US v China in FTAs: TPP, Meet the PRC's 'RCEP'

So the FTA battle in rejoined: In the run-up to the ASEAN summit this weekend, here's a feature about (surprise!) another FTA arrangement that should soon be negotiated in the Asia-Pacific. It is no big secret that the United States and China do not see eye to eye about who should take the leadership role in Asia-Pacific economic integration and what form it should take. That both would prefer being the leader in regional integration is obvious, but they too would configure a regional FTA differently. The US would design something favourable to its interests highlighting provisions on--inter alia--intellectual property, competition law, government procurement, labour and the environment. Meanwhile, China would prefer to emphasize all the abovementioned less and concentrate on the more straightforward matter of increasing trade volume.

So, while the US Trade Representative keeps talking up the Trans-Pacific Partnership (TPP) enlargement negotiations in the hopes that more countries would join in, China has now reacted lest it be frozen out of a pan-regional preferential trading arrangement. From the South China Morning Post, meet the Regional Comprehensive Economic Partnership or RCEP:

China will later this month enter talks to create an Asian free-trade bloc covering 28 per cent of world GDP, a reaction to U.S. progress in forming a Trans-Pacific Partnership that excludes China, South Korean Trade Minister Taeho Bark said on Monday.

The RCEP, or Regional Comprehensive Economic Partnership, will be comprised of the 10-nation ASEAN club plus six others: China, India, Japan, South Korea, Australia and New Zealand. Its launch is to be formally announced at the ASEAN summit in Phnom Penh later this month, with a goal of reaching a deal to lower trade barriers across the region by the end of 2015.

Notably, American leadership leaves it in no doubt who the target of TPP is (AKA those PRC trade cheats in so many words):

“We’re organising trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards,” Obama said in a presidential debate with Governor Mitt Romney two weeks ago.

Backed into a corner, China believes it has no choice but to revive the ASEAN+6. For geopolitical reasons, China would include Australia, New Zealand and India even if its preferred configuration pre-American meddling would be ASEAN+3 (the +3 being China, Japan and South Korea):

Bark said RCEP had grown out of a plan to launch trilateral trade talks between China, Japan and South Korea. Some ASEAN countries, worried about the trilateral initiative, pushed for a wider deal. “China’s position on this economic integration in East Asia was pushed by TPP,” Bark said in a lecture organised by the Centre for Trade and Economic Integration in Geneva.

“In the past, China didn’t want to have ASEAN plus six, they only wanted plus three. Japan preferred ASEAN plus six. China preferred anything without the United States,” he said. “I don’t know how much they hope to get but they want to do it because of the TPP.”

What is the incentive to join China's proposed FTA instead of America's expanded one? Well, aside from being less comprehensive, China is likely to offer attractive carve-outs and exemptions in sensitive industries alike agriculture:

But many developing country members might want to water down RCEP by asking for special treatment. South Korea will demand an exemption to protect its rice farmers, while Japan is also likely to want carve-outs for agriculture. If the signatories’ squeamishness at opening their markets does not devalue RCEP, they might be forced to lower their sights in any case to meet the three-year schedule. If so, RCEP could end up having little influence on regional trade.

The trilateral talks are still expected to go ahead, although the planned launch, originally set for the Phnom Penh summit, is likely to be postponed to later in the year due to a territorial dispute between China and Japan, Bark said.

 Go figure. Based on the principle of lowest common denominator, I think RCEP stands a greater chance of coming true than TPP. That said, China's goal of getting RCEP done by 2015 is certainly ambitious even if it's a less comprehensive deal than TPP no matter what the Chinese call it. Besides, it at least makes more geographic sense than the whole-hearted TPP. In a way, TPP is a fitting advocacy for the US at the current time: a centre-less FTA championed by a discombobulated nation.

PS: After making two posts now featuring their articles, I almost forgot to mention that Hong Kong's premier English-language daily the South China Morning Post is now ungated. You can only preview a number of articles in theory, but still. So, by all means, visit it for fine news features like the one excerpted above.

UPDATE 1: A clear advantage of RCEP is that all ASEAN member countries are on board already (alongside China, obviously). From the Chair's Statement from the 2011 meeting when Indonesia was the host, p. 13:

45. Recognizing the benefits of sound and sustainable economic relations with  partner countries, we reinforced  our commitment  to  maintain the centrality and proactive role of ASEAN in relation to external parties. We  welcome the ASEAN Framework for Regional Comprehensive Economic Partnership that establishes an ASEAN-led process by setting out  principles under which ASEAN will broaden and deepen its engagement with FTA/CEP partners and subsequently with other external economic partners towards a regional comprehensive economic partnership agreement. This agreement includes  trade  in  goods, trade in services, and  investment as well as other areas related to trade, investment and economic cooperation. We envisage that this partnership agreement will provide a framework under which ASEAN and its external partners can address trade and investment issues that may emerge in the future.

UPDATE 2 (Nov. 21): Lest you think I overstate the competition to sign up Southeast Asian nations to trade deals, the US has now inked a "U.S.-ASEAN Expanded Economic Engagement (E3) Initiative" that aims to smooth the way for non-TPP participants in ASEAN to join the Trans-Pacific Partnership. Or, that's how it should work out in theory according to the White House:

Furthermore, by working together on these E3 initiatives, many of which correspond to specific issues addressed in trade agreements, the United States and ASEAN will lay the groundwork for ASEAN countries to prepare to join high-standard trade agreements, such as the Trans-Pacific Partnership (TPP) agreement that the United States is currently negotiating with ten countries in Asia and the Western Hemisphere.