The decisive moment of the Trans-Pacific Partnership (TPP) might finally arrive this year. After Japanese Prime Minister Shinzo Abe’s historic visit to Washington, the latest US-Japan joint statement indicated that the two nations — the largest economies in the TPP — are working to finalize the trade deal.
Although leaders from both sides were reluctant to reveal any concessions in negotiations, political will from Washington and Tokyo to close this trade pact has never been so strong since the launch of intensive TPP talks in 2009.
Domestic politics and a fast-changing geopolitical environment have contributed to the latest push to wrapping up the TPP.
From the US side, the primary reason for US President Barack Obama to double his efforts in promoting the TPP is largely due to his limited time left in office. The conclusion of this trade pact would be one of his most important political legacies, not only fulfilling his “rebalance to Asia” policy, but also reinforcing the economic relevance of the US in Asia. It would help revitalize US strategic interests in the region and meet the challenges of China’s rise.
On the other hand, a successful outcome of the trade deal in Asia could also deflect many criticisms of Obama’s diplomatic failures, such as the protracted Ukraine crisis, escalating civil war in Syria and the growing threat of the Islamic State.
Compared with those simmering geopolitical perils, Asia seems a more promising place for Obama to improve his mediocre performance in foreign affairs.
A recent interview with Obama by the Wall Street Journal on the TPP explicitly revealed why he regards the completion of this trade deal as crucial for the US. Obama said that the TPP is a key instrument to achieve his primary task of reviving the fortunes of the US’ middle class. Nevertheless, legislators from his Democratic Party thought differently, accusing the trade agreement of eliminating US jobs, favoring the interests of big corporations and hurting US labor, among other charges. Facing mounting criticism, Obama not only rejected the assaults as ungrounded, but emphasized that he takes this deal personally.
Obama said the TPP would allow the US to engage with Asia’s fast-growing economies. He also said that the TPP is designed to level the playing field, so US-made products received better access to the Asian market. More importantly, he said that if the US did not set the rules, China would soon write its own rules for the region and ultimately become the dominant economic power in Asia.
In terms of creating jobs, Obama also emphasized — saying that the TPP would boost US exports and that export jobs usually pay better — that the trade agreement would increase income for the middle class.
Finally, since the TPP would significantly raise the bar on many trade regulations, such as labor standards, environmental protection, intellectual property rights and state-owned enterprises, the implementation of the the proposal would become an important template for reducing unfair competition in developing economies and improve the competitiveness of US industries.
With an upcoming presidential election, Obama knows that his last chance to finalize the TPP will hinge on whether the US Congress can pass the Trade Promotion Authority (TPA), the so-called first-track legislation, this month. Despite a TPA bill passed last month by the US Senate, TPA review and approval from the US House of Representatives remains a critical challenge.
Whether the US can persuade Japan and other potential TPP members to seal the deal will largely rest on whether the Obama administration obtains the TPA. That is why Obama has boosted his efforts in advocating the TPP.
The TPP is also crucial to Abe. As so-called Abenomics gradually loses its appeal, reflecting Japan’s slow economic growth and sluggish export performance, Abe’s visit to Washington and his speech in the US Congress might help rally declining Japanese support for deepening economic reforms.
Strategically speaking, the reinvigoration of US-Japan security ties and progress on the TPP not only imply the robustness of the two nations’ security alliance, but also boost Japan’s confidence in confronting increasing challenges from China’s military buildup and assertiveness in the East and South China seas.
Externally, intense economic competition between a US-Japan coalition and China also contributes to Tokyo’s eagerness to finalize the trade deal. The unexpected success of China’s Asian Infrastructure Investment Bank, which has attracted suitors from more than 50 nations, has positioned the US and Japan as irritated outsiders and the only two G7 countries that have refused, as yet, to join the proposed bank.
If the TPP fails, the US and Japan are likely to lose more economic clout in the region. That is why Obama has repeatedly underlined the importance of seizing the rule-making initiative via the passage of the TPP — to prevent China’s trade rules from prevailing in the Asia-Pacific region.
In addition to the TPP, the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP) are scheduled to be completed this year. The US and Japan are absent or marginalized in these regional integration arrangements, while China maintains an overwhelming influence and has deeper economic relations with these frameworks.
Therefore, without the TPP’s engagement with Asian countries, the economic influence of Washington and Tokyo in East Asia could be further eroded. Eventually, Beijing would become the dominant power in the region.
At this critical juncture for the TPP, Taiwan has no freedom to be a bystander. Taiwan’s strategic breakthrough from its current isolation in regional economic integration lies in joining the second round of TPP expansion after its completion this year. Taiwan needs to develop a more active approach by lobbying the US and Japan to support its TPP membership. If Taiwan can join the second round of TPP talks, Taipei could obtain a better strategic position, while amplifying its economic relevance in regional integration.
Specifically, Taiwan’s TPP involvement would substantially enlarge Taiwan’s leverage in its external economic territory. Membership would boost Taiwan’s bargaining power with China and pave the way for its engagement with the AEC and the RCEP. Furthermore, Taiwan’s membership in the TPP would push its government to expand domestic regulatory and economic reform.
It would be likely to stimulate Taiwan’s industrial upgrade and transformation by revamping profit models, since maintaining Taiwan’s cost-down model as a core of its economic competitiveness would be unsustainable in the TPP framework.
Membership would also help fortify Taiwan’s strategic and security ties with the US and Japan.
Taiwan must serve as a linchpin in the US and Japan’s strategic and economic alliance in East Asia. Against the backdrop of China’s rise, Taiwan’s ongoing engagements with Beijing require a solid backup. TPP membership would provide Taiwan with a key to unlock its economic quandary, while advancing its strategic importance in regional economic competition.
Thus, early planning for Taiwan’s participation in the TPP is essential. When an opportunity knocks, Taiwan should seize it, but first the nation must gear up at full speed.
Eric Chiou is an assistant professor at National Chiao Tung University and an adjunct associate research fellow at the Taiwan Institute of Economic Research.
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