Trucks are loaded with shipping containers at a port in Qingdao in China's Shandong province. Picture: REUTERS
Trucks are loaded with shipping containers at a port in Qingdao in China's Shandong province. Picture: REUTERS

GO TO any conference in the world and say "Doha development agenda", and the room is likely to empty. But not in China. I was impressed recently with the degree of interest among China’s trade policy elite in the future of the World Trade Organisation (WTO), and the global trading system of which it is a part.

By contrast, the dominant view among US trade policy makers is that the Doha round has failed, and the WTO is moribund.

Therefore, the US is negotiating two "megaregional" trade agreements with the European Union (EU) and certain Asia-Pacific countries: the Transatlantic Trade and Investment Partnership and Trans-Pacific Partnership respectively.

The transpacific deal came first, and includes 12 countries, notably heavyweights Japan and Mexico, and covers about a quarter of world trade.

Its agenda goes well beyond Doha, and includes issues such as investment and intellectual property rights, potentially even currency management. This is a wide, deep, and ambitious negotiation.

Chinese opinion on the transpacific deal is divided. One camp regards it as a thinly veiled, US-driven geopolitical strategy to cement President Barack Obama’s "pivot to Asia" and isolate China in the region.

Japan’s inclusion reinforces this perspective. It is mirrored in the US security community, parts of which want the deal to isolate China from regional supply chains.

The other camp is rooted in economics; particularly China’s recently announced reforms. Their view is that the transpacific partnership should be harnessed as an external prop to drive domestic economic reforms in much the same way that WTO accession was used 20 years ago.

This perspective resonates with the Washington trade-policy community, which has long favoured a strategy of "competitive liberalisation" whereby, in this case, a juggernaut of liberalising reforms radiates out from China across the global stage, ultimately finding its way back into the WTO on US terms.

The Transatlantic Trade and Investment Partnership covers 29 countries, and a third of world trade. In common with the transpacific deal, a central objective is to forge common standards in a wide range of regulatory areas, while liberalising the relatively few remaining tariff barriers. Both sides hope the agreement will boost economic growth, and cement the transatlantic alliance.

Until now, the political will to tackle the many variances in regulatory approaches either side of the Atlantic has been lacking.

Now that China is a significant player in global supply chains, and if its reform drive is successful, that position will become more powerful. It will also seriously challenge transatlantic leadership of the global trading system.

These twin threats constitute the geopolitical glue that may shepherd both the transatlantic and transpacific negotiations over the success threshold.

What does all this mean for South Africa’s trade strategy?

Much depends on the prospects for the two "megaregional" sets of negotiations.

Will they successfully conclude? If so, then the effects outlined above, and particularly the competitive liberalisation scenario, are likely to materialise. If not, then the focus will shift to China’s reform strategy.

Unfortunately, there is very little in the public domain regarding the substance and progress of these negotiations so it is premature to form reliable judgments.

If the transatlantic partnership fails, Chinese trade diplomats and policy wonks probably wouldn’t be surprised. One senior former trade diplomat I spoke to privately described the talks as "a joke". But if the transpacific deal fails, the aftermath will be more interesting. The US would have failed to cement its regional leadership, while China will be freer to assert its own.

Then US-China-Japan strategic rivalry in the Asia-Pacific will intensify. Furthermore, the door could open to Chinese leadership in the WTO.

Ten to 15 years after the prospective round of economic reforms begins in China, who knows where that might lead?

We have already seen conflicting Chinese messages in the WTO, with implications for Brics (Brazil, Russia, India, China and South Africa) solidarity, among other things.

For example, China has formally requested to join the Trade in Services Agreement, a WTO-aligned plurilateral negotiation that aims to liberalise services trade among a group of like-minded members.

Until now, the Brics had steadfastly resisted joining such "coalitions of the willing" in order to keep the focus on the Doha round. But the services sector is a key focus of China’s domestic reforms.

On the other hand, China is delaying extension of the International Technology Agreement, an existing plurilateral that eliminates tariffs on a range of IT products. Yet China clearly has a great deal to gain through further liberalisation in this area.

These contradictions show that guesswork about China’s domestic economic reforms is just that.

Nonetheless, in my view, they are likely to gather pace. Of core interest is the host of potential reforms concerning domestic competitiveness in key sectors related to China’s external relations. The communiqué issued after the third plenum of the Chinese Communist Party’s 18th central committee makes reference to the private sector assuming a "decisive role" in the domestic economy. State-owned enterprises, the financial system, foreign investment restrictions, and even currency reforms are, among others, in the liberalisation spotlight. The Shanghai free-trade pilot zone has become the reference point for experimentation; further reforms will undoubtedly follow.

There will be resistance. But President Xi Jinping’s administration seems determined to have its way. Thus it has tightened political control in order to reduce opposition. The process will be less dramatic and more uneven than the reforms of the late 1970s and mid-1990s, but could be just as defining.

South Africa is tangential to this new great global game. Our domestic policy trajectory points increasingly inward, while being gradually transposed into the region. That is likely to encounter swelling regional resistance, challenging South Africa’s leadership. It also undermines South Africa’s role as the regional economic gateway: since gateways are conduits they must necessarily be open to trade and investment.

Regional markets are no substitute for our companies’ broader interests in Europe, the US and East Asia. We have no trade strategy for the East Asian region, while the inward-looking focus precludes developing one. Our present trade preferences with the EU will be devalued should Transatlantic Trade and Investment Partnership be concluded. And the US is likely to impose reciprocal obligations on us if we wish to continue utilising the African Growth and Opportunities Act after the existing version expires in 2015.

We could continue to gradually seal off the domestic market and hope the world will engage us on our terms. But that course will undermine our competitiveness, and the world is likely to look elsewhere. Instead, we should be thinking seriously how to position South Africa for the future global trading system. Some hard brain work needs to be done.

Draper is senior research fellow with the South African Institute of International Affairs. He recently spent two weeks in China researching this topic.