TPP:Seeing Off the Post-Bretton Woods Era?

October 5， 2015， witnessed 12 negotiating countries at a ministerial meeting in Atlanta of Georgia State， the United States， reaching basic agreement on the Trans-Pacific Partnership （TPP） and standardizing a variety of matters， including investment and intellectual property， touching 40 percent of the globe’s huge economic rim.

Impact on China

The TPP is an expansion of the TransPacific Strategic Economic Partnership Agreement （TPSEP or P4）， which was signed by Chile， New Zealand， Singapore， and Brunei in July 2005， for reciprocal economic cooperation in cargo， services， intellectual property trade， and investment.

In 2008， the U.S. decided to join the TPP， followed by Peru， Vietnam， and Australia， raising the original P4 to P8. TPP negotiations were officially launched on March 15， 2010， and with additional countries getting involved， the free trade agreement was negotiated among 12 countries， namely the United States， Japan， Canada， Australia， Brunei， Chile， Malaysia， Mexico， New Zealand， Peru， Singapore and Vietnam.

Experts in many countries believe that the TPP will lead to collapse of exports in China if it is counted out when 70 percent of the world’s economic aggregate is subordinated to American trade rules – an outcome of the Transatlantic Trade and Investment Partnership （TTIP）. The TIPP， broadly， is a similar agreement between the U.S. and the European Union.

As a matter of fact， the reality is not at all pessimistic. In the first place， when it appeared to be targeting China， the author of an article in the 2013 Issue No.4 of Journal of International Trade calculated TPP’s impact on China： With P12， the agreement of the TPP will brace up 0.37 percent of the U.S. exports and adverse 0.14 percent of that in China. It is true that under the TPP， China will suffer a decline of its export， yet it will see a big drop in imports， meaning that many countries have to lose their share on the Chinese market， the last thing many TPP member countries would want to do.

As early as 1996， China joined the Association of Southeast Asian Nations（ASEAN） as a composite dialogue partner. In November 2002， it singed a protocol on China-ASEAN Free Trade Area （ACFTA） with the ASEAN countries. January 1， 2010， saw the official inception of the free trade area， covering most of the Southeast Asian countries. For non-ASEAN P12 countries， China can sign similar， separate agreements with them despite the fact that the country is yet to become part of the TPP.

For example， on June 17， 2015， Beijing and Canberra signed a free trade area protocol by Gao Hucheng， China’s minister of commerce， and Andrew Robb， Australia’s minister of trade and investment， agreeing to offer zero tariff on 85.4 percent of both exports from the date the treaty takes effect. After the transitional period of its tax reduction， Australia would eventually enjoy a 100-percent zero tariff for its tax items and value of trade， whilst China will enjoy 96.8 percent and 97 percent of zero tariff respectively.

Australia is not the first， nor the last， country in P12 to enjoy such a privilege. New Zealand was lucky to lead the way in signing such an agreement with China in 2008， followed by others， such as Peru and Singapore.

Moreover， China has launched pilot TPP campaigns through its free trade areas. In 2013， for instance， Shanghai Free Trade Zone （FTZ） was established， which was gradually expanded. By the end of 2014， 12 places in the country had applied for such establishments. In 2015， the Chinese government approved to set up four FTZs in its most developed regions： Shanghai， Tianjin， Fujian， and Guangdong.

TPP Vs. WTO

In 2001， China entered the World Trade Organization （WTO）， becoming its 148th member. In the early 21st Century， as a“world’s factory” for global textiles and low-end manufacturing， China gained at a breakneck speed thanks to its cheap labor， rich resources， vast land area， and perfect infrastructure， aided by the government’s policy support and WTO’s preferential rules.

Nevertheless， some countries doubted about WTO’s acceptance of China. Statistics prove that over the last decade， the majority of WTO’s disputes and complaints have been against China.

On September 17， 2015， the American Information Technology and Innovation Foundation （ITIF） released a report accusing China of not keeping its promise while entering the WTO as an act that has done damage to the global trade system and the economic growth of the U.S. and the EU. That explains why countries， including the U.S.， are so eager to brush off China for the establishment of a brand-new world trade organization to replace the WTO – that’s how the TPP and TTIP came into being.

In the short run， TPP seems to be nothing but a trade protocol. But in the long term， it will result in decreasing importance of the WTO， a time-honored organization which has given an impetus to global trade.

Besides， an unimpressive bit of news at the end of September 2015 announced that the first phase of a cross-border inter-bank RMB payment system， known as CIPS， would be put into operation on October 8， 2015. As an “expressway” hastening RMB circulation across the world， CIPS provides cross-border settlement between the US dollar and Chinese yuan， reflecting China’s desire for an independent RMB reserve currency system other than US dollar for the world.

The US dollar has dominated global currency， finance， and trade for 70 years post-World War II in the International Monetary Fund （IMF）， the World Bank（WB）， and the WTO. Today， great changes have taken place in world currency： WTO has been turned into a mere figurehead and abandoned after the TPP； WB has been replaced with the Asian Infrastructure Investment Bank； IMF has been hit by the SDR currency reserve basket due to the injection of RMB； and CIPS will become a newly-established payment system.

Do such drastic changes in the three pillars of world currency， finance and trade mean the end of the Post-Bretton Woods Era？