The Geostrategic Significance of the TPP Agreement for the Asia-Pacific

Politics Economy

On October 5, 2015, at a meeting in Atlanta, the trade ministers from 12 countries—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam—reached an “agreement in principle” on the proposed Trans-Pacific Partnership.

The TPP, in addition to providing for the elimination of tariffs as under a traditional free trade agreement, covers a range of non-tariff-related matters with a broad set of rules for trade and investment. It will create a single economic area whose member countries account for almost 40% of the world’s gross domestic product, facilitating the movement of goods, money, services, information, and people. This is a welcome development. The TPP also includes progressive content dealing with electronic transactions, competition policy, labor, and the environment, areas not covered under the World Trade Organization treaty. In this way, it will effectively determine the global standards for rules in these areas. And in the near future we can expect to see agreements reached on the proposed economic partnership treaty between Japan and the European Union and on the Transatlantic Trade and Investment Partnership between the United States and the EU. With these developments, we can look forward to the global spread of liberal, fair, and highly transparent rules governing international trade and investment—accompanied, needless to say, by economic benefits.

Over the past five years the TPP was the object of major contention within Japan. In 2010, at a summit meeting of the Asia-Pacific Economic Cooperation forum, Prime Minister Kan Naoto announced Japan’s intention of joining the TPP negotiations, but it was more than two years later that Prime Minister Abe Shinzō made the final decision to do so. And it took almost two years from then for the negotiations to be concluded. The strength of the domestic resistance to the TPP reflected the fact that it threatened many vested interests. Implementing this pact entails major structural reforms in the Japanese economy.

We have already seen considerable discussion of the economic significance of the TPP. Its role in building the trade system for the twenty-first century is widely understood. Observers have also noted the positive impact it is likely to have on the domestic economy. An article in the Nikkei (Nihon Keizai Shimbun) on October 26, 2015, offered the estimate of a ¥3.2 trillion boost for Japan’s GDP from tariff cuts alone. And Kawasaki Ken’ichi, a senior fellow at the National Graduate Institute for Policy Studies, suggests that the pact will increase GDP by ¥8 trillion–¥10 trillion, or about 1.6%, over the medium term.

The TPP will have an impact not just through the elimination of tariffs but also in various other ways, such as through the adoption of common rules for investment and the relaxation of regulations. In addition, competition with foreign companies and products should contribute to higher productivity within Japan by pushing more domestic firms to improve their management and by promoting systemic reform.

America’s “Rebalance” Toward Asia Meets with a Positive Response

What I would particularly like to discuss in this article is the geopolitical significance of the TPP. It is widely known that this pact is an important element of President Barack Obama’s “rebalance” (or “pivot”) in the United States policy toward the Asia-Pacific, as he set forth in a November 2011 address to the Australian Parliament.

In this address, President Obama stated that (1) the United States is a Pacific nation, (2) it will maintain its military presence in the Asia-Pacific region, and (3) it will strengthen its ties with allies like Japan, Australia, and South Korea and with partners like the Philippines, Indonesia, Singapore, and India, engaging in regional cooperation and building up its political links. Obama then declared that the United States would build on these strengthened political and security ties to create a free, fair, open, and transparent international trade system, with the TPP as the model.

In this sense, the TPP agreement represents a major step forward in America’s rebalance toward Asia. In addition, it reflects the positive response to this rebalance from America’s allies, such as Japan and Australia, and partners, such as Vietnam, Singapore, and Malaysia.

Tensions Accompany China’s Rise

What sort of significance does this have? International relations in the Asia-Pacific have been shifting substantially in recent years as a result of the US rebalance and of China’s rise, along with its highhanded behavior in the East China and South China Seas and its One Belt, One Road policy. And we can see structural tensions between the security system and the trade system of the region.

The regional security system is based on a hub-and-spokes arrangement of bilateral alliances centering on the United States, notably its alliances with Japan and Australia. Recently this framework has been turning into more of a network with the emergence of links between pairs of countries like Japan and Australia, Japan and India, and Australia and India, along with three-way US-Japan-Australia and US-Japan-India ties, as well as progress in security-related cooperation between Australia and the members of the Association of Southeast Asian Nations.

With respect to the regional trade system, the underlying base consists of a trilateral framework among China, Japan and other Asian countries, and the United States. This has been supplemented with free trade agreements between ASEAN and a number of individual countries. The TPP is a further addition, and this year or next is expected to bring an agreement on creation of a Regional Comprehensive Economic Partnership among ASEAN and its FTA partners.

Overall we see a pattern in which many Asia-Pacific countries benefit greatly from trade and economic cooperation with China but where security ties overwhelmingly involve links with the United States. While the United States and its allies seek to strengthen their security and political ties to maintain the regional balance of power, China is now pursuing its One Belt, One Road agenda, which involves an effort to promote friendly contacts with its neighbors, make them feel safe about its intentions, and conduct economic cooperation with them—without, however, sacrificing what it identifies as its own core interests. The US rebalance toward Asia and China’s One Belt, One Road are currently the two main elements shaping international relations in the region.

Japan and Australia are acting as close partners for the United States in every respect, including security, political ties and regional cooperation, and the TPP. If other TPP participants like Vietnam and Malaysia achieve steady growth, and if countries like the Philippines, Thailand, and Indonesia later join, the TPP will have major significance for the geopolitical future of not just the Asia-Pacific but the broader “Indo-Pacific” extending from the Pacific to the Indian Ocean.

Creating Rules for a Regional Order

The TPP will also have substantial significance with respect to the nature of the rules adopted in this region. China is pressing its neighbors to accept the claims it sets forth under its Territorial Sea Law in the East China and South China Seas. But neighboring countries with conflicting claims are resisting this pressure. In the wake of the 1997–98 East Asian economic crisis, many countries in the region came to view the involvement of the United States as a risk, and they worked at building an East Asian community as a framework for regional cooperation without US participation. But China’s behavior in the East China and South China Seas in recent years has made countries see that country as presenting more of a risk than the United States.

Against this background, in 2011 the East Asia Summit was enlarged from ASEAN+6 to ASEAN+8 with the addition of the United States and Russia. And as part of its rebalance toward Asia, the United States proposed the building of a fair, free, open, and highly transparent trade regime on a multilateral, “non-imperial” basis. The TPP agreement represents a major step forward in the building of multilateral rules for a regional cooperation framework not limited to East Asia but extending across the Pacific.

“Containing” China Is Not the Point

Lest this initiative be misunderstood, the object of Asia-Pacific cooperation is not to “contain” China. In the period from the 1997–98 East Asian economic crisis to the 2007–8 global financial crisis, China was a key partner in regional cooperation. What led China’s neighbors to perceive it as presenting a risk was its attempts to change the status quo by force, such as by pressing its territorial claims in the East China and South China Seas.

Most of China’s neighbors hope to benefit from its economic advance and its cooperation in the economic sphere. Many of them, particularly those that are not caught up in territorial disputes with China, are probably greatly attracted by its One Belt, One Road initiative. The Chinese would be wrong to believe, however, that they can bend these many neighbors to their will through economic cooperation alone.

(Original Japanese article was published on January 1, 2016. Banner photo: The leaders of the 12 countries participating in the TPP gather in Manila on November 18, 2015, for their first meeting following the successful conclusion of negotiations on the pact. © AP/Aflo.)

Japan United States security China TPP Asia-Pacific Trans-Pacific Partnership trade