'Pillars' and 'channels' for building the FTAAP

By Feng Weijiang
0 Comment(s)Print E-mail China.org.cn, November 10, 2014
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Numerous types of free trade agreements following different rules and standards have cropped up in the Asia-Pacific region in recent years. This demonstrates APEC member economies' great need for trade liberalization and facilitation, but it also showcases the fact that these members often have to resort to lesser multilateral or bilateral free trade agreements because of the huge expenses incurred in coordinating potential FTAs on a broader scale.

This has led to the fragmentation of economic and trade rules in the region. The application of different rules and standards has consumed members' negotiation resources and has created the "spaghetti bowl effect," in which copious and overlapping FTAs create a plethora of complications. This situation takes a toll on the expenses of businesses in this region, and few firms are actually able to make use of the FTAs as a result. Studies show that only 18.7 percent of Singaporean firms and 20.8 percent of South Korean firms took advantage of FTAs in 2008. About 28 percent of the 841 sampled businesses in China, Japan, South Korea, Singapore, Thailand, and the Philippines took advantage of FTAs, according to the Asian Development Bank Institute. This means that the current fragmented state of regional integration agreements has not attracted many businesses, nor has it significantly boosted regional trade.

Any individual economy that does not join a small-scale free trade agreement may be marginalized by economies that are party to such agreements. But on a broader scale, if every economy joins certain small-scale FTAs, trade investment efficiency is compromised rather than boosted. Thus, in theory, the Free Trade Agreement of the Asia-Pacific, or the FTAAP, will break the "prisoner's dilemma" created by the fragmented and complex FTA negotiations that plague the region. The FTAAP will also reduce the costs of intra-regional trade, improve the efficiency of resource allocation, and better protect trade interests.

But in practice, the FTAAP involves huge coordination and negotiation expenses and efforts. Generally speaking, the fewer the negotiating parties are and the more simple and traditional the agenda is, the easier it will be to reach an agreement. Increasing the number of negotiators and the complexity of the agenda will pose more challenges to the agreement. There are 21 APEC members involved in the FTAAP, more than are involved in any other FTA in the region (only half that number of negotiating parties are involved in the Trans-Pacific Partnership, or TPP). Moreover, the FTAAP places great emphasis on "next generation" standards and rules that are stricter than those of the WTO, including rules on sensitive issues such as agriculture, sources of origin and intellectual property. Thus, the FTAAP negotiations are remarkably difficult.

Additionally, the administrative resources that any single country can devote to a single FTA are limited, and therefore, the FTAAP will not be a priority for member economies. The United States is currently focused on the TPP and the Transatlantic Trade and Investment Partnership, aka TTIP, and it does not wish to see FTAAP negotiations initiated during the APEC meeting. Japan is presently involved in eleven FTAs/EPAs (Economic Partnership Agreements) including agreements with ASEAN, Inner Mongolia, Canada, Columbia, the European Union, the Gulf Cooperation Council, Turkey, South Korea, China-Japan-South Korea, the TPP, and the RCEP (Regional Comprehensive Economic Partnership). Though China has invested tremendous effort in promoting the FTAAP, it is also negotiating eleven FTAs and studying two other trade agreements, all of which have taken up considerable diplomatic resources. In short, major economies across the Pacific Rim are not focused on the FTAAP and cannot play a leading role in its development.

Despite this, the FTAAP is still the most ambitious and worthy vision of economic and trade cooperation in the region. Countries need to follow two principles to promote the FTAAP. First, other free trade negotiations in this region should regard the FTAAP as their common frame of reference, otherwise the "spaghetti bowl effect" will only be exacerbated by the existence of the FTAAP. Second, approaches to advancing the FTAAP should be compatible with the current incentives provided by the FTAs in this region, so that the FTAAP will not be rejected or neglected.

The FTAAP should therefore regard major FTAs in the region as "pillars" and consider refining existing FTAs between key countries in the region as "channels" through which all regional members can eventually be integrated into the agreement.

For example, the most important agreements in this region are the U.S.-led TPP, which includes stipulations for labor and environmental protection, intellectual property protection, and rules for state-owned enterprises, and the RCEP initiated by ASEAN and joined by China, Japan, South Korea, Australia, New Zealand and India. In the long term, the "deep integration" created by FTAs will create a trend toward higher standards. But the "comfortable" and step-by-step approach advocated by ASEAN is more in line with the rules of regional cooperation. Thus the TPP and RCEP can act as pillars in the construction of the FTAAP. Of course, further adjustment and negotiation is paramount. For instance, India, Cambodia, Laos and Myanmar are members in the RCEP, and Columbia, Costa Rica and Panama, which are all on the eastern shore of the Pacific Ocean, are not members of APEC, so their roles in the FTAAP still need to be figured out.

More importantly, the root of the FTAAP's incompleteness lies in the China's exclusion from the TPP and the U.S.'s exclusion from the RCEP. The two major countries therefore need to coordinate and negotiate with each other. The negotiation of the China-U.S investment treaty (and the bilateral FTA negotiations that are likely to take place between the two countries in the future) provides a direct channel for information exchange between the two sides. The China-Japan-South Korea free trade agreement is also an important channel since Japan, a major player in this region, is a member of both the TPP and the RCEP, and because South Korea has already reached a bilateral FTA with the U.S. Through these channels, the TPP and RCEP are expected to provide support for each other in terms of information, standards and policies, and the two existing agreements can in this way help establish a systematic foundation for the FTAAP.

The writer is the director of the Office of Research in International Politics and Economics at the Institute of World Economies and Politics, Chinese Academy of Social Sciences.

The article was written in Chinese and translated by Zhang Lulu.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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