INSIDE GLOBAL ISSUES
Working Paper No. 201416, June 31 , 2014
China and Global Mega Trade Deals
Chunding Li, Jing Wang, John Whalley
Abstract
The term “mega deal” has been widely used in relation to large prospective trade deals between the US and Europe (the Transatlantic Trade and Investment Partnership ; TTIP) and in Asia and the Pacific (Trans-Pacific Partnership; TPP). Here we both argue that the phenomenon of mega deal is much broader than just these two (admittedly large) prospective deals, and we discuss the implication for China of the potential changes in the global trade regime spreading mega deals could imply. We include both deals from which China for now is excluded (the two above) and the mega deals that China could become involved with over the next decade. We emphasize that negotiation on these deals may be slow and may not conclude, but if the pressures for these deals to conclude accelerates as may often occur then the global trading system will be significantly changed.
Keywords: Mega Trade Deal; China; TPP; TTI
1. Introduction
The term “mega deal” has been widely used in relation to large prospective trade deals between the US and Europe (the Transatlantic Trade and Investment Partnership ; TTIP) and in Asia and the Pacific (Trans-Pacific Partnership; TPP) (see Felbermayr et al (2013), Plummer (2013), Stoler (2013), and Van den Hengel (2013)). Here we both argue that the phenomenon of mega deal is much broader than just these two (admittedly large) prospective deals, and we discuss the implication for China of the potential changes in the global trade regime spreading mega deals could imply. We include both deals from which China for now is excluded (the two above) and the mega deals that China could become involved with over the next decade. We emphasize that negotiation on these deals may be slow and may not conclude, but if the pressures for these deals to conclude accelerates as may often occur then the global trading system will be significantly changed.
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2. Mega Deals and the Global Economy
The description of a trade deal as “mega” refers to regional trade agreements (RTAs) between large countries or groups of countries. Thus far in the global economy there are relatively few of these (EU, China-ASEAN, Japan-ASEAN). The commitment to multilateral WTO negotiation, now weakened by experience in the Doha Round, has so far largely precluded large-large bilateral or regional negotiations. Combined with a focus of restoring growth in the OECD, this picture is changed by the TPP negotiations, the EU-US TTIP, China’s emerging mega trade deals (including RCEP), and deals under discussion of others including Japan and ASEAN.
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3. The Actual and Potential Content of China’s Mega Deals
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4. China and the Impacts of Mega Deals on Economic Performance
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5. Concluding Remarks
Because of the importance of trade and export growth to China’s continued 7.5% GDP growth, our view is that China more so than any other larger country or entity will see itself as driven into her own mega trade deals by the need to compete in the system. Bilateral or regional trade agreements are inherently exclusionary. Countries who are left out of mega deals will almost inevitably suffer from the trade creation between the regional partners, and the prospect of a world in which future trade momentum multilaterally in the WTO is effectively replaced by a series of bilateral or plurilateral mega deals is one in which most large countries will be driven to negotiate such deals in part by the actions of other countries.
As such, a critical factor in determining how far and how fast China may move down the mega deal path is the speed and coverage of an EU-US TTIP, and the prospect of a successful conclusion to a TPP negotiation in which China does not take part. The latter prospect itself may anyway draw China into the TPP negotiation, which in turn may force China into some degree of negotiation on non-tariff issues such as state owned enterprises. The dynamic in the global economy as it absorbs other mega deals is thus key. Overall, for China it suggests ever deeper engagement and involvement in trade based mega deals almost as an inevitability.
As we point out in the paper, mega deals are effectively on 2 different levels. One includes two way deals between the large economies worldwide (the US, EU, China, ASEAN), and the other between each of these four and a number of significant middle level partners (Japan, Korea, Brazil, India, Mexico, Canada, Australia). The former set of deals between the largest 4 seems most likely to set the stage for the future evolution of the global trading system. China can influence the future development of the trading system by its stance towards these and other mega deals and mega deals in turn will, if concluded, seemingly likely shape the future development of the Chinese economy over the next decades.