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TPP: Australia should bring in China and Indonesia

TPP: Australia should bring in China and Indonesia

The negotiators have finally reached agreement on the Trans-Pacific Partnership (TPP). The US Congress might yet be a stumbling block, but the many US interest groups which stand to benefit will influence that outcome. Other TPP countries have to get legislative approval too.

Whatever the deficiencies of the deal, it is better to be in rather than out. It's time to starting thinking about what steps could be taken to increase the benefits that will flow.

As a general principle, large trade groupings are better than smaller: there is less trade diversion. Multilateral is, of course, optimal, but the World Trade Organisation shows no signs of being able to make progress, so our starting point is with the 12 countries that reached agreement on the TPP in Atlanta last month.

From Australia's viewpoint, this group is light on Asian members, but this could change. Indonesian President Joko Widodo expressed interest in joining when he was in Washington last week. South Korea is also a likely joiner (its existing bilateral agreement with the US makes negotiation easier). The US is working on Thailand and the Philippines as well.

While the US worked assiduously to encourage countries like Indonesia to join, the position on China is less clear. For its part, China has shown no great offense at being excluded, perhaps guided by the Marxist doctrine (Groucho, not Karl) that you wouldn't want to be a member of any club that would let you in. [fold]

There might have been an argument (as made in this post: 'The TPP is not a Containment Strategy')for leaving China out of the initial negotiations in order to make it easier to get a set of rules in place. But to go on leaving China out does look like a containment strategy. Certainly, its economic model is different from America's, with a command economy and many state-owned enterprises. But this is true, too, for Vietnam, which seems to see the way clear to sign on as a founding member.

Who might set this process underway? Japan is unlikely to be an advocate. Given the lukewarm attitude of some US commentators, an early initiative from that quarter seems unlikely. This might be an opportunity for Australia to take the lead. This would fit a sensible overall strategy of pushing back where China is over-reaching (for example, in the South China Sea), but at the same time offering China opportunities to integrate itself more fully with the rules-based international economic order.

Would this Asian-oriented effort to expand the TPP undermine the alternative Asian-based trade groupings, particularly the ASEAN-focused Regional Comprehensive Economic Partnership (RCEP), which includes China and India? Fortunately the RCEP and the TPP largely work at different levels. The TPP tries to put in place high-level general rules which will govern world trade (intellectual property, dispute settlement, labour-market issues and the environment) while the focus of the RCEP is on specific operational issues that hinder trade.

Until Indonesia showed some interest in the TPP, there was the possibility that ASEAN might see these two trade approaches as rivals, but with Jokowi's positive response to TPP, the opportunity is open for all the RCEP countries to do what Australia has done from the start; take part in both streams of negotiation because it believes the two are complementary.

Here's the brief. We could open a dialogue with China to encourage it to seek membership, while at the same time arguing its case among the existing members. A parallel dialogue with Indonesia would attempt to reinforce its interest in joining, as some offset to the inward-looking, more nationalistic voices now much louder in Jakarta. Again, we would support their case among the current TPP membership.

Perhaps more clearly than Australia, the US sees the TPP as having substantial diplomatic and strategic content. Now the economic rules have been established, our job as a foundation member is to make sure the wider strategic aspects are in our interests, and remain so.

Image courtesy of Flickr user Caleb and Tara VinCross

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