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Is the TPP's effect on East Asia more political than economic?

Datum:15 december 2015
Auteur:Matthew Hughes
Matthew Hughes
Matthew Hughes

Read Matthew Hughes' blog on TPP. Matthew is one of the international students in the MA East Asian Studies whose blog was selected for CEASG's blogsite.

The Trans-Pacific Partnership (TPP) trade agreement, drafted on 5 October 2015, promises to usher in an era of closer economic and political ties between Pacific Rim nations. The Office of the United States Trade Representative calls it a “balanced agreement that will promote economic growth…raise living standards…and promote transparency.”[1] The effects of the TPP on East Asia are far-reaching, not just for the economic gains to member states in the region, but also the conspicuous absences of China and South Korea from the agreement. Though both nations may experience economic setbacks (albeit minor ones) in the short-run, the political ramifications of not being included in the TPP are far greater. For South Korea, it has “ceded influence to other countries in determining the standards that will govern trade in Asia into the future”.[2] If it therefore decides to join the TPP it must do so as a rule-follower, rather than a rule-maker. Meanwhile, for China the TPP signals a deliberate move to curb its emerging economic and political dominance in the region.

For Japan, the only East Asian nation to be a member of the agreement, economic gains far outweigh political gains. A relaxation of trade barriers will allow Japanese firms greater access to foreign markets. This is particularly advantageous to their highly-competitive automotive and technology industries. Furthermore, a lowering of tariffs on agricultural produce will dramatically lower the cost of essential goods for Japanese consumers. This move is controversial within the highly influential (and heavily protected) Japanese agricultural industry where there are fears that increased competition from more efficient agricultural nations, such as the United States and New Zealand, will put farmers out of business. Though this is certainly true to an extent, clauses excluding goods of Japanese national importance (such as rice and beef) from tariff reductions ensure that TPP membership remains politically expedient for the Abe Government.

                In 2008, South Korea, after careful consideration of the economic repercussions of TPP membership decided not to enter into negotiations. Korea already had free-trade agreements with eleven of the twelve member nations. Analysis by the Korea Institute for International Economic Policy found that TPP membership would only increase Korea’s GDP growth per annum from 1.7% to 1.8% over the first 10 years.[3] Korea’s perception of the TPP as merely an economic agreement, with no political or intangible benefits, has proved costly. It has lost the strategic benefits associated with being a founding member of the agreement, such as the ability to draft legislation and create the future “rules” of trade in the Asia-Pacific. Moreover, in the eyes of the West and Japan it reinforces the belief that the Korean government is gradually moving towards China. Even after Japan wrong-footed the Korean Government by entering TPP negotiations in May 2013, the economic consequences of Korea not joining remain negligible. A survey published by the Korea Trade Investment Promotion Agency suggests that the effects of increased Japanese competition would be insignificant as there is little crossover between goods of production. [4] Where goods of production may have potentially created competition, the goods tended to already be exempt from tariffs. Recent statements by President Park Geun-hye that the Korea would be a “natural partner” to TPP nations and would seek membership in the future, despite such minimal economic gains, exemplifies the political importance of the trade agreement to South Korea.

                In China, the government has taken offence to what has been widely perceived as an “anyone but China” deal.[5] Economically, increased trade between TPP nations could reduce GDP growth in the short-run by an estimated 0.5% as China readjusts to the new geopolitical situation. The Government has therefore begun to lay out countermeasures in an attempt to offset its exclusion from the trade agreement. These include developing further bilateral trade agreements and free trade areas. Furthermore, the “One Belt, One Road” policy (a 21st century readaptation of the Silk Road) is being developed to create stronger economic connections within Eurasia. Politically, many see the TPP as a means to neutralize Chinese influence in the region. On 5 October 2015, Barack Obama confirmed many of these suspicions, stating “When 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules”.[6] The formation of a bloc which excludes China from “writing the rules” of trade in the region is a clear political push to limit Chinese influence.

Though an economic agreement on paper, the political ramifications of membership or more accurately, in the case of South Korea and China, the absence of membership are just as important. For Japan the incentives are largely economic, with the TPP opening up new markets of trade. In the case of South Korea, its refusal to join the TPP in its early stages has greater political implications with the nation losing the strategic benefits of being a “rule-maker”. For China, the TPP signals an attempt by the West (and Japan) to limit both its political and economic influence in the Pacific. With these considerations in mind it would be erroneous to consider the Trans-Pacific Partnership in purely economic terms.

[1] “Summary of the Trans-Pacific Partnership Agreement”, Office of the United States Trade Representative. 4 October 2015 <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/summary-trans-pacific-partnership>.

[2] Jessica J. Lee, “The Truth about South Korea’s TPP shift”, The Diplomat. 23 October 2015 <http://thediplomat.com/2015/10/the-truth-about-south-koreas-tpp-shift/>.

[3] ibid.

[4] Simon Mundy and Song-Jung-a, “South Korea frets as TPP erodes trade advantage over Japan”, Financial Times. 7 October 2015 <http://www.ft.com/intl/cms/s/0/1fb1f330-6c03-11e5-8608-a0853fb4e1fe.html#axzz3npP7Ie82>.

[5] Tom Mitchell, “China lays out ‘countermeasures to offset exclusion from TPP”, Financial Times. 19 October 2015 <http://www.ft.com/intl/cms/s/0/8e81ab8c-763c-11e5-a95a-27d368e1ddf7.html#axzz3sIb3Kq26>.

[6] “Statement by the President on the Trans-Pacific Partnership”, The White House: Office of the Press Secretary. 5 October 2015 <https://www.whitehouse.gov/the-press-office/2015/10/05/statement-president-trans-pacific-partnership>.