible vegetables and certain roots and tubers

Machinery, nuclear reactors, boilers, etc

Articles of iron or steel Articles of apparel, accessories, knit or crochet

Plastics and articles thereof Mineral fuels, oils, distillation products, etc

Vehicles other than railway, tramway

Cocoa and cocoa preparations Articles of iron or steel Edible fruit, nuts, peel of citrus fruit, melons

TPP’s effect on China: sectoral competition

China’s Export to Vietnam and Mexico (Source: ITC, Year: 2011)

Vietnam MexicoElectrical, electronic equipment Electrical, electronic equipmentMachinery, nuclear reactors, boilers, etc

Machinery, nuclear reactors, boilers, etc

Mineral fuels, oils, distillation products, etc

Optical, photo, technical, medical, etc apparatus

Cotton Aluminium and articles thereofArticles of apparel, accessories, knit or crochet

Vehicles other than railway, tramway

Iron and steel Organic chemicalsKnitted or crocheted fabric Furniture, lighting, signs,

prefabricated buildingsEdible vegetables and certain roots and tubers

Rubber and articles thereof

Plastics and articles thereof Plastics and articles thereofArticles of iron or steel Toys, games, sports requisites

No consensus on TPP Skeptics:

- TPP is difficult to succeed- TPP escalates competition in rule-making - TPP interferes in regional production chain

Cautious supporters: - TPP offers more market-opening - TPP is the way to go- Vietnam as the test case

China’s Evaluation on TPP

Bilateral approach Strengthening China-ASEAN Continuing FTA negotiation with Australia Signing China-Canada Foreign Investment

Protection Agreement (FIPA) Speeding up China-Japan-Korea(CJK) FTA Starting negotiation on China-Korea FTA

China’s Response to TPP

2001 – Trilateral joint research on economic cooperation launched (KIEP, NIRA, DRC)

2003 - Joint declaration on CJK cooperation 2003 – Trilateral joint research (unofficial) on CJK FTA launched 2004 – Joint research (unofficial) on China-Korea FTA 2006 – Joint study (official) on China-Korea FTA 2007 - Prioritizing trilateral investment agreement 2009 – Joint research project concluded (scheduled to finish in 2008)

(Japan’s partner became JETRO) 2010 - Joint feasibility study on China-Korea FTA is finished 2010 – Joint study committee (official) launched 2011 – Joint feasibility study finished (scheduled to finish in 2012) 2012 - China-Korea FTA negotiation launched 2012 – Trilateral investment agreement signed

Chronicle of CJK FTA

Priorities: Agriculture professional services, environmental services, space-

transportation and medical services; qualified service providers under the mode 4

Sensitivities: automobile, machinery and petrochemical (Korea) vehicles, trailers and semi-trailers (Japan) medical, precision and optical instruments and chemistry Electronics, iron and steel; and ship-building financial services, telecommunications services, computer-

related services, construction services, broadcasting and publishing services, and audio-visual entertainment services.

China’s Priorities and Sensitivities

automobiles and related parts; industrial machinery and related parts; steel; chemical products; televisions and related parts; audio-visual equipment and related parts; MCO (multi-component IC); electrical machinery and related parts; home electrical appliances and related parts; batteries and related parts; and paper and paperboard.

financial services, ICT and its related services (including telecommunications and computer-related services), audio-visual, entertainment services (movie, music, game, animation, drama and content services), distribution services, construction services, architectural services, engineering services, maritime transport services and private education industry

Japan’s Priorities

Food products and beverages, apparel and fur and textiles (with China)

Broadcasting services, public education services including those provided by private institutions, healthcare and medical services, space launching services and services incidental to energy.

Japan’s Sensitivities

professional services including legal services, financial services, telecommunications services, audio-visual and entertainment services (movie, music, game, animation, drama and content services), distribution services and construction services.

Korea’s Priorities

Agriculture and Fishery textiles, consumer goods, and electrical and electronics

equipments (China); machineries, electrical and electronics equipments and non-ferrous metals (Japan)

Other possible sensitive items: food products and beverages, apparel and fur, textiles, and leather and footwear (with China) motor vehicles, trailers and semi-trailers and other transport equipment industries (with Japan)

healthcare and medical services, social services, environmental services, energy services, broadcasting and publishing services, and education services

Korea’s Sensitivities

Motives: High economic potential for Trade diversification Internationalizing renminbi High expectations from Chinese business New thinking in development strategy (link to

advanced economies) Stimulating China-Japan or CJK FTA (China-Korea FTA)

Concerns: Increasing trade deficit Lock-in effect on China’s position in global production

chain

China’s Motives and Concerns

KoreaSino-Korea FTA:Economic returns by taking advantage of China’s eagernessImproving Korea’s position in CJK FTAStrategic returns: leverage over DPRKConcerns:Popular sentiment against Japan (CJK)

Japan: Recent interest after the prospect for joining TPP turning opaque (Apr. 2012)

Korea and Japan: Motives and Concerns

Japan and Korea demand CJK to be higher standard CJK Investment Agreement is signed with two

standing issues unresolved (pre-entry national treatment and negative listing)

Rising Interest from Korea and Japan All three are seeking economic returns despite some

strategic reasons to have the deal done.

Negotiation bottleneck

Comparing tracks and players

Welfare Gain of Alternative Integration Track as a percentage of GDP (2025)

  TPP Asian Track Two-tracks FTAAP

China -0.09% 0.50% 0.42% 1.89%

Japan 0.58% 0.80% 1.26% 1.38%

Korea 0.73% 1.63% 2.09% 2.34%

Taiwan -0.20% -0.95% -1.05% 3.77%

Source: Peri, Plummer, and Zhai, 2011, East-West Center

Taiwan wants agreement but not free trade solely for the purpose of creating the image of statehood

FTA with U.S. or other major trading partners are much less important for Taiwan than cross-Strait economic relation

Taiwan can reap the fruit of FTA by lowering its trade barrier unilaterally without FTA

Barrier 1: Misperception about Taiwan

Lack of momentum (10 years after WTO entry)

Industrial structure (small and medium sized enterprises take the lion’s share) as impediment to trade liberalization in manufacture

Regulatory structure as impediment to liberalization of service industry

Barrier 2: Domestic Constraint

Taiwan’s share in major market

(Source: B. J. Liu, 2011, Taiwan WTO Center)

Market USA Europe ASEAN 5 China

Exporter

2002 2010 Change

2002

2010 Change

2002 2010 Change

2002 2010 change

Taiwan 2.77 1.88 -32.13 2.50 1.61 -35.60 5.07 4.62 -9.00 12.9 8.3 -35.66

Singapore

1.28 0.91 28.91 1.53 1.24 -18.95 8.22 7.59 -7.68 2.39 1.76 -26.36

Korea 3.06 2.56 -16.34 2.61 2.58 -1.15 4.97 5.47 10.12 9.68 9.9 2.27

ASEAN 5

6.39 4.74 -25.82 6.62 5.04 -23.87 21.53

23.52

9.27 12.90

10.41

-19.30

China 10.78

19.09

77.09 9.64 18.87

95.75 7.30 12.32

68.82

As a member of APEC, China will benefit by joining TPP

TPP offer strong momentum to sustain economic reform

Taking a better position in rule-making competition

Complementarity of Interests across the Strait

Q & A