BOFIT Viikkokatsaus / BOFIT Weekly 2017/23

With the United States' decision to withdraw from the proposed Trans-Pacific Partnership (TPP) free-trade agreement, the remaining potential TPP countries have been forced to reconsider their trade policy options. Without the US, TPP's coverage dwindled, reducing the incentive for TPP signatories to go it alone. As a result, the Regional Comprehensive Economic Partnership (RCEP) agreement has emerged as the leading alternative to TPP. China is not participating the TPP process, choosing instead to push for the RCEP at least until the withdrawal of the US from TPP. China's ambitions considering FTAs in the new situation remain to be seen.

The RCEP agreement, which is based on an ASEAN initiative, seeks to replace current bilateral FTAs between ASEAN's and six other Asian countries (China, India, Japan, South Korea, Australia and New Zealand). RCEP is less comprehensive than the TPP and therefore offers fewer benefits. A number of countries were pursuing negotiations over both agreements. The countries participating in RCEP talks are a fairly heterogeneous group, which together with TPP's shadow have made negotiations complicated.

China's participation in the talks is eased, however, by the fact that the RCEP does not seek complete lifting of tariffs or impose strict conditions related to worker rights and environmental protection. Easier market access is also attractive to Chinese sectors suffering from overcapacity problems. For other countries, the RCEP would open further up access to the Chinese market and possibly give them better opportunities to benefit from China's massive funding schemes such as "One Belt, One Road" (OBOR) projects. India and some other countries fear a flood of Chinese products onto their markets.

China has long promoted bilateral free-trade deals with its trading partners. China currently has 14 free-trade deals in effect, most with fairly small economies. Since 2012, China has also negotiated with Japan and South Korea on a trilateral free-trade arrangement.