1 Economic Integration in the Asia-Pacific - Asia New Zealand ...

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1 Economic Integration in the Asia-Pacific - Asia New Zealand ...

Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

Economic Integration in the Asia-Pacific

Dr Richard Grant, Asia New Zealand Foundation

As the world economy slowly gets back some energy – the IMF predictions for growth this

year being above 3% - it is to the East Asia region that people look for signs of more

sustained growth. Since the global economic crisis arrived in 2008, that region of the world

has been less negatively affected than others. For Asia-Pacific generally, it is no coincidence

that efforts to increase economic integration within the region have been at the centre of

governments’ attention and policies. At the same time governments have been motivated

by the need to keep global trade open and avoiding protectionist reactions which would

compound the difficulties of bringing economies out of recession.

There are several pathways attempting to lead to regional integration. The first and so far

most successful, although it has considerable detractions, is the ASEAN-centric series of free

trade agreements (FTAs) involving the ASEAN group and a series of spoke agreements with

its predominant trading partners. The second is the broader reach of discussions involving

ASEAN and its partners in the East Asia summit grouping, the so-called CEPEA initiative. The

third, but with much more limited membership at this stage, is the Trans-Pacific Partnership

(TPP), which is the main trade policy initiative of the current US Government. The fourth,

although no longer regarded as a leader of the trade liberalisation negotiations, is APEC.

Given the different negotiating paths that these four initiatives have followed, it is not

always easy to see how they lead to a comprehensive, region-wide, trade liberalising and

widely enforced framework. APEC, for instance, has been under way since 1993: its then

proclaimed goal of free trade in the region for developed countries by 2010, and for the

whole by 2020, is unattainable.

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Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

The background to the trade discussions is in essence a question of how to place the three

largest economies in the Asia-Pacific region – the United States, China, and Japan – within

the regional framework. This is a complicated question which is the subject of fierce debate

internally within these three countries. There is no doubt that China now looms so large in

the economic life of most countries in the region that the idea of excluding China from any

agreed framework looks self-defeating. Equally, the United States, striving to recover from

its greatest economic crisis since the great depression, under the Obama administration is

looking to reinforce its economic ties to the Asian region. Japan, now overtaken by China as

the second-largest global economy, is well aware that its ongoing chances of recovery

involve some form of integration into a region-wide trade deal. China itself, well connected

across the Asian region by virtue of its size, its place in global supply chains, and its

extraordinary growth, needs a workable international framework for continuing growth, the

key to its policy of peaceful development. The inevitable trade tensions which have arisen

between China and the United States put another layer of complication on the negotiating

process.

The ASEAN Plus model

ASEAN now has FTAs with Australia/New Zealand, China, India, Japan, and South Korea. It

has its own internal drive to economic integration, the ASEAN Free Trade Area, and the goal

in 2015 of creating a much more comprehensive tool, the ASEAN Economic Community. The

effort that ASEAN has put into the trade liberalisation effort has meant that it has

guaranteed a role for ASEAN – either in whole or in part – in any of the four negotiations

mentioned above. It has become an indispensable part of the landscape. The complication

that ASEAN faces in looking at the way forward is the differing levels of economic

development amongst its members, and particularly the status of Cambodia, Laos, and

Myanmar. That is not at this stage, however, a reason for ASEAN countries not to continue

to explore what is possible.

It has successfully involved its major partners in the region in its series of Plus One

agreements. They each differ in size scope and spread, and there are incompatibilities in

what it has agreed with one partner and that with another. This makes it difficult to see that

the ASEAN Plus series could form the basis for a comprehensive trade agreement across the

region: the ASEAN Plus series are a partial response, valuable in themselves, but too

country-specific to be generalised.

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The Comprehensive Economic Partnership for East Asia (CEPEA)

Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

This initiative, led by Japan, was a clear attempt by the Japanese Government to get a

broader group of countries to engage with China. Japan considered that an ASEAN Plus

Three grouping, which originally was the preferred vehicle for China, was too restrictive and

would place China in a more influential position within the region. The inclusion of India,

and Australia/New Zealand reflected the then membership of the East Asia Summit, which

was the “political” grouping that had arisen from various initiatives for greater

institutionalisation in East Asia. Academic studies showed also that the liberalisation effect

would be greater for member countries of a 16-country grouping than for the ASEAN Plus

Three grouping. The CEPEA process is slowly under way, but is not making much progress,

the main problem being that the United States is not a member, and, as said above, has

declared that the TPP is its major interest in the region. This puts CEPEA at a relative

disadvantage.

APEC

The last APEC summit, held in Honolulu in November 2011, made an aspirational statement

about the need for greater liberalisation:

“Recognising the range of experiences and systems across APEC economies, we

reaffirm the importance of supporting our ambitious vision for a seamless regional

economy through our abiding commitment to delivering effective economic and technical

cooperation. Enormous progress has been made. But our work toward a truly seamless

regional economy is only in the beginning stages. We instruct our ministers and officials to

carry forward this work and to strengthen the economic foundation of our shared Asia-

Pacific community. We look forward to reviewing further progress when we convene

again during Russia’s hosting of APEC in 2012.”

But even this statement cannot hide the fact that APEC itself, whilst doing a lot of good work

in making it easier to do business across the region, is not the lead vehicle for trade

liberalisation.

TPP

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Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

The current attention given to TPP by both governments and commentators arises because

the United States has announced that TPP is the instrument to which they want to devote

their negotiating power. It is clear that as part of the “pivot”, the change in emphasis of US

foreign policy over the last 18 months, it is not only the political/security side that has

engaged the US, but also the economic/trade side. This is driven partly by the need for US

to obtain greater returns from the East Asia region. At present the United States has 18 free

trade agreements in force, and apart from NAFTA and possibly South Korea, they are not

with countries of any great economic heft. There is also willingness by its TPP counterparts

to engage the US if this is to lead to greater access to the US market. Since the US is such a

large economy, and counts as a large partner for so many, few countries could resist the

attempt to get the US to sign up to an agreement that increases access to the US market.

But, more importantly, the United States has recognized that TPP may go where others have

failed to go: “The TPP is the most credible pathway to broader Asia-Pacific regional

economic integration.” 1 The negotiations, due to go into their twelfth round in Dallas in

early May 2012, have still to produce clarity about what this “ambitious 21 st century”

agreement will produce.

There are two or three identifiable problems at present. The first is that Japan, Mexico, and

Canada have declared their interest in being participants in the negotiations. Canada has

already attempted membership at an early stage in the TPP process but had been rebuffed

because of its unwillingness to put its agricultural regime in the negotiating pool. Mexico

has said for the first time it wanted to join. The Japanese Government’s attempt to join it

controversial in Japan and so far there has been no clear outcome of its bid.

The desire for Canada and Mexico as NAFTA partners of the United States, to join TPP is

clear-cut. The addition of Japan to the negotiations would be an immensely important signal

to the region and to the world that Japan was prepared to embark on a liberalising agenda,

which it has hitherto not done. But the decision to allow these three suitors into the TPP

negotiating process is one which all current members must agree, and that outcome is not

yet certain.

1 Extract from USTR November 2011 factsheet on TPP.

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Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

The second issue around TPP is that, whilst it is the preferred vehicle of the United States, it

does not include China. This has led to considerable commentary in China itself – and

further afield - as to whether TPP is part of a broader US strategy to “encircle” or to

“contain” China. And, as we have said above, it is not logical to think of a regional economic

integration initiative which excludes China. There are also voices within China who think

that China should join the TPP, not just to be part of greater regional economic efficiencies,

but also to help China internally develop its economy.

A third, but distinctly lesser issue at this time, is the fact that only four out of ten ASEAN

members are participants in TPP. Should the negotiations proceed to finality, there would

be an issue for ASEAN itself to overcome that distinction. It is not without precedents in this

regard, since APEC itself does not cover Cambodia, Laos and Myanmar.

New Zealand view

New Zealand has long been a leader in promoting greater regional trade liberalisation. It

started early in this path. In 2001 it negotiated a free trade agreement with Singapore,

enlarged that to P4 (Singapore, New Zealand, Chile, Brunei) in 2005. The same year it

negotiated an FTA with Thailand. In 2008 it successfully concluded an FTA with China. In

2010 it concluded both an FTA with Malaysia and The ASEAN/Australia/New Zealand FTA,

and in 2011 a FTA with Hong Kong.

New Zealand thinking was at the origins of TPP, since it had taken the view that the P4

agreement should be open to access by any economy on terms to be agreed amongst them.

The timing of its resurrection to be the major initiative of the United States was something

which New Zealand welcomed.

Equally, New Zealand has said that the TPP cannot be viewed as a method of containing

China, and it has said publicly and repeatedly that it would not support any attempt to make

that an objective.

As a small country with a liberalised economy and a dependence on global trade, New

Zealand has a track record of supporting regional efforts to liberalise – if they include New

Zealand in its membership. For that reason, New Zealand has looked with concern on the

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Track II dialogue between Taiwan and New Zealand

Taipei, Taiwan

10-11 May 2012

viability of the ASEAN Plus Three model, from which it would be excluded, and has

supported the Japanese initiatives on CEPEA, as well as the current TPP negotiations.

From a broader perspective, New Zealand sees greater economic integration in the East Asia

region or in Asia-Pacific in a positive light. In the current global economic climate, creating

new economic opportunities should be beneficial for all participants. Second, the continuing

growth of East Asian economies demands a framework that sustains that growth across the

region, and does not lead to a division between those which are included and those which

are excluded. Third, supporting the global trading network at a time when the WTO

negotiations have failed requires a sense of purpose and determination to support greater

liberalisation wherever it occurs.

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