Benefits of balancing trade deals

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Benefits of balancing trade deals

“Birds fly freely because the skies are high and fishes swim without worries because the sea is vast,” Chinese President Xi Jinping said as he welcomed delegates from Washington to the sixth U.S.-China Strategic Dialogue in Beijing in July last year. He was quoting from the Chinese classic “Journey to the West” a series of tales about scholarly Buddhist monk Master Xuan Zang and his journey via the Silk Road to the Western Regions during the Ming Dynasty.

Xi’s quote of the ancient classic written to celebrate the rise of cosmopolitan China and its stretch to the Western hemisphere was obvious. He added that the Pacific realm was vast enough to accommodate the two superpowers, U.S. and China. He was rephrasing his signature foreign policy touting the new major-power relationship. He was suggesting the two countries keep to their side and seek strategic balance by respecting interests close to the heart of each country.

U.S. President Barack Obama responded to his Chinese counterpart’s suggestion coolly with the launch of the Trans-Pacific Partnership, a U.S.-led free trade pact that brings together 12 nations in the region excluding China. Washington obviously has no intention of sharing the interests in the region with China. It was pretty clear about it, too. Heralding the agreement President Obama said, “We can’t let countries like China write the rules of global economy.”

China was able to flourish under the umbrella of the Western style liberalization mechanism. Its ascent to the world’s second largest economy was possible from its joining of the World Trade Organization in 2001. Then U.S. President George W. Bush, in showing support for China’s membership to the WTO, urged “Trade freely with China and time is on our side”, arguing free trade with China would benefit the U.S. and global economy eventually through accelerated opening and liberalization. But contrary to Bush’s prediction, time actually was on the side of China. China has become colossal and rich, turning into the world’s biggest industrial and consumer market. Yet its state-led quintessential capitalism system remains intact. In fact Beijing has become confident enough to draw up its own set of global trade rules. Washington hopes to reverse the time in favor of its side through the TPP framework.

Beijing’s response should be crucial especially for us since we have chosen a bilateral trade with China over TPP. We must study China’s move. Beijing would have two choices. First, it could go on its way. Xi’s New Silk Road policy would pave the way. The “One Belt, One Road” project would expand China westbound without directly clashing with the U.S. and its eastbound foray. It visualizes integration of the Eurasian Continent by digging into natural resources-rich Central Asia, inciting infrastructure demand in Southeast Asia, and bringing expertise and technology from Europe.

The Asia Infrastructure Investment Bank China launched within the year would start investment from next year. China would be creating an economic bloc under its initiative. At the same time, it was leading talks for the Regional Comprehensive Economic Partnership, a proposed free trade agreement among the 10-member Association of Southeast Asian nations plus China, India, Japan, South Korea, Australia and New Zealand. The trade bloc would be as big as the TPP. There is now a push in China to accelerate the conclusion and launch of the framework. China was challenging the U.S. by expanding its influence westbound and eastbound.

Or Beijing could choose to play by the rules of Washington. China cannot entirely shun U.S.-led TPP. If Obama completes his free trade campaign by concluding the Transatlantic Trade and Investment Partnership with European nations, China could officially be isolated by Western economies.

Some liberal scholars in China are advising Beijing to join the TPP with the same perspective of having joined the WTO. But the TPP has been designed to be unfavorable for China. Under the current system, China cannot accept TPP requirements involving labor markets and state enterprises even if it agrees to the terms in intellectual property rights, environment, information, and the retail sector.

Some believe more radical liberalization could benefit China in the long run. Nicholas Lardy of the Peterson Institute for International Economics pointed to the Shanghai Free Trade Zone, saying China was already familiar with complete liberalization and should not fear the TPP.

Time will tell who would end up as the winner in the new trade contest between the U.S. and China. Our concern should be our interest and role between them. The AIIB membership gives us access to China’s ventures in the new Silk Road project. China’s market liberalization would also widen business opportunities. A bilateral FTA with China would give us an advantage. We must study the benefits from joining the TPP and at the same time endeavor to maximize returns from a free trade pact with China. We could actually benefit greatly through a balancing act. A legislative approval of Korea-China FTA would be the start.

JoongAng Ilbo, Oct. 12, Page 32

*The author is the director of China Institute of the JoongAng Ilbo.

by Han Woo-duk

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