PROSPECTS FOR THE TRANS-PACIFIC PARTNERSHIP AND THE ASIA-PACIFIC FREE TRADE AREA

E. Ya. ARAPOVA

Candidate of Economic Sciences, MGIMO (U) of the Russian Ministry of Foreign Affairs

Keywords: Asia-Pacific region, Trans-Pacific Partnership, free trade area, economic partnership, regional integration, APEC, Asian regionalism

The APEC Summit* held in Beijing in November 2014 was of historical significance for the development of regional economic integration processes in the Asia-Pacific region. President of the People's Republic of China Xi Jinping has put into practice the idea of creating a region-wide Asia-Pacific Free Trade Area (APFTA). The countries participating in the summit not only discussed the idea of creating an integration association, which was discussed at previous meetings in a multilateral format, but also approved the Roadmap proposed by the Chinese side. The new free trade zone, if it is successfully formed, may become the only regional integration project that unites the two "poles" of global imbalances-China and the United States, as well as Russia.

The APFTA project can be considered a Chinese alternative to the pro-American Trans-Pacific Partnership (TPP)concept** ; however, all 12 TPP countries are participants of the APEC Forum and, consequently, potential APFTA member countries. In other words, the creation of a free trade zone within these countries automatically implies the achievement of key agreements in the Trans-Pacific Partnership format.

ECONOMIC BACKGROUND OF INTEGRATION

Today in the Asia-Pacific region (APR) there are a number of economic and political factors that hinder the implementation of any regional integration projects. First of all, they include differences in the levels of economic development and the structure of foreign trade of countries participating in integration trends, economic growth strategies, the nature and degree of regulation of foreign trade, as well as the political ambitions of major regional players, such as China and the United States. The formation of the Asia-Pacific Free Trade Zone can strengthen China's position in the region, while the implementation of the Trans-Pacific Partnership primarily meets the interests of the United States. At the APEC summit in November 2014, US Trade Representative Michael Froman stated that despite the Chinese side's concept of creating a region-wide free trade zone based on APEC, the Trans-Pacific Partnership remains a priority of US foreign economic policy in the Asia-Pacific region1.

When assessing the prospects for region-wide integration in the TPP and APFTA formats, it is necessary, first of all, to focus on the study of heterogeneity in the levels of customs duties of the member countries of potential associations (see Table 1).

The variability of customs duty rates both in the Trans - Pacific Partnership group of countries and among APEC member countries is quite high; this is especially true for the rates of customs duties on agricultural products. However, the probability of successful development of integration processes between the 12 TPP countries is significantly higher than that of the APEC countries. This is indicated, first of all, by relatively lower coefficients of variation in comparison with

The article was carried out within the framework of the RGNF grant N 15 - 07 - 00026 "East Asian regionalism in the context of a model of economic growth diversification".

* The Asia-Pacific Economic Community includes Brunei, Malaysia, Singapore, Indonesia, the Philippines, Thailand, Japan, China, the Republic of Korea, Australia, New Zealand, Canada, Mexico, Peru, Chile, the United States, Taiwan, Hong Kong, Papua New Guinea and Russia.

** 12 CCI member countries: Brunei, Vietnam, Malaysia, Singapore, Japan, Australia, New Zealand, Canada, Mexico, Peru, Chile, USA.

Table 1

Level of regulation of foreign trade of the TPP and APEC member countries

* Data for 2012-see: World Tariff Profiles 2013 / WTO. ITC. Geneva 2013. P. 49.

Source: compiled and calculated by the author based on World Tariff Profiles 2014 / WTO. ITC. Geneva 2014 и World Tariff Profiles 2013 / WTO. ITC. Geneva 2013.

relevant indicators for APEC.

At the same time, if we compare the dynamics of the coefficients of variation according to the data for 2013 and 2014, the variability (in terms of the weighted average tariff for agricultural products) has sharply increased, which indicates an increase in the share of "sensitive" goods in the structure of foreign trade, which are most protected by states and are of strategic interest to them. This suggests that in the medium term, the main contradictions between the TPP member countries may lie precisely in the development of a single tariff policy.-

Table 2

Interest rates in the banking sector of the TPP and APEC member countries

Source: compiled and calculated by the author based on data from the World Bank Statistics Database - data.worldbank.org

policies in agricultural trade.

In turn, the APEC countries are characterized by the opposite situation: the coefficients of variation there are not only higher than the corresponding values for the TPP group of countries, but also the variability of the weighted average trade tariff is significantly higher than the indicators calculated on the basis of the most-favored nation (MFN) average tariff indicators. This is primarily due to the commodity structure of foreign trade within APEC, and, accordingly, the participating countries, primarily developing countries, in the process of negotiations on the creation of an integration association in the region, will strive to maximize the protection of national producers of those industries that make up the main share of exports and provide revenues to the state budget. The APEC services market is even more diverse, particularly in the banking sector (see Table 2).

If the rules of region-wide free trade agreements are extended to the service sector and integration partners ' access to the national markets of the financial system is facilitated, many developing countries that are members of the TPP and APEC may not be able to withstand competition from, first of all, financial institutions in Japan and the United States.

"MIXED APPROACH"

The issue of regional architecture and the nature of integration processes within the Trans-Pacific Partnership was discussed by experts from 12 countries from the very beginning of the concept's appearance. One of the main points of contradictions was the format of interaction: while Australia, Brunei and New Zealand were in favor of expanding integration processes at the multilateral level, which implies reaching agreements and spreading the accepted norms within all TPP member countries, the United States was in favor of developing a system of bilateral free trade agreements. As a result, the hybrid approach was adopted in October 2009, according to which TPP member countries can put forward their proposals on both a bilateral and multilateral basis. ²

As of the end of 2014, the largest number of bilateral agreements were signed within the Trans-Pacific Partnership with the participation of Japan, Chile, Peru and Singapore. Japan firmly holds the leading position: 7 bilateral agreements - with Brunei, Vietnam, Malaysia, Singapore, Mexico, Peru and Chile - have already been reflected in the WTO Free Trade Agreements Database. In addition, Japan signed an economic partnership agreement with Australia ⁱⁿ July 2014.3

However, the impact of bilateral agreements on the intensity of regional development-

It is ambiguous as to the nature of these processes. Bilateral agreements concluded with the participation of various States vary significantly in "quality". Free trade agreements with the United States cover a wider range of areas, including the so-called "sensitive" sectors of the economy, such as agriculture.

Economic partnership agreements with Japan are increasingly approaching the" quality " of agreements concluded with the United States. Although" in the Japanese case " the rules of such agreements often do not apply to agricultural products, they cover a wide range of areas, including the movement of investment flows and trade in certain types of services. As for the bilateral free trade agreements concluded with the participation of China, in most cases they cover a relatively narrow list of areas of cooperation.⁴

If a potential region-wide integration association excludes the participation of the PRC, the presence of a large number of agreements in a narrow composition may act as a factor that can speed up the negotiation process. Many agreements have been reached in the bilateral format, for example, regarding the schedule for reducing customs duties, eliminating non-tariff restrictions in trade in goods and services, etc. The main contradictions arise between countries that do not have bilateral free trade agreements, but at the same time are major trade and investment players in the region. These include primarily the United States and Japan.

"INTEGRATION DIFFICULTIES AND CHALLENGES

Negotiations under the TPP were significantly complicated after Japan joined the alliance in 2013 due to numerous contradictions in the positions of this country and the United States. First of all, the contradictions relate to the rules of trade in agricultural products and, in the opinion of the American side, the environmental and safety standards imposed by Japan on cars imported from the United States are too high.

Negotiations between the United States and Japan are being conducted simultaneously in two directions: in a multilateral context within the framework of the Trans-Pacific Partnership and on a bilateral basis. Developing common positions on key issues should be the basis of a bilateral free trade area.

The contradictions between Japan and the United States, the desire of Tokyo and Washington to protect national producers in the fields of agriculture and automotive industry - this is almost the only obstacle to the formation of a free trade zone within the TPP.

American agricultural producers, primarily sugar and dairy products, are in favor of maintaining the system of non-tariff restrictions in agricultural trade as a priority of US foreign trade policy. In their opinion, the damage to national producers from trade liberalization may exceed the potential export revenues from retaliatory opening of partner countries ' markets to American products.⁵

As for Japan, although this state is experiencing some pressure from other TPP member countries that are striving to create a full-fledged free trade zone, national interests in this case prevail over regional ones. Today, the interest of the United States in creating a bilateral free trade zone with Japan (and, as a result, a 12-state multilateral zone) is somewhat higher than that of Japan itself. First, Japan successfully cooperates with other TPP partner countries on the basis of a system of bilateral agreements. Secondly, Japan and the United States have been developing a positive trade balance for many years.

The United States accounts for 18.8% of Japan's exports in 2013, but only 8.6% of its imports.⁶ Accordingly, the situation in the United States is the opposite: they are trying to reduce the trade deficit, including by expanding car exports, which may result in the liberalization of bilateral trade.

The process of forming an integration association is also complicated by contradictions within the United States itself. In January 2014, Congress blocked President Barack Obama's initiative to fast-track the Trans-Pacific Partnership Agreement, although after the 18th and 19th rounds of negotiations in July and August 2013, it was assumed that an agreement would be reached before the end of the same year. Opponents of the implementation of the TPP are trade unions that predict a sharp influx of relatively cheaper labor from developing partner countries, as well as organizations that advocate for environmental protection.

The United States, as well as Australia and New Zealand, are trying to protect national labor markets as much as possible from the influx of migrants from developing partner countries, which they primarily include Brunei, Chile, Peru and Vietnam.

In the case of the creation of a free trade zone throughout APEC, the presence of a large number of bilateral and multilateral agreements that differ in "quality" may cause certain problems. It will be more difficult for the parties to develop a common position on the main issues, and the successful functioning of bilateral free trade zones will reduce the "integration motivation" to create a region-wide association.

In addition, today many APEC member countries, even "in a limited composition", cannot agree on the liberalization of mutual trade regimes. In this case, we are talking, in particular, about three states of Northeast Asia (China, Japan and the Republic of Korea), which have not managed to create a single state.

a trilateral free trade area.

In September 2014, the 5th round of negotiations on the creation of a trilateral integration association was completed, where the parties discussed issues of trade in goods and services, the movement of investment flows, competition policy, protection of intellectual property rights, etc.⁷ However, fundamental agreements that could bring the creation of a free trade zone closer were not reached. According to experts, Japan should take the path of more intensive attraction of foreign direct investment from partner countries, primarily from China.⁸

Contradictions in the trilateral format lead to the expansion of cooperation on a bilateral basis. In March 2014, the 10th round of negotiations on the establishment of a bilateral free trade area (FTA) between China and the Republic of Korea was completed. The parties came to an agreement on the abolition of customs duties on 90% of commodity items, expressing their desire to expand this list in the future.

Despite a large number of bilateral agreements across the Asia-Pacific region, no bilateral free trade zones have been established between the main, largest regional trade and investment players - the United States, Japan, and China - which is one of the main obstacles to APEC-wide integration.

Thus, despite considerable heterogeneity in the levels of economic development and the nature of external economic regulation under the TPP, due to intensive negotiations and the presence of a large number of bilateral free trade agreements, the participating countries managed to reach the main agreements that will form the basis of the future multilateral free trade area. The main contradictions today are concentrated in the area of bilateral cooperation between the United States and Japan, as well as the positions of interested parties within the United States.

In addition, there are real prerequisites for expanding the format of the Trans-Pacific Partnership: it may gradually include other APEC countries seeking to expand integration cooperation. In particular, in November 2014, during a forum in Singapore, Philippine President Benigno Aquino III announced his intention to join the TPP on a full-fledged basis.⁹

According to the Philippine leader, his country is working in this direction with a number of countries-members of the Trans-Pacific Partnership, in particular, with the United States, Japan and Malaysia. The Republic of Korea also has a high chance of joining the TPP. This country expands bilateral cooperation with the States of the region by concluding bilateral and multilateral agreements. Economic partnership agreements with Japan and free trade agreements with Australia have been signed, as well as, most importantly, a bilateral free trade agreement with the United States, which support the country's permanent accession to the Trans-Pacific Partnership. This was announced in October 2014 during his visit to Seoul by US Secretary of Commerce Penny Pritzker10.

However, even in the case of its possible expansion, the TPP will remain a pro-American vision of the regional architecture in the Asia-Pacific region without including China in the integration processes.

A full-fledged Asia-Pacific free trade Zone is unlikely to be created until fundamental agreements are reached within the framework of the Trans-Pacific Partnership, as well as until a trilateral North-Eastern free trade zone consisting of China, Japan and the Republic of Korea is created. Although the successful formation of a 12-country TPP free trade area will significantly reduce the motivation of the United States to expand integration processes throughout the region.

The Asia-Pacific Free Trade Area, even if formally established, is likely to cover only trade in goods and have a multi-stage nature, i.e. provide for a long transition period for different groups of countries. Liberalization of trade in services can be implemented in such a way as to allow relatively more developed member countries to expand cooperation in a limited format, while lagging States will have the opportunity to join the initiatives being implemented later.

¹ US says TPP is its priority as China pitches FTAAP // Malaysia Chronicle. 10.11.2014 - http://www.malaysia-chronicle.com/index.php?option=com_k2&view-item&id=395971:us-sa ys-tpp-is-its-priority-as-china-pitches-ftaap&Itemid=3#ixzz3JjJW2H3g

^{Barfield C.} 2 The United States and East Asian Regionalism: Competing Paths to Integration // International Journal of Korean Studies. 2012. Vol. XVI. No. 2. P. 169 - 170.

³ Japan-Australia Economic Partnership Agreement. Australian Government. Department of Foreign Affairs and Trade. 2014 -http://www.dfat.gov.au/fta/jaepa/

^{Arapova E. Ya} 4 Integration of the East Asian Summit countries and US interests. 2012. N 5. С. 66 - 68. (Arapova E.Ya. 2012. Integratsiya stran Vostochnoaziatskogo sammita i interesy SShA // World Economy and International Affairs. N 5) (in Russian)

^{Barfield C.} 5 Op. cit, p. 170.

⁶ http://www.trademap.org/ProductSelCountryTS.aspx

⁷ Fifth Round of Negotiations on a Free Trade Agreement (FTA) among Japan, China and the ROK. Ministry of Foreign Affairs of Japan. 5.09.2014 - http://www.mofa.gojp/press/release/press4e_000413.html

⁸ Japan must open up to foreign investment - especially from China // Japan Times. 18.08.2013 - http://www.japantimes.co.jp/news/2013/08/18/business/japan-must-open-up-to-foreign-invest ment-especially-from-china/#.VHW4eNKsVqV

⁹ Philippines interested in joining US-led Trans-Pacific free trade area // Philippine News Agency. 19.11.2014 - http://www.interaksyon.com/business/99541/philippines-interested-in-joining-us-led-trans-pa cific-free-trade-area

¹⁰ S. Korea welcome to join TPP: U.S. commerce secretary // Global Post. 14.10.2014 - http://www.globalpost.com/dispatch/news/yonhap-news-agency/141023/s-korea-welcome-joi n-tpp-us-commerce-secretary

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