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Economic diplomacy brief: TPP 11 vs RCEP, Asian banks and economic nationalism

This week's column examines how the TPP 11 and RECP proposals could compete for attention ahead of Australia's summit of South East Asian leaders next year.

Sydney will host Australia's summit of South East Asian leaders next March (Photo: Flickr/Anthony Kernich)
Sydney will host Australia's summit of South East Asian leaders next March (Photo: Flickr/Anthony Kernich)

Summit risks

A subtle tussle over priority for Asia’s two nascent new trade groupings is under way with some potentially significant implications for Australia’s summit of South East Asian leaders in Sydney next March.

Most South East Asian countries are placing a high priority on achieving breakthrough in negotiations on the 16-member Regional Comprehensive Economic Partnership (RCEP) in time to mark the 50th anniversary of the Association of South East Asian Nations (ASEAN) in November.

But recent efforts to revive the once US-led Trans-Pacific Partnership (TPP) have raised the prospect of negotiating resources being spread too thin to achieve the desired RCEP anniversary outcome.

Japan, New Zealand and Vietnam all arguably stand to gain more from the so-called TPP 11 moving forward without the US because – like US Senator John McCain in Sydney this week – they think the US will eventually come back to the fold. This idea of a TPP minus one (temporarily) has gathered pace since a meeting of regional trade ministers in Vietnam last month.

Vietnam was the biggest winner from the TPP, Japan sees it as still the best way to get a trade deal with the US without having to negotiate bilaterally with a trade deficit-obsessed Trump Administration and New Zealand (unlike Australia) has no trade deal with either the US or Japan.

Australia supports the TPP 11 idea but also has a considerable investment in some form of RCEP progress when ASEAN celebrates its 50th.  Completion of the RCEP (which includes China, India and Indonesia) this year is  largely seen as a lost cause but there are still hopes for a partial agreement by November combined with a so-called landing ground in future on other parts of the deal.

The subtle differences in outlook were reflected at this week’s New Zealand-funded Integration Partnership Forum* (IPF) with divergence over the TPP from prominent non-government speakers from Australia ('dead in its current form') and New Zealand ('certainly not dead').

An RCEP breakthrough would be good for Australia because it would help provide a positive economic foundation for the ASEAN leaders summit in Sydney that will be built around parallel business and counter terrorism meetings.

On the other hand, an RCEP failure in November might prompt the ASEAN countries to turn their attention more to their own internal integration challenges, or to bilateral deals with the likes of the European Union. China (which is demanding commercially significant trade barrier reductions from Indian and Japan inside the RCEP negotiations) might be inclined to turn its attention more towards its One Belt One Road initiative.

This sort of environment would detract from federal government plans to use the historic gathering of ASEAN leaders in Sydney to encourage Australian businesses to pay more attention to opportunities arising from ASEAN’s move to a single economic community. 

India is now seen as the most recalcitrant RCEP participant with demands for phase-in periods as long as 20 years on its liberalisation offers causing tensions with some ASEAN countries. However one senior Indian official this week flagged a greater Indian commitment to RCEP.         

These uncertainties about RCEP and the TPP have made the first review of the seven-year-old Australia/New Zealand trade agreement with ASEAN (known as AANZFTA) more important as a platform for the two trans-Tasman countries to improve their own integration with South East Asia amid rising economic nationalism. (Background to AANZFTA and the reviews can be found here.)

The parameters for the review have been under discussion this week but it won’t be finished until late next year, meaning it is unlikely to provide agreements which can be announced at the Sydney summit.

But the review nevertheless provides the best platform for increasing Australia/New Zealand services trade and investment access to ASEAN. The first survey of Australia/New Zealand businesses operating in ASEAN conducted last year highlighted labour market mobility, investment and services and 'behind the border' trade barriers as the top priorities for trade reform in South East Asia.

With ASEAN countries nervously watching the potential decline of the highly bureaucratic EU common market model and the increasingly fractious North American free trade model, Australian and New Zealand officials sense an opportunity to highlight the way they have evolved the old Closer Economic Relations agreement into a Single Economic Market model.

ASEAN officials participating in this week’s Integration Partnership Forum showed considerable interest in some of the organisational principles behind trans-Tasman integration. The focus on achieving effective integration, rather than trying to build common regulatory institutions, and moving beyond legally binding trade negotiation to cooperative integration in areas such as infrastructure has considerable attraction in the economically diverse ASEAN region.

A key theme in the discussion that resonated with some ASEAN participants was the common Australian/New Zealand view that their focus on structural adjustment and social support measures had made economic liberalisation more palatable to the public than seems to have been the case in the US and parts of Europe.

One ASEAN participant said they had not understood that this policy adjustment challenge now facing the integrating South East Asian countries had been a big challenge for the two CER partners.

The sharp backlash in Indonesia against Chinese imports after an ASEAN trade deal with China has heightened nervousness amongst regional economic officials over making sure their communities are prepared for changes that would flow from – for example – a more liberal AANZFTA deal.

So Australia will need to use the AANZFTA review to raise awareness in ASEAN on structural assistance measures and the sort of educational measure that have been introduced since Australia’s own trade deals with north Asian countries.

Some participants argue that one of the less appreciated RCEP strengths is its emphasis on economic cooperation to ameliorate losses from trade liberalisation. This is not a feature of the TPP.

Meanwhile preparations for the Sydney ASEAN leaders summit stepped up this week with senior diplomats from each country inspecting summit facilities in Sydney and meeting senior government ministers in Canberra.

Banking on Asia

The gradual Asianisation of the Australian economy can often be found in niche places like these figures on bank lending while top line measures such as investment stock still emphasise old links to the US and Britain.

The research from law firm Minter Ellison shows how banks from China and Japan are filling the hole left as European banks retreat from Australia to repatriate capital and repair balance sheets at home. Asian bank lending has growing an average of 20% over the past four years, US banks have grown at 3.5% while European banks have been flat at 0.5%.

This lending reflects the way foreign investment thresholds have been lifted for investors from China, Japan and Korea as part of Australia’s bilateral trade deals with those countries.

Rising economic nationalism

Australians have emerged from the latest Asian Research Network opinion poll with distinctly more economic nationalist views on trade and foreign investment.

This polling, supported by the PerthUS Asia Centre and Sydney University’s US Studies Centre, provides some of the best data around on comparative regional attitudes, but will be troubling for the Australian government.

It shows Australians have the least positive attitude to free trade (net positive score of 29%) compared with respondents from Korea (56%) India (52%), China (48%), Japan (40%) and Indonesia (33%).

The nationalist theme is even clearer on foreign investment in essential infrastructure with Australians havin a net negative score of -36%. This compares with net negative attitudes in Japan (-20%) and Korea (-18%).  There were net positive scores in India (52%), China (29%) and Indonesia (13%). 

Greg Earl was a guest of the New Zealand Ministry of Foreign Affairs and Trade at the Integration Partnership Forum

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