CBBC Insights | Economics: The Trans-Pacific Partnership Agreement vs the One Belt One Road Initiative - Objectives, Differences and Implications

02/11/2015
CBBC Insights | Economics: The Trans-Pacific Partnership Agreement vs the One Belt One Road Initiative - Objectives, Differences and Implications

CBBC Insights | Economics: The Trans-Pacific Partnership Agreement vs the One Belt One Road Initiative - Objectives, Differences and Implications

Negotiations for the US-led Trans-Pacific Partnership Agreement (TPP) were concluded in October. China meanwhile is pushing ahead with its own strategy for regional power – the vast “One Belt One Road” (OBOR) initiative. Where do the two differ – and what does the TPP mean for China’s ambitions?

What is the Trans-Pacific Partnership Agreement?

The TPP is a trade agreement between 12 Pacific Rim countries, led by the United States and also including Australia, New Zealand, Canada, Mexico, Chile, Peru, Japan, Singapore, Brunei, Malaysia and Vietnam. Others such as Taiwan and South Korea have expressed an interest in joining.

The 12 signatories account for more than 40 per cent of global GDP and a population of nearly 800 million, making it the largest trade agreement since the creation of the World Trade Organisation. Negotiations were concluded on 5 October 2015, but the conclusions must first be sanctioned by each member country before the agreement comes into effect.

It is a comprehensive and high-level regional agreement, covering customs administration and trade, intellectual property, state-owned enterprises and designated monopolies, e-commerce, competition policy, investment, financial services, the environment and labour rights. 

What is “One Belt One Road”?

OBOR is an initiative launched by President Xi Jinping in 2013 to focus on building upon and creating trade routes and business opportunities within China and across South-East, Central and South Asia, Europe, the Middle East and North Africa.

It has two main elements:

  1. The Silk Road Economic Belt, a land route, which will link China with Central Asia, the Middle East and Europe; and
  2. The 21st Century Maritime Silk Road, a sea route, which will connect China with South-East Asia, the Indian Subcontinent, North Africa and Europe.

A long-term initiative, OBOR encompasses some 60 countries, which account for 60 per cent of the world’s population and a collective GDP equivalent to 33 per cent of the world’s wealth.

OBOR is not only an economic initiative, but a major geopolitical one, which is expected to go on for several decades.

Differences and objectives

TPP

OBOR

A multilateral trade agreement, not open to all countries. High membership requirements including rounds of negotiation and special criteria.

An initiative rather than an agreement. Does not expressly exclude the participation of any country.

US-led. Entry criteria rule out China’s participation at present.

Initiated by China. The US is not involved and apparently does not plan to be.

Expected to consolidate US power and market influence in Asia Pacific, especially Asian countries.

Aimed at making China the economic powerhouse of the region. Seen as a strategy to lower the negative impact of TPP on China.

Expected to create job opportunities and increase exports to and investment with member countries.

Provides an outlet for production overcapacity and overseas investment.

Should consolidate economic and political ties, especially with Japan and ASEAN countries.

Will create a network of infrastructure (road, rail, ports, electricity, energy), trade and finance connections between China and other countries.

 

How will the TPP affect China?

In the short term, the TPP could have a somewhat negative effect on China. Over 18,000 tariffs are due to be removed – some within 10 years, some within 15 or longer, depending on the different countries and products. For example, the US will cut the 2.5% tariff on vehicles from Japan within 25 years.

However, the impact may be mitigated as China has signed Free Trade Agreements with five TPP countries (Australia, Chile, New Zealand, Peru and Singapore) and is seeking Regional Comprehensive Economic Partnerships with seven members (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam).

In the longer term, the TPP is likely to spur on China’s economic reforms, as it seeks to fulfil criteria in the agreement which it cannot presently meet – including the prohibition of preferential treatment for SOEs as well as requirements for environmental protection, labour rights and IP protection.

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02/11/2015