Trans-Pacific Partnership: Should the Key Losers – China and Europe – Join Forces?

Yves here. This post assumes that the Trans-Pacific Partnership gets past Congress; let’s not take that as a given. My DC sources think the odds of it getting done are only a bit above 50/50, and even if Hillary is (as expected) making only a show of opposition, that makes it safer for others to stand against the deal. The more the deal looks to be contested, the better the odds of derailing it.

By Alicia Garcia Herrero a non-resident research fellow at Real Instituto El Cano. She is also Chief Economist for Asia Pacific at NATIXIS, adjunct professor at City University of Hong Kong and Hong Kong University of Science and Technology (HKUST) and visiting faculty at China-Europe International Business School (CEIBS). Originally published at Bruegel

After five years of struggle, a massive trade pact has been signed among the US, Japan and 10 other economies (mostly in Asia but also Latin America): the Trans-Pacific Partnership (TPP).

The winners are obvious: Obama and Shinzo Abe, arguably also the US and Japanese economies. Obama can leave office with a strong demonstration of the US pivot to Asia, and Abe can finally argue that the third arrow of his Abenomics program is not empty.

The losers are also obvious: China and Europe. China not only has been left out of the deal, but it has been left out on purpose. If anybody had any doubt (at some point China was invited into the negotiations and some still expect China to continue discussing membership in the future), Obama’s official statement on TPP yesterday makes it very clear: “when more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy”. For China the issue is not only losing access to the US market but also the fact that its most important trading partners are in the deal, with the notable exception of Europe. Europe, which has spent years negotiating with the US on another major trade pact, the Transatlantic Trade and Investment Partnership (TTIP), may need to be more accommodating to reach a deal before Obama leaves, as the President’s interest has probably waned somewhat after this victory. On the other hand, many of the negotiation benchmarks reached by the US government for TPP will probably not be acceptable for Europe.

The fact that TPP has not yet being ratified by national parliaments still offers room for doubt as to TPP’s actual economic significance (exemptions from its coverage could spring out in every jurisdiction) but there is no doubt that it will be economically relevant. TPP covers 40 per cent of global trade and spans 800 million people. Not only will trade barriers be reduced to the minimum in virtually every sector (including generally protected ones such as agriculture) but also common standards will need to be used by all participants, be it for investment, environment or labour. In this regard, the primacy of the protection of brand names over the protection of geographical indications of agricultural products, or the priority of the protection of trade secrets over press freedom are cornerstones of the US success in its negotiations with TPP partners, which also shows the price that a country like Japan are willing to pay for US-led security. In the same vein, the high price to pay (in terms of US supremacy on the negotiation table) makes it all the more unlikely for China to seriously consider joining the bloc in the near future: the treatment of state-owned enterprises and data protection are two stumbling blocks. The latter is also a key deterrent for Europe’s TTIP negotiations.

The question, thus, is what should China and Europe do against the background of a huge economic block like TPP. Having lost hope of a multilateral process under the axis of the WTO, both areas have been piling up bilateral free trade agreements (FTA) with countries of interest, some of which are also part of TPP. As an example, China has recently closed a deal with Australia while Europe has done the same with Singapore and Vietnam. Aware of the fact that such bilateral FTAs will remain quite futile compared to TPP (both in terms of size and coverage), China is gearing towards a regional strategy, participating in talks on a Regional Comprehensive Economic Partnership (RCEP), which would link it to 10 Southeast Asian Nations, including Japan. It remains unclear whether these countries will have an interest to pursue such deal once TPP is up and running. Against this gloomy backdrop, China and Europe may finally look at each other and find some commonalities that they were unaware of before. The process will not be easy, but at least there is a starting point; Europe and China are negotiating a Bilateral Investment Agreement, following in the footsteps of the US. Now that the US and China seem to have lost the momentum for their own Bilateral Investment Agreement (a notable absence during Xi Jinping’s trip to the US), Europe could – for once – become a frontrunner in the negotiations with China and have the US follow if it so wishes.

Print Friendly, PDF & Email


  1. Ulysses

    “The winners are obvious: Obama and Shinzo Abe, arguably also the US and Japanese economies.”

    This is “arguably” correct– if one accepts as a premise for argument that the US and Japanese “economies” are equivalent to the best interests of billionaires in the US and Japan. For those of us who aren’t inclined to accept this premise, which is an article of faith in neoliberal ideology, the whole post seems bizarre. Are Europeans, who aren’t super-wealthy, supposed to feel bad about being left out of this agreement? An agreement that goes further, in dismantling the remnants of social democracy, than even the ECB banksters or the Eurocrats in Brussels have dared to dream possible?

      1. Vatch

        Key losers of TPP are likely to be its member states.

        I was thinking the same thing; you beat me to it! Of course, the richest 0.01% of the member states will win big — it’s just the rest of us who will lose.

      2. shinola

        Another thanks for the Ian Welsh piece. I particularly liked this bit as a reminder:
        “One standard argument made for free trade is that it produces cheaper consumer goods, and that makes people in a country better off, even if jobs are being off-shored. This is only marginally true. Most of the reduced cost of foreign goods is taken as profits, not passed on to consumers.”

    1. washunate

      Right on. That has got to be one of the most awkward uses of arguably ever.

      PhD in Economics at George Washington University…Member of the Asian Research Program at the Bank of International Settlements…Member of the Counsel to the Executive Board of the European Central Bank…Economist at the International Monetary Fund…

      Ah, that explains it.

  2. Jesper

    “The losers are also obvious: China and Europe.”

    Why are Economists always so hostile and fearful of actions taken by others (nations)? Paranoia? The ‘competitiveness’ again?

    Maybe the deal will benefit the ones taking part, most likely the ones who’ll gain are the multinational companies and the losers are the citizens of the signatory countries or maybe that is just my paranoia ;-)

    & this quote:
    “when more than 95 percent of our potential customers live outside our borders” :-)
    hilarious. Take away the citizens who’re too poor and then the number of potential customers might be different…. A person with a want/need but without money isn’t a potential customer it is just an interested onlooker.

    1. washunate

      Paranoia sounds like a good general explanation.

      I loved the author’s usage of obvious, by the way. Such callous disregard for actual circumstances the author almost has to know it’s not obvious. It’s like she is secretly crying out to be able to discuss the real world, but she doesn’t know how to leave the world of mismanagement that makes her career possible.

      1. JerseyJeffersonian

        Yes, rather like Mr. Berke, the Oil Price fellow. Won’t take the final step of naming the demons, because this would make them “conspiracy theorists” in the eyes of the people and institutions in the circles in which they find employment. Nobody who is Anybody wants to listen to Cassandra, even though they would be far better off if they were to do so. So, better to be just transgressive enough to be considered cutting edge, but don’t take things too far, or put down too much weight on that tentative foot outside of the Washington/New York/City of London/Frankfurt consensus box.

        “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

        ― Upton Sinclair, I, Candidate for Governor: And How I Got Licked

    2. jrs

      The losers are obvious: the non rich, democracy, the habitability of the planet, all other species, the young (and maybe the old too), the future …

  3. Chauncey Gardiner

    It is necessary to review and have adequate time to consider the terms of this PROPOSED international agreement, which to date has been kept secret from the American people, before forming any meaningful conclusions about the political, economic, social or environmental desirability of its passage into law.

    Corporate and bank-appointed Dispute Settlement arbitration panels whose rulings are to be granted primacy over current and future U.S. law and courts and to be legally binding upon us, are alone a sufficient basis for us and our legislators to oppose this proposed international agreement.

    Rather than being deliberately and intentionally kept secret, this complete document (and any quietly attached side agreements) deserve very careful reading, contemplation and public discussion. I am particularly concerned not only about potential issues relating to U.S. sovereignty, including monetary sovereignty, but how it could affect the economic interests of those in particular U.S. industries such as agriculture, consumers access to pharmaceuticals, our internet access and related costs, and environmental initiatives to address global warming.

    But this was a nice effort at a pretense of American public support and political momentum to pass this agreement into law, and spinning that it is a done deal.

    1. Ulysses

      “This was a nice effort at a pretense of American public support and political momentum to pass this agreement into law, and spinning that it is a done deal.”


  4. timbers

    Should the losers China and Europe join forces? Yes. But Europe is a vassal of the U.S. If it can’t break with U.S. over Russian sanctions so cleary against European interests it’s hard to see the do anything over TPP.

  5. Synoia

    Alicia Garcia Herrero a non-resident research fellow at Real Instituto El Cano

    Is the article what she believes, or what she was paid to believe?

  6. A Sceptic

    I have been perplexed as to why Obama put so much effort into supporting the TPA/TPP deal.
    IMHO, the core of the TPP deal is the ISDS. As I see it, US corporations are seeking to get away from the contract manufacturing model with China that they have used for the past decade. In place of contract manufacturing with China the US corporations want to own, and completely control, the manufacturing process in order to preserve their intellectual property and profit potential. The ISDS provision provides US corporations with confidence that an investment in a manufacturing plant in southeast Asia will be secure and be free from seizure, regulation, or any interference with the cost of labor. I think this should be obvious to anyone.

    I’m very puzzled with respect to Obama’s support for this. Does Obama not understand the implications? Is he not informed? Or, is it possible that the architects of the TPP offered Obama a secret deal that he couldn’t refuse? I’ve seen a few articles about mentioned Obama is already speaking about his career as post president. I recall reading an article that Obama is seeking to create something similar to the Clinton’s Global Initiative. Is it possible that Obama has made a funding deal with major US corporations who will fund Obama’s post president initiative?

    1. jo6pac

      He doesn’t care about Amerika or it’s workers as we have seen with the bail out of ws and the doj never going after banksters.

      0 and wife only care about the rainbow at the end the term. Think bigdog and hillabilly and how wealthy they are today.

      Sadly this what the New Amerika has come to.

  7. susan the other

    It wouldn’t surprise me if Europe, Russia and China come together in a New Silk Road trade agreement. This has been in the works for a while. I’ve wondered if Obama’s abrupt “pivot” to Asia wasn’t caused by the threat to our economy from Eurasia coming together. Like the TPP, Eurasian trade associations also look to be a military security agreement as much as a trade agreement (yesterday’s blurb in Links about Europe lifting sanctions on Russia because it is nuts to strangle Russia’s economy when Europe wants to use Russia’s “military might”). Our recent behavior in Kunduz and northeast Afghanistan might have stg. to do with this. The TPP is such chaos I’d hardly call Europe and China the “losers”.

  8. Kris Alman

    “In the same vein, the high price to pay (in terms of US supremacy on the negotiation table) makes it all the more unlikely for China to seriously consider joining the bloc in the near future: the treatment of state-owned enterprises and data protection are two stumbling blocks. The latter is also a key deterrent for Europe’s TTIP negotiations.”

    I have been very active in the health and education data privacy world for 4 years now. I met with Sen. Wyden’s staff on June 6, 2013 in D.C. A memorable day as the Guardian’s story Verizon bulk surveillance story was breaking news. (Wyden was a sell-out for the TPP–as is true of 3 Portland metro Ds in the House, strong-armed by Nike and Obama.)

    Anyhow, I addressed the issue of access to data through overseas clouds–the backdoor to NSA surveillance. I asked how the TPP would be addressing data privacy. I pointed out that the EU has much stronger privacy protections. Shouldn’t the US be raising the bar for data privacy in all trade agreements to meet the privacy protections sought by European citizens?

    The response from his trade advisor, Jayme White? “IT’S THE PATRIOT ACT!!!” In other words, if we just fixed the PATRIOT act, all would be good with the clouds. We shouldn’t worry about corporate surveillance.

    That’s why the recent decision by the European Union courts that the United States is no longer a “safe harbor” for data is incredibly important.

    Wyden was quoted: “By striking down the Safe Harbor Agreement, the European Union Court of Justice today called for open season against American businesses.”

  9. Erwin Gordon

    I think Ms. Garcia Herrero is a bit confused as to what free trade is. Agreeing a set of rules that ensures the preeminence of US firms and eliminates all possibility of competition (i.e. easy and low cost to entry and scope to build and grow a company) in those areas is anything but related to free trade. That the countries are daft enough to sign away their futures in exchange for allowing large US corporations to exploit their populations is their choice. It will be interesting to see how the populations of the majority of those countries react to what their politicians have done in a couple of years (if it is ratified). Because I would bet my house that it won’t lead to economic growth and when the externalities (health related effects to GMOs, fracking, restrictions on business and creative development over the internet) come, those countries will be wondering what their clowns for politicians have gotten them into his. But Ms. Garcia Herrero is seriously deluded if she thinks Europe and China have lost anything.

  10. different clue

    I don’t see why we should believe that China is being seriously excluded. I suspect China is merely being “excluded” for now to fabricate the appearance of being a security concern. And supporting TPP is being sold as a patriotic way to counter the China menace.

    But if TPP is permitted to pass, China will be admitted in due time. After all, the ISDS is one of the main points of TPP, and if China joins, many more hostile production-platform investors will be able to bring ISDS actions against disobedient levels of US government which dare to enforce environmental/labor/other laws and regulations against China-based anti-environments/anti-labor/anti-other-law investors and operators operating out of China.

    Now . . . if Europe wishes to believe the deceptive diversionary exclusion of China is “real” and “genuine”, then Europe might want to be careful about linking up with China in any case. Europe could find itself a part of China’s emerging Greater Afro-EurAsia Co-Prosperity Sphere.

  11. RBHoughton

    I think the problem for the supporters of these two trade agreements is the predictable end of trade by sea as the prime means of international trade. Its worked amazingly well for two centuries. First Britain then America have made a fortune out of others’ work by controlling the sea routes of international trade.

    Now the talk is of a new Silk Road along a route containing countries so far from the sea that we Poms never invaded them. There are not many countries who can say that. If international trade travels overland at competitive prices, our enormous war fleets will be redundant.

    This is the game-changer that Europe needs to thoughtfully consider – whether to continue eternal war for resources that the imperative of constant growth places on our economic system, or to put down our fists, end enforced trade under MFN clauses and trade in the old consensual way with our friends and never with our enemies.

  12. Ggh

    I guess it is within the realm of possibilities that China could negotiate individually with regional economic blocks or countries in TPP for less stringent trade agreements than TPP. China’s key leverage is access to its huge home market.

Comments are closed.