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Economic diplomacy brief: TPP v RCEP, Vanuatu value chain, China’s market status and more

The Games of Thrones-style struggle now underway between the stranded Trans-Pacific Partnership (TPP) and the enlivened Regional Comprehensive Economic Partnership (RCEP) is getting murkier by the day.

Photo: Getty Images/Auscape
Photo: Getty Images/Auscape
Published 15 Dec 2016   Follow @Greg__Earl


The Games of Thrones-style struggle now underway between the stranded Trans-Pacific Partnership (TPP) and the enlivened Regional Comprehensive Economic Partnership (RCEP) is getting murkier by the day.

TPP opponent and US President-elect Donald Trump seems to be appointing pro-TPP figures to his Administration faster than the RCEP backers can produce any compelling results from their alternative. But, in an illustration of the vacuum left behind by the Trump victory, a top Asian trade negotiator says he had previously been told by Obama Administration officials to be prepared for the TPP to go through the 'lame duck' US Congress session in the first week of December.

RCEP negotiators seem to have completed their second chapter on small business at discussions in Jakarta in early December, making that the second finalised chapter (after economic and technical cooperation). But this is the soft end of the deal, all about ensuring small business doesn’t miss out from the more hard-fought liberalisation and interconnectivity measures still to come.

The talks will shift to Japan in February, with competition policy reportedly high on the agenda and real pressure to start delivering an outcome during the 50th anniversary year of the Association of Southeast Asian Nations, which so far has set the RCEP pace. But all this didn’t stop Japan pushing the TPP through its upper house just as the Jakarta RCEP negotiations were underway, keeping the talk about a TPP minus the US alive. It's also a warning to Trump that his growing team of pro-TPP officials can’t expect easy concessions from Japan for some sort of reworked deal.

On his recent visit to Australia, Malaysian Minister for International Trade and Industry Mustapa Mohamed said the demise of the TPP was creating pressure for a better outcome on the RCEP, but the latter group’s diverse membership meant it could only deliver 50% to 70% of the TPP.

So stand by for the lists comparing the provisions in the alternate deals, such as this one from the Singapore Asian Development Centre, or a forthcoming one from the Perth USAsia Centre.

All aboard for Port Vila

Spending in local markets by passengers and crew members from visiting cruise ships accounts for an estimated 10% of Vanuatu’s export revenue. So the launch of local product sales on board P&O vessels this week will be an interesting case study in how to get Pacific island products into global value (or supply) chains.

The International Finance Corporation (IFC) trial follows extensive research in recent years by the World Bank agency into the significant impact of the cruise ship industry on the island economies. And it follows last week’s Asian Development Bank Pacific Economic Monitor, which warned that regional growth rates are waning again and that there's a need to overcome transport impediments to getting high value products out of the region. For example, the Monitor says East Timor needs to shift from commodity to niche coffee production partly to offset high transport costs.

Loading up the cruise ship retail outlets with local handicrafts, jewelry, natural lotions, spices, coffee, and chocolate might seem a modest export project. But the world-first idea (launched on board P&O’s Pacific Aria in Port Vila) is a creative way to short-circuit the transport barriers to exports and possibly reduce future aid dependence in the long term. P&O (or Carnival Australia) plans to roll the scheme out over five ships next year as part of a development project supported by the IFC and Australia.

P&O’s onboard retailer Harding Retail has based its product selection on what typically appeals to cruise ship passengers. The IFC hopes that the guaranteed captive market will give the local producers the cash flow and confidence needed to invest in more consistent production.

This aligns with the Monitor argument that 'redirecting primary commodity exports to new niche markets can convert the natural disadvantages of producing on small and remote islands into selling points for consumers seeking unique products and experiences'.

Socialism with market characteristics

Australia might be catching up with its competitors by sending an intellectual property counsellor to the Beijing embassy but it remains out in front when it comes to ruling on the issue of whether China is a market economy.

The US, Britain and Japan have long had IP representatives in China to help their companies protect brand names but Australia is now catching up as China business shifts from resources to branded products.

Several Australian companies have been caught up by Chinese competitors copying products and trademarks and the IP counsellor’s task will be to ensure business mulling a move into China focus on this issue early on. The legal victory in China by a Victorian family run engineering business Lucas Mills over copying of its portable saw mill has raised hopes that China is taking IP protection more seriously as it exports its own complex branded products.

But while other western countries have been focusing on IP protection in China for some time, they seem unlikely to join Australia in officially acknowledging China as a market economy. Australia gave China this highly symbolic tick of approval in 2005 as part of the courtship over the eventual 2015 free trade agreement but the US, European Union, and Japan have held off, giving themselves a more scope to take action over alleged Chinese dumping.

China expected a shift on the issue when its 15-year anniversary as a member of the World Trade Organisation was marked on 11 December, but it has now taken legal action against countries that haven’t shifted. And US President-elect Donald Trump has only stepped up the divide on China’s market status.

This has only highlighted how Australia is out of step with the incoming Administration on managing China, though the McKell Institute has recently argued that the 2005 decision has made Australia more vulnerable to Chinese dumping. This new study from the non-partisan Peterson Institute lends weight to Australia’s overall position on engaging China, but it may well fall on deaf ears in contemporary Washington.

Malaysia’s charm offensive

The 1MDB development fund scandal seems to hang over all things Malaysian these days, but that didn’t prevent a record turnout of 400 business people at a trade and investment roadshow in Sydney this month. Malaysians have been big investors in Australian natural gas and property, and the bilateral trade agreement is coming up for review soon.

In an interview during the roadshow, International Trade and Industry Minister Mustapa Mohamed said he wanted to make services a bigger part of the agreement including healthcare, education, tourism and information technology. He said there was a lot of scope for Australian and Malaysian businesses to pool their services skills to cooperate elsewhere.

Malaysia has always had a proclivity for big national plans, such as Vision 2020. But Mustapa said the recently announced Transformasi Nasional 2050 consultation process would be producing important ideas about the country’s economic and political direction by the end of next year, which foreign investors should watch.

And despite the odd bilateral diplomatic spat over the years, Mustapa, who was a Colombo Plan student at Melbourne University, was very upbeat about how educational and institutional links made the countries natural regional partners.

Chairman Robb

Former trade minister Andrew Robb has added the chairmanship of Asialink to his rapidly growing portfolio of post-politics roles which run from Chinese company Landbridge to the Perth Australian School of Management. Asialink announced the appointment at its annual Chairman’s Dinner in Sydney. The occasion formally marked the end of the understated but seminal contribution that outgoing chairman Sid Myer has made to deeper connections with Asia over many years. The decision to go outside of the Myer family, which has underwritten Asialink’s activities since its foundation, for a new chairman underlines the organisation’s push out of Melbourne into the region and its exploration of new functions like business training. Robb has also revealed he is setting up his own fund to invest in agriculture.

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