In Australia, we typically don’t consider trade relationships and trade agreements as contributing to national security. Yet, there’s an important strategic economic dimension. If two or more economies are prospering because all are able to trade competitively-priced products with each other, a common interest in the prosperity this creates and maintaining this open market emerges. This is the logic behind the Trans Pacific Partnership (TPP) free trade agreement.
The bigger the trade, the stronger the disincentive to let political disputes reach the point where military conflict ensues; a certain casualty of which would be disruption of trade and damage to economic growth. China’s determination to mark territory in the South China Sea is an interesting test case. The nations opposed to this are the same ones with which China wants to build closer economic relationships. Considering the balance of interests, one must assume the economic interest will prevail. Raising living standards is obviously more important to the survivability of the Chinese Government than seeking strategic objectives when there is no strategic threat.
Highly relevant to this is the emergence of mega free trade agreements among Asia–Pacific economies. The TPP is the first example. It was announced as a tool in a ‘new pivot’ of US interest in strengthening its strategic engagement in East Asia. This presumably helped sell the idea to a US Congress which has classically been sceptical about ‘free trade’. China was initially suspicious—if not somewhat hostile. The US also announced at the same time that it was strengthening its military presence in the Pacific. But when Japan joined the TPP negotiations, the new Chinese Government evidently saw a trade a grouping emerging which it wanted to join. Any nation for which trade is important becomes anxious if it sees other economies get freer access than it to the markets of others.
The TPP agreement is important to Australia because it:
- Creates opportunities for Australia to increase agricultural exports;
- Encourages Asian Pacific, particularly developing, economies to reduce controls on foreign investment and open services markets which will create important opportunities for Australian business; and
- Lays the foundation later for a free trade agreement among all 21 APEC economies including the trade powerhouses of the US, Japan and China.
No one today is prepared to predict the path of the global economy. One of the long-standing orthodoxies broken by the Global Financial Crisis and its aftermath is that foreign trade leads growth. Historically trade increased at about twice the rate of growth. This hasn’t been the case for three years.
One of the potential growth stimulants which a TPP, and subsequently larger Asian Pacific FTAs, could foster is removal of controls on foreign investment and opening services markets—finance, telecommunications, healthcare, tourism, education, professional services, transport, for example. Whereas services industries contribute around 80% of growth in industrialised economies, in developing economies in the Asia–Pacific region, they contribute between 40 and 60% of GDP. Access to these markets is restricted. They have to open if economic growth in Asian Pacific developing countries is to occur.
If this potential driver of growth were unlocked, Asia–Pacific economies would all benefit. China, as its new commitments in the FTA to reduce some barriers to service providers showed, and other developing countries, are recognising this.
The Free Trade Agreement with China had given a foretaste of what FTAs covering more Asia–Pacific economies, such as the TPP can offer. The TPP will provide new opportunities for growth and build an appetite for an FTA covering all members of APEC. With three of the world’s biggest economies in such an agreement (the US, China and Japan), this would cover 60% of world GDP.
Claims the TPP (and other Free Trade Agreements) will cause job losses, allow foreign investors to trample on Australian business, increase pharmaceutical costs, and distort intellectual property rights are either mischievously wrong or significant exaggerations.
Is the TPP stalled? Negotiators say not. A common view is that negotiations can run to the end of 2015 before the Congress turns its attention solely to the presidential election campaign. Also, the hold outs are currently Australia, Canada, Japan, Mexico and New Zealand. All understand the US political system and what drives negotiations with the Administration. Finally, commentators point out the TPP would be a legacy of the Obama Administration. All this points to finalisation of this agreement before the end of 2015.
In the meantime, discussion continues inside APEC on how to construct the next building block on TTP, a Free Trade Agreement among all APEC economies. This is the inevitable ambition for the next decade.