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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
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. 
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
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)
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
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
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
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
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
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
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.
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
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.
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.
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
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
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)
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.
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
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
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
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
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
Q&A

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Chen dong tso ppt

  • 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
  • 22. 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
  • 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
  • 24. Q&A