1. U.S.-PRC Trade Webs:
TPP vs. China-Japan-Korea FTA
― Implications for Taiwan
Chen-Dong Tso
Visiting Fellow, East Asia Program
Stimson Center
July 27, 2012
2. 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.
3. Chronicle of 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
4. US Strategic Thinking on 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)
5. TPP’s effect on China:
rule-making competition
∗ 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
6. TPP’s effect on China:
sectoral competition
Comparison of major exports to U.S. (Source: ITC, Year: 2011)
China Malaysia Mexico Vietnam
Electrical, electronic equipment Electrical, electronic equipment Electrical, electronic equipment Articles of apparel, accessories, knit
or crochet
Machinery, nuclear reactors, boilers, Machinery, nuclear reactors, boilers, Vehicles other than railway, Articles of apparel, accessories, not
etc etc tramway knit or crochet
Toys, games, sports requisites Animal, vegetable fats and oils, Mineral fuels, oils, distillation Footwear, gaiters and the like, parts
cleavage products, etc products, etc thereof
Furniture, lighting, signs, Optical, photo, technical, medical, etc Machinery, nuclear reactors, boilers, Furniture, lighting, signs,
prefabricated buildings apparatus etc prefabricated buildings
Footwear, gaiters and the like, parts Rubber and articles thereof Optical, photo, technical, medical, etc Electrical, electronic equipment
thereof apparatus
Articles of apparel, accessories, knit Commodities not elsewhere specified Pearls, precious stones, metals, coins, Fish, crustaceans, molluscs, aquatic
or crochet etc invertebrates nes
Articles of apparel, accessories, not Furniture, lighting, signs, Furniture, lighting, signs, Coffee, tea, mate and spices
knit or crochet prefabricated buildings prefabricated buildings
Plastics and articles thereof Miscellaneous chemical products Edible vegetables and certain roots and Machinery, nuclear reactors, boilers,
tubers etc
Articles of iron or steel Articles of apparel, accessories, knit Plastics and articles thereof Mineral fuels, oils, distillation
or crochet products, etc
Vehicles other than railway, Cocoa and cocoa preparations Articles of iron or steel Edible fruit, nuts, peel of citrus fruit,
tramway melons
7. TPP’s effect on China: sectoral competition
China’s Export to Vietnam and Mexico (Source: ITC, Year: 2011)
Vietnam Mexico
Electrical, electronic equipment Electrical, electronic equipment
Machinery, 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 thereof
Articles of apparel, accessories, knit or crochet Vehicles other than railway, tramway
Iron and steel Organic chemicals
Knitted or crocheted fabric Furniture, lighting, signs, prefabricated
buildings
Edible vegetables and certain roots and tubers Rubber and articles thereof
Plastics and articles thereof Plastics and articles thereof
Articles of iron or steel Toys, games, sports requisites
8. China’s Evaluation on TPP
∗ 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
9. China’s Response to 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
10. Chronicle of CJK FTA
∗ 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
11. China’s Priorities and Sensitivities
∗ 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.
12. Japan’s Priorities
∗ 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
13. Japan’s Sensitivities
∗ 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.
14. Korea’s Priorities
∗ 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.
15. Korea’s Sensitivities
∗ 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
16. China’s Motives and Concerns
∗ 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
17. Korea and Japan:
Motives and Concerns
Korea
∗Sino-Korea FTA:
∗Economic returns by taking advantage of China’s eagerness
∗Improving Korea’s position in CJK FTA
∗Strategic returns: leverage over DPRK
∗Concerns:
∗Popular sentiment against Japan (CJK)
Japan:
∗Recent interest after the prospect for joining TPP turning opaque (Apr. 2012)
18. Negotiation bottleneck
∗ 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.
19. 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
20. Barrier 1: Misperception about Taiwan
∗ 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
21. Barrier 2: Domestic Constraint
∗ 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
23. Complementarity of Interests
across the Strait
∗ 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