Trade
The unexpected impact of Japan’s free trade leadership on China’s domestic reform
Author: Rumi Aoyama, Waseda University
While the threat of protectionism is looming thanks to the trade war between the United States and China, trade-dependent middle power Japan has stepped up as a free trade champion.
The 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), covering 13 per cent of global GDP and 500 million people, came into force on 30 December 2018. One month later, the Economic Partnership Agreement (EPA) between Japan and the European Union took effect, heralding the largest open trade zone in the world — accounting for nearly one third of global GDP and 635 million people.
Fuelled by shared fears over the US–China trade war, China and Southeast Asian countries are now seeking to finalise the Regional Comprehensive Economic Partnership (RCEP) by the end of 2019. RCEP aims to cover areas such as trade in goods, trade in services, investment, rules of origin, intellectual property and electronic commerce. Japan has been pushing for high-standard rules during negotiations.
Japan’s leadership in global trade has had an unexpected impact on China’s FTA strategy, as well as its domestic economic and financial reforms. China is pushing for RCEP and initiating experimental measures in its domestic free trade zones with the aim of ‘wide ranging and high standard’ FTAs. The central government is considering adopting rules from the CPTPP and the Japan–EU EPA in areas such as negative lists, investor–state dispute settlements, intellectual property, environmental protection and worker protection.
RCEP, along with other FTAs, has always been a top priority in China’s foreign policy. At the 18th National Congress of the Chinese Communist Party (CCP) in 2012, the Chinese government set forth a policy of accelerating the establishment of FTAs. In 2015, the ambition ‘to establish a global FTA network’ along the Belt and Road region was written into the 13th Five-Year Plan.
Then US president Barack Obama declared that the United States would participate in the TPP, stating that ‘we can’t let countries like China write the rules of the global economy’. Leading scholars with close ties to top leaders in China asserted that RCEP without the United States could and would coexist with the TPP. RCEP and FTAs, in the eyes of China, were seen as the best platforms to blunt the TPP’s negative impact.
Despite US withdrawal from the TPP, the CPTPP and Japan–EU EPA are now in place. Given that the European Union is China’s largest trading partner while Japan ranks fourth, China is still making efforts to propel RCEP negotiations forward. To keep India in RCEP, China has promised that it will further liberalise its market in exchange for India’s acceptance of tariff-elimination under RCEP. China has also proposed an ‘ASEAN + 3 FTA’ as the first step towards RCEP.
The CPTPP and Japan–EU economic partnership arrangements have inspired China to further long-overdue economic and financial reforms. The Xi Jinping administration sees that the CPTPP and Japan–EU EPA demonstrate a vision for future global standards. These trade pacts entail rules and procedures of origin, reduce non-tariff measures and service trade barriers and aim to improve mutual market access for government procurement. Still, China has been reluctant to compromise in some areas such as environmental standards, data flows and intellectual property protection.
The creation of ‘comprehensive and high standard’ FTAs is one of China’s highest-priority policy goals. In the past 5 years, China has established 12 pilot domestic free trade zones and announced the establishment of six more partly in response to the conclusion of the CPTPP and Japan–EU EPA. The Shanghai Free Trade Zone, the first test area, was approved in July 2013 and started formal operations in September that year.
In this pilot free trade zone, most experimental policies are centred on finance and trade sectors, aimed at turning Shanghai into an international financial centre and free port. The government has gradually liberalised interest rates and capital accounts. It also founded the China (Shanghai) Pilot Free Trade Zone Court of Arbitration in 2013. If successful, the experimental policies adopted in the Shanghai Free Trade Zone are expected to be extended to other regions.
But economic liberalisation is not a foregone conclusion. The government’s newly released Report on the Development of China’s Free Trade Test Zone conceded that reforms in the financial sector have lagged behind those in…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes