Economics, Politics and Public Policy in East Asia and the Pacific
Author: Gary Hawke, NZIER
While in Honolulu for the APEC summit recently, President Obama announced a 12-month timeframe to complete negotiations for the Trans-Pacific Partnership (TPP).
Some have welcomed this development, but, in truth, it is a disappointing one. Read more…
Author: Gary Hawke, NZIER
The prime ministers of Australia and New Zealand met earlier this month. Former prime minister Rudd never quite completed a visit to New Zealand. Julia Gillard was a substitute on one occasion and another was disrupted by the party coup which coincided with his last attempt.
The main tangible deliverable outcome from the summit was no more than an increase in the limit for Australian investment in New Zealand and New Zealand investment in Australia, without satisfying extra requirements for overseas investment. This is hardly a major achievement. Read more…
Author: Gary Hawke, NZIER
At home, New Zealand marked time in 2010. Public commentary remained dominated by apprehension about the international economy. The Governor of the Reserve Bank published a memoir about the very reasonable worries over what could have happened but didn’t. The financial crisis in Europe and North America, which triggered a trade crisis in Asia, ultimately had only a moderate impact in New Zealand, which was also true for much of Asia. New Zealand’s insecurity is due to investment exceeding national saving and that is domestically driven.
After 24 years of sound government accounts, government expenditure has been allowed to exceed revenue and this is expected to continue for some time. This is partly attributable to the government’s response to the global financial crisis but more much to decay of the effective expenditure control, which was one of the least-heralded but most important of New Zealand’s economic reforms in the eighties. Read more…
Author: Gary Hawke, NZIER
The decision by ASEAN to invite the US and Russia to participate in the East Asia Summit (EAS) from 2011 was widely interpreted by many commentators as a positive response to a US desire to join the EAS as part of its strategy to re-engage with Asia. But until recently, the nature of the US participation was not clear. The Hanoi meetings clarified some aspects of how the governments of the Asia Pacific will interact: the US and Russia are invited to join all activities, and the existing agenda of the EAS will remain unchanged. Reaching this decision was not simple. Implementing it will be even more difficult.
The first difficulty is revealed in the precise wording of various statements from Hanoi. They all express concern to maintain ‘ASEAN centrality’. Read more…
Author: Gary Hawke, New Zealand Institute of Economic Research
The G20 has been widely welcomed, but so far it has had little impact. If it should become effective, its legitimacy will become contested. Members of the G20 are more or less the 20 largest economies in the world. The criterion is arbitrary but not unreasonable. G20 membership is much more inclusive than that of the older G7 and G8. it is less dominated by north America and Europe than its predecessors. The inclusion of China, India and Brazil greatly enhances the legitimacy of its claim that it speaks for the major economies of the world.
The G20, however, has no basis in agreed treaties. It is not part of the United Nations system and it has no distinct legal basis. Read more…
Author: Gary Hawke, NZIER
For domestic consumption, the New Zealand government frequently trumpets the success of the China-New Zealand FTA in terms of short-run economic gain. So Foreign Minister McCully told the Foreign Policy School in Dunedin on 25 June 2010, ‘During the darkest economic days of the global downturn, but in the early stages of the implementation of New Zealand’s Free Trade Agreement with China, our exports to China for calendar 2009 increased by a massive 43 per cent.’
Prime Minister John Key told his National Party conference last weekend, ‘At the heart of our trade push are living standards and jobs.’ Read more…
Author: Gary Hawke, NZIER
New Zealand marked time in 2009, with the government conserving its political capital but achieved little.
Much of the agenda was international rather than domestic. This was most obvious in the area of climate change. New Zealand shares the international policy issue of identifying a suitable response to a risk assessment and choice of appropriate insurance policy, but there was also much emotional nonsense. Read more…
Author: Gary Hawke, NZIER
The fourth bilateral meetings of prime ministers Rudd and Key in Canberra at the end of August can now be seen in some kind of perspective. Any pay-off lies in the future and has to be worked for.
Much of the immediate attention was focused on the defence area. The wording of the joint statement by the prime ministers is intriguingly opaque. The list of items to which ‘both governments would bring sustained focus to making new progress’ includes:
‘ongoing close defence relations to promote common regional security objectives, including, exploring possible opportunities to enhance our joint operational capabilities reinvigorating the ANZAC spirit.’
Author: Gary Hawke
New Zealand’s trade policy attracted unusual attention in the international press when Earth Times ran an article headed ‘New Zealand abandons regional free-trade goal.’ It gave prominence to trade union welcomes for protection of local industries and jobs, including one which identified ‘a final nail in the coffin’ for APEC’s Bogor goals. The article included a comment by Minister of Commerce, Simon Power, that most imports are duty free, and by Trade Minister, Tim Groser, that ‘New Zealand remained firmly committed to freeing up international commerce’ and advocated resistance to protectionist barriers. Nevertheless, the article implied a major change of policy had occurred.
The Earth Times article is clearly an overblown reaction to a minor step.
Author: Gary Hawke
An Asia Pacific Community – though not in the sense intended by Kevin Rudd – is already being built. Its content can be traced in the work of the Economic Research Institute of ASEAN and East Asia, the Asia Development Bank, APEC and analogous institutions in the political-security field.
This community does not require stimulation, let alone direction, from a new Australian prime minister. The clearest message given to Rudd’s envoy, Dick Woolcott, as he tested reaction to Rudd’s speech was that the evolution of any Asia Pacific Community should be entrusted to existing institutions.
Author: Gary Hawke
No part of the world economy is exempt from a global crisis. Asia is strongly integrated with the world economy, and therefore will be significantly affected.
However, “crisis” needs to be unpackaged. It has several components.
Asian economies have been only modest participants in the consumer exuberance based on credit which has characterized some economies. Asian banks have been minor participants in exploiting new credit instruments whose valuation has proved to be more problematic than expected by rating agencies and investors. Consequently, Asian economies are less plagued by over-valued assets and bank losses than are some other economies, notably the US and in Europe.
Asia’s current economic problems stem from collapse of confidence and from declining export markets. These are not new problems.
Author: Gary Hawke
Most economic historians attribute the severity of the Great Depression of the 1930s more to mistaken policy responses than to the initiating behaviour of market participants.
An even stronger consensus among economic historians is that absence of international co-operation exacerbated the Great Depression.
What are the implications for our current circumstance?
Current discussion of fiscal stimulus assumes implicitly that government spending will be financed by borrowing. That is a welcome endorsement of the lessons of recent decades – we do not want another general inflation. But we should also note it means that people must be willing to hold government bonds.
Author: Gary Hawke
The media comment, ‘Obama and trade: an alarm sounds’, which Jagdish Bhagwati published on 8 January 2009, is welcome for its evidence of his continued ‘eternal vigilance’ for the welfare of the multilateral trading system. Bhagwati is concerned at the composition of the economic team being assembled by President-elect Obama and by the potential for responses to the financial crisis to conflict with trade obligations, not least through protection of car markets.
We need more evidence on this before becoming too seriously alarmed. Compromises are involved in any political appointment process, and appointees sometimes behave according to their responsibilities rather than their records. However, monitoring the compatibility of domestic and international actions poses continuing and deep issues.
Bhagwati specifically argues for preservation of WTO subsidy rules in whatever assistance is given to the US car industry. He is right to do so, but the complexity of policy development becomes apparent when this argumentis juxtaposed with his advocacy of a narrow definition of ‘trade-related’ in Termites in the Trading System: How Preferential Agreements Undermine Free Trade (New York : Oxford University Press, a Council on Foreign Relations Book, 2008). There he declared ‘I am happy that the larger developing countries have drawn a line in the sand on including trade-unrelated agendas in their PTAs with the hegemonic powers’.
Special Author: Gary Hawke
In New Zealand, 2008 will be remembered for some remarkable successes in external economic relations, and for a change of government. The electoral fate of most governments depends on domestic success.
New Zealand became the first developed country with which China concluded an FTA, adding to notable earlier ‘firsts’: completion of negotiations for China’s admission to the WTO, recognition of China as a market economy, and entry into negotiations for an FTA. We all have to get used to recognizing such patterns as significant in international negotiations since they are influential in China, but the China-New Zealand FTA was important in other respects too. The negotiations focused less on bilateral issues than media reports did, and more on how China and New Zealand should jointly manage their interests in regional and global settings. Issues included product safety. It was ironic that the agreement was followed so closely by food contamination in San Lu, a Chinese subsidiary of New Zealand’s Fonterra.
Author: Gary Hawke, NZIER
Government formation has proceeded remarkably smoothly since John Key’s National Party won New Zealand’s election. Normal political noise will soon resume, and an initial burst may well come over the future of the emission trading scheme (ETS) legislated in the last days of the Clark government.
The ACT party and its leader, Rodney Hide, campaigned on more or less direct opposition to a cap and trade scheme. Its agreement with the National Party included a select committee to reconsider the existing legislation with further negotiations on terms of reference to start from ACT’s specification. The thought of members of parliament reviewing fundamental science is not attractive but negotiations seldom finish at their starting point, and there are grounds for optimism in the select committee proceedings on the bill drafted by Rodney Hide on regulatory reform – and indeed now that Hide is minister with responsibility for regulatory reform, he will be looking forward to productive relations between legislature and executive.