The negotiations and signing of bilateral and regional free trade agreements (FTAs) are vital to trade and investment liberalization, representing an important shift from policies to action in the building of a truly free trade system. Since China officially joined the World Trade Organization in 2001, it has actively promoted institutional cooperation between its trading partners and made the signing of FTAs a national strategy for opening up to the outside world.

By September 2018, China reached 17 FTAs with 25 countries and regions in Asia, Latin America, Oceania, Europe and Africa. The nation also engaged in 13 free trade zone negotiations or advanced negotiations with 28 countries while conducting feasibility research for building or upgrading free trade zones with nine countries.

In the last few months of 2018, China achieved substantial progress in facilitating trade liberalization. The China-Singapore Free Trade Agreement or CSFTA was upgraded. The Ministry of Commerce also signed Agreements on Trade in Goods under CEPA with the Hong Kong and Macao special administrative regions respectively, two additions to China’s FTAs.

On Dec 24, 2018, the State Council Customs Tariff Commission announced that from Jan 1, 2019, China would implement the agreed tariff rate on goods from 23 countries and regions. Imports from New Zealand, Peru, Costa Rica, Switzerland, Iceland, Australia, South Korea and Georgia would enjoy lower tariffs, according to FTA agreements between them and China, as well as the Asia-Pacific Trade Agreement. In addition, Agreements on Trade in Goods under CEPA with Hong Kong and Macao are expected to establish closer economic and trade ties, as goods of Hong Kong or Macao origins will fully enjoy zero tariffs when exported into the mainland.

Experience shows that signing bilateral and regional free trade agreements will speed up China’s trade liberalization, expand economic development, ensure sufficient supply for growing domestic demands for imported goods, encourage market competition and improve efficiency of Chinese businesses. These treaties also play a key role in creating new advantages for China to engage in international commerce and global trade, helping it to establish a mutually-beneficial relationship with its trading partners, as well as serving to promote regional economic integration and globalization.

There have been many major changes to bilateral and regional trade liberalization development around the world, particularly in 2018.

First of all, the US has shifted the focus of its regional trade policy to bilateral trade agreement negotiations with the EU and Japan respectively. The Economic Partnership Agreement of Japan and the EU will soon enter into force by Feb 1, 2019, suggesting that the US, the EU and Japan might start a new form of cooperation based on bilateral treaties, and that such treaties might become the new trend for regional trade liberalization in the world.

The developed economies will continue dominating the regional and global trade rule-making, while their developing counterparts face the risk of further marginalization. In addition to the above-mentioned examples, many other trade agreements such as the CPTPP, or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, have been signed -- most of which are led by the EU and countries such as Canada and New Zealand.

Thus in the future, the club of rich nation will set the rules for regional trade liberalization, whereas the developing countries will have even less say. On the other hand, the United States, Europe and Japan are jointly proposing a WTO reform plan and intend to take over the drafting of multilateral trade rules as well.

It has become increasingly clear that the US intends to frustrate China’s participation in regional cooperation plans. It has added a “poison pill provision” in NAFTA that restricts Mexico and Canada’s trading with China.

It used that device again, as a similar clause has been put in the United States-Japan Trade Agreement Negotiations: Summary of Specific Negotiating Objectives, an official document released on On December 21 by the Office of the US Trade Representative.

In 2018, one of the general provisions explicitly demands Japan to “provide a mechanism to ensure transparency and take appropriate action if Japan negotiates a free trade agreement with a non-market country.” Obviously, China has been targeted by both provisions. Worse, it is also likely to be ostracized from CPTPP, a trade agreement between 11 countries in Asia-Pacific that went into effect on December 30, last year.

Fourth, China is presented with an important opportunity to hedge against the risks of trade protectionism, as demonstrated by the revived RCEP – the Regional Comprehensive Economic Partnership -- and China-Japan-South Korea FTA negotiations. However, at this moment, neither is making real progress, because at the negotiation table India is half-hearted in joining RCEP and Japan is intent on bolstering the CPTPP.

The regional FTAs initiated by China still lag behind those dominated by the developed economies, which feature broad coverage, high standards, and greater level of free trade. The gap between China and the advanced economies in terms of market access, labor standards, government purchase rules, the environment and intellectual property regulation, among other issues, also explains the lack of driving force in the China-Japan-South Korea FTA and the Regional Comprehensive Economic Partnership or RCEP negotiations, as well as its absence in the early stage of the TPP.

To turn the tables and take the upper hand in regional cooperation, China has to further facilitate trade and investment while pushing for more free trade strategies. In 2019, we hope to see more positive moves on the following three areas:

First, signing the RCEP agreement this year should top the agenda. China aims to complete the first-stage negotiation before the 2019 APEC Economic Leaders' Meeting to buy some time for furthers discussions of higher-level FTAs. For instance, under the RCEP framework, China, Japan and South Korea can negotiate a trilateral FTA at a higher level.

Second, China should strengthen its policy negotiations with the European Union for a bilateral investment agreement. A better business environment in China will speed up the negotiations and the signing of a China-EU FTA.

Third, China needs to engage in negotiations with the existing CPTPP members, so that it can get on board when the time is ripe.

To meet the above-mentioned goals, China needs to materialize the major opening-up policies unveiled in last few years. It must go the extra mile to improve market reforms, investment access, the business environment and intellectual property right protection, etc. Particularly, its moves towards more free trade pilot zones and ports will pave the way for a new open economy with high standards.

Zhao Jinping is former director-general of the Research Department of Foreign Economic Relations, the Development Research Center of the State Council. The views expressed do not necessarily reflect those of China Watch.

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This article was translated by Hou Sheng.