Mega-Regional Trading Arrangements: TPP and TTIP- how China and other emerging

economy react to the new rules governing the trade and investment?

Jiang, Qing-YunShanghai University of International

Business and Economics& Co-Effort LLP, Shanghai

Mega-Regional Trading Arrangements: TPP and TTIP

How should China React?

Center for International Economic and Trade Governance

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Problems with Regionalism

• Trade diversion tendency to favour over trade creation

• Discrimination (Cordell Hull)• Inward focus –Market development – small and local– Cost to multilateral system

• Competing blocs – less flexible than countries

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Today’s Mega-Regionals

• RCEP – 10 ASEAN members plus China, Japan, Korea,

Australia, India and New Zealand (by 2016?)• TPP– Australia, Brunei, Chile, Canada, Japan, Malaysia,

Mexico, New Zealand, Peru, Singapore, the United States, Vietnam (P4 2005, TPP by 2015?)

• T-TIP– United States and European Union (by 2015?)

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TPP combines existing RTAs

April 2014

Source: Fergusson et al (2013)

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Comprehensive High Quality RTA

April 2014 Source: Fergusson et al (2013)

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Why TPP in 2008-2012?

• Doha failing, – TPP signals ‘pivot’ to Asia– TPP preferences may attract US business– Counter China’s influence in WTO via East Asians

• Europe failing to grow or influence– Asia is the dynamic bit of the world economy

• Force the Democrats to state their position on trade

• Cement in the ‘US template’

April 2014

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Benefits of a Single Agreement

• More trade – and more advantage over excluded

• US model harder to change ex post• ‘Eclipse models offered by ..China ..EU-Japan’

(Fergusson et al, 2013)

April 2014

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US vs. Asian Templates

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Key implications of the US template

• Small partners – small voices; little differentiation by income level

• Excluded countries no voice;• IP provisions –extended even beyond US-Korea• Dispute settlement – more legalistic• Investor-State arbitration• SOEs

• Secret negotiations

April 2014

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TTIP ambitious outcomes in …

• Market access; • Regulatory issues and non-tariff barriers; and • Rules, principles, and new modes of

cooperation to address shared global trade challenges and opportunities.

April 2014

Center for International Economic and Trade Governance

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TTIP Main Areas

market access for agricultural and industrial goods,

small- and medium-sized enterprises,

government procurement, sustainable developmentinvestment, services,intellectual property rights, dispute settlement, energy raw materials, competition, sanitary and phytosanitary measures,

customs/trade facilitation,

regulatory issues, state-owned enterprises.

April 2014

‘Living agreement’

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Why TTIP?

• EU– Stagnation – parallel of Single Market– Counter the ‘pivot’– Fear of trade exclusion

• US – Access to sensitive markets– Extend US template or at least prevent emergence of an

alternative– Even if not, reinforce ‘standards’ in WTS – justified by

interest in GVCs

April 2014

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What are these RTAs worth? TPP

• Without Japan and Korea 0.4% of world trade – USA 1.9%, Mexico 3.9%, Vietnam 19.8% of exports

• With Japan and Korea 1.6% of world trade – USA 4.4%, Mexico 6.2%, Vietnam 37.3% - exports– Japan 14.0%, Korea 12.4% - exports

• Big effects for big reformers• Non-members lose somewhatSource: Petri ,Plummer and Zhai (2012)

April 2014

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What are these RTAs worth? TPP

• Without Japan and Korea 0.1% of world GDP – USA 0.1%, Mexico 0.7%, Vietnam 7.7%

• With Japan and Korea 0.3% of world GDP – USA 0.4%, Mexico 1.0%, Vietnam 13.6%– Japan 2.2%, Korea 2.2%

Source: Petri ,Plummer and Zhai (2012)

April 2014

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What is TTIP worth (A) Trade?

April 2014

Source: Francois et al , (2013)

RoW converges onto US-EU standards, thus reducing trade costs everywhere; everyone gains something

% change in exports by 2027, high spill-overs

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What is TTIP worth (A) - GDP?

April 2014

Source: Francois et al , (2013)

RoW converges onto US-EU standards, thus reducing trade costs everywhere; everyone gains something

% change in GDP by 2027, high spill-overs

Center for International Economic and Trade Governance

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Effects on China - % of GDP

April 2014

RTA Liberalisation

TPP TPP and TTIP

TPP and TTIP, China accedes

Tariffs only -0.17 -0.60 1.01 Tariffs and some NTBs -0.40 -0.90 1.43 Tariffs and all NTBs -0.67 -2.26 2.10 Tariffs, NTBs, spill-overs -0.41 -1.51 2.44 Source: Aslan, Mavus and Oduncu, 2014

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How realistic are these plans?

• Less than 50:50 chance of TPP or TTIP occurring effectively

• Lack of US Trade Promotion Authority• Opposition probably growing – in USA and in

partners• But high commitment from some TPP

governments• EU/US political challenges massive

April 2014

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How to react at a world level?

• Mega-RTAs are discriminatory• Multilateralism has served the world well –

especially the smaller powers– More voice and rights– Strength in numbers

• Complete Doha and start on WTO 2.0– Keep agenda relatively simple– Create genuine alliances among challenger powers

• Try to make more use of Article 24 reviews

April 2014

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China

April 2014

•China is excluded •Enter TPP?

TPP created fails Expected Value Probability 25% 75%

China in 1 N/A 0.25 China out 0 2 1.50

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China

April 2014

•China is excluded •Enter TPP?

TPP created fails Expected Value Probability 25% 75%

China in 1 N/A 0.25 China out 0 2 1.50

TPP created fails Expected

Value Probability 75% 25% China in 1 N/A 0.75 China out 0 2 0.50

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China: Macro responses

• Emerging market group – Large growing market– Shallower integration; – Less demanding standards – based on China’s

• EU-China– Counter-force ?– Constrain Europe options under TTIP– But what do you have to offer?

April 2014

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China: Micro responses

• Press to be included in TPP?– Likely influence on outcome small– Press for information? Not successful so far

• Therefore - wait and see• Try to keep standards-deep processes flexible• Continue domestic reform process anyway• Press for WTO engagement• Establish US branches to use US law

April 2014

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Thank you

Questions and Comments?

April 2014