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Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political & Strategic Considerations Ann Capling

Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

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Page 1: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Conference on Asia-Pacific Regional Economic Integration & ArchitectureAuckland, 25 March 2010

Trade Cooperation & Regional Architecture: Economic, Political & Strategic

Considerations

Ann Capling

Page 2: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Overview

1. Trends in Regional Trade Integration: Unilateral & Bilateral PTAs

2. Regional Trade Initiatives: ASEAN Plus deals, APEC-sponsored initiatives

3. Proposals for Regional Architecture: APc and EAC: what comes next?

4. The TPP: potential & challenges

Page 3: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Regional Economic Integration: Key trends

1. Significant unilateral liberalisation: Australia & NZ (bound), ASEAN & India (unbound)

2. Proliferation of PTAs despite APEC commitment to ‘open regionalism’

3. PTA activity driven by foreign policy, geo-political, strategic & commercial/defensive positions

4. Significant variation in PTAs

Page 4: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Consequences

Broad ‘types’ of PTAs in Asia-Pacific:

1. US (Aust and NZ): deeply liberalising, comprehensive, WTO-plus

2. Japan (South Korea): less coverage (agriculture) but also WTO-plus with development assistance

3. China (ASEAN): weakly liberalising, less comprehensive in scope & coverage

So considerable diversity (esp ROOs), which APEC is addressing (model measures etc)

Page 5: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Consequences, cont’d

But little evidence that the ‘noodle bowl’ is a problem

• Existing low tariffs mean limited take-up by business of preferential access in PTAs

• A lot of East Asia’s total trade is intra-regional trade (55 per cent), mostly ICT goods (for export to western countries)

• High tariffs and NTBs in some manufacturing sectors, services and agriculture remain

Page 6: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Re-balancing?

• Financial crisis is said to have accelerated the decline of US & rise of China

• Argument that Asian economies should ‘re-balance’ to exploit regional sources of growth as exports to west decline

• But this would demand stronger & deeper regional trade agreements

• Seems unlikely in mid term due to strong political/nationalist rivalries

Page 7: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Regional trade initiatives

‘ASEAN plus’ initiatives

1. Little progress on ASEAN+3 & +6

2. ASEAN+1 deals

3. AANZFTA most noteworthy of these

• ASEAN’s most comprehensive PTA

• WTO Plus on services and IP

• Permissive & innovative ROOs

• Built-in work programs

Page 8: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Regional trade initiatives, cont’d

APEC initiatives1. Free Trade Area of the Asia-Pacific,

RIP2. ‘Soft law’ approaches: model

measures, transparency & analytical work

3. P4 agreement (2006)4. Trans-Pacific Partnership Agreement,

P4 plus Australia, US, Peru, Vietnam(?)

Page 9: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Asia Pacific – A split down the middle?

• Fears about ‘split down the middle’ go back to the 1980s

• APEC aimed in large part at keeping US constructively engaged, and yet….

• ‘…The US has been absent from the Asia Pacific region…’ (R. Gates, Whitehouse spokesman, March 2010)

• Mixed views in region about importance of US engagement in regional institutions…

Page 10: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Current Proposals for Regional Architecture

• Need to distinguish between trade-focused agreements and those with a broader mandate and agenda

• Existing institutions are seen as inadequate (ie. APEC and various ASEAN-centred institutions)

• Has given rise to competing proposals from Australia (APc) and Japan (EAC)

Page 11: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Asia Pacific community (Australia)

Rudd’s initiative for a new process to:• Manage regional economic, political and

security dialogues • Manage changing relations between Asia and

the US• Manage changing relations among the major

powers• Develop and project an ‘Asian’ position in

G20 and other global forums• Include India

Page 12: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Issues arising (December 2009)

• Must be ASEAN-centred (but leadership problem there)

• Exclusion of APEC countries in Americas (apart from US)

• No appetite for new architecture or meetings• Russia?• Concert of powers?• Overtaken by G20…?• Competition from Japanese proposal for EAC

Page 13: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

East Asia Community (Japan)

• ASEAN + 6 (NE Asia, Australia, NZ and India)

• Japanese prefer this to ASEAN + 3 which China would dominate

• PM Hatoyama claims desire to trump agricultural protectionism, in favour of stronger econ integration in East Asia

• But no US and ASEANs split on desirability of US participation

• Competes with Rudd proposal

Page 14: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

A compromise will have to emerge

• Option 1: group that consists of the East Asia members of the G20 plus Australia, India and US

• Option 2: EAC (16) plus US & Russia

• In the meantime, TPP is the easiest way of keeping the US engaged in the region

Page 15: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Trans-Pacific Partnership Agreement

TPP could build on the P4 which is a high quality, WTO-plus PTA except in a couple of key respects….

1. No chapters on investment, financial services

2. Restrictive ROOs – AANZFTA is a better model of liberal ROOs

3. P4 currently involves small liberal economies with little trade between them

Page 16: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

Questions about the TPP

It might be easy to negotiate:

• 6 of the 8 already have PTAs with USA

• Of 28 dyads, only 8 are not covered by existing PTAs

• Obama administration is making this a high priority in light of expressed desire to double exports over next five years

But……

Page 17: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

TPP: difficult questions

1. Will it be a genuine FTA where all parties have a common schedule for the others?

2. Will the ROOs be highly restrictive (like NAFTA’s) and therefore inhibit greater regional economic integration

3. Agric subsidies etc remain untouched

4. Investor-state DSM?

5. Would US Congress ratify it?

Page 18: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

And finally a plea…

Potentially bigger trade issues looming in the Asia-Pacific region including:

• Tensions in trade in natural resource-based products, especially food and energy

• Interface between climate change mitigation policies and trade policy

Which can only be dealt with effectively at the WTO….

Page 19: Conference on Asia-Pacific Regional Economic Integration & Architecture Auckland, 25 March 2010 Trade Cooperation & Regional Architecture: Economic, Political

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