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By John Tulac
The Trans-Pacific Partnership (TPP) is a proposed regional partnership, in the form of a trade treaty involving eleven other countries on both sides of the Pacific Ocean, but very significantly excluding China. It’s a different kind of trade agreement than what the United States has made in recent years, which are bilateral trade agreements negotiated with a single country at a time. It’s a very ambitious treaty.
Trade, of course, is important to the United States because it is a significant contributor to our economy. First, the United States is the world’s largest exporting country by some measures, despite the fact that most U.S. manufacturers with an exportable product don’t export at all. Only a very small percentage of our overall economy actually generates this tremendous amount of international economic activity.
The United States promotes (although it does not always practice) free trade. Historically the United States has been a strong promoter of free trade in the decades following the Second World War. Relatively free trade policies have allowed U.S. consumers to have a much wider array of choices at lower prices than otherwise. So promoting trade is actually good for the United States in both directions.
The United States favors, as a matter of public policy, opening up markets on a reciprocal basis. If tariff and non-tariff barriers to our goods and services are reduced or eliminated, then U.S. companies should be able to sell more of their goods and services.
TPP is also important for political reasons. First, a new regional trade agreement is an important substitute for global reductions of tariff and non-tariff barriers through the World trade Organization (WTO). The world has not done well in recent years in negotiating a new round of reductions. The most recent round of negotiating, which went on for several years, is the Doha Round. The Doha Round failed miserably, largely because China and several other countries, notably India, remain committed to a number of protectionist policies. Regional agreements are the next best alternative to global improvements to trade.
TPP deliberately excludes China, which also makes TPP potentially dangerous. In recent years, China has become very aggressive with its neighbors, including reviving some political boundary disputes. The most significant claim is that the entire South China Sea is within the sovereignty of China. China has drawn a new map featuring what is called the infamous nine-dash line, for the nine dashes on the map that show that China is literally asserting its dominance over the entire South China Sea, right up to the borders of the Philippines, Indonesia, and Vietnam in violation of maritime law.
Why is China doing this? Why is China taking seemingly worthless little islands and dumping tons and tons of sand and rock and building airstrips? It’s all because of oil. There is oil in the South China Sea and China wants to control all of that.
A lesser-known dispute, but potentially an even more volatile one, concerns the border with India. India and China come together in a very mountainous area, which is the source of water for several major rivers. Water is more vital than oil. Use of the water from these mighty rivers is critically important to every country the water flows through or from which the water could be diverted.
The long-term strategy of the Unites States and, indeed, all of its Asian friends, is not to make an enemy out of China, but to have policies in place where they may be able to limit some of China’s more aggressive efforts to exert sovereignty where it is not justified. Unlike the Cold War, the United States does not presently seek to contain China, like it did Russia. However, TPP is designed to not only function as a trade treaty, but also provides a framework for broader cooperation, including matters relating to foreign policy. And other countries, notably South Korea, may be invited into TPP in the future.
Since so many U.S. companies source products or component parts in China, their supply chain is dependent upon an economically healthy and strategically peaceful China. In the short run, that supply chain is not in jeopardy. In the long term, especially since China has lost its status as a low-cost producer to up-and-coming economies like Vietnam and Thailand, TPP offers both U.S. exporters and importers meaningful alternatives to China. TPP offers an important, if imperfect, addition to U.S. trade relationships.
John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law, and Lecturer Emeritus (retired) at Cal Poly Pomona. He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory. He can be reached at (909) 445-1100.
