Blog post

Trans-Pacific Partnership: Should the key losers - China and Europe - join forces?

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):

Publishing date
06 October 2015

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.

About the authors

  • Alicia García-Herrero

    Alicia García Herrero is a Senior fellow at Bruegel.

    She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

    In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University. 

    Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in ResearchGate, Google Scholar, SSRN or REPEC). Alicia is very active in international media (such as BBC, Bloomberg, CNBC  and CNN) as well as social media (LinkedIn and Twitter). As a recognition of her thought leadership, Alicia was included in the TOP Voices in Economy and Finance by LinkedIn in 2017 and #6 Top Social Media leader by Refinitiv in 2020.

Related content

Dataset

China economic database

Repository of what we consider to be the most relevant macroeconomic data for China and EU-China relations.

Alessia Amighini, Alicia García-Herrero, Michal Krystyanczuk, Robin Schindowski and Jianwei Xu