With Europe on the precipice of major recession, the euro zone itself under threat and US growth still sluggish, Asia represents the best prospect for getting the world economy back on track. Ahead of the leaders’ summit, APEC finance ministers focused on how the region could boost infrastructure investment as a pathway to sustained regional growth and, despite sensitivities over the issue between Beijing and Washington, committed to move ‘more rapidly toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals’.
The buzz out of Honolulu was all about the Trans-Pacific Partnership (TPP), a new regional trade deal the Obama administration has embraced to promote US interests in regional trade growth. As Shiro Armstrong notes in this week’s lead, the TPP is the first trade agreement which President Obama did not inherit from his predecessors, and to show that progress had been achieved at the Honolulu summit was on everyone’s mind.
‘The TPP aims to be a high-quality, 21st century agreement that furthers economic integration in the Asia Pacific, with the current negotiations including Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US and Vietnam’, as Armstrong explains. After much to-ing and fro-ing, Japanese Prime Minister, Yoshihiko Noda, announced that Japan would join the other nine APEC economies already engaged in the ongoing TPP negotiations. Japan’s participation certainly adds weight to the initiative.
In the end, whether the TPP will turn out to be a strategic turning point in regional trade diplomacy is not clear. ‘Less than half of APEC’s member economies are committed to negotiating a TPP at this stage’, Armstrong notes, ‘and [there are indications that] the end agreement and design of the TPP may mean that some key economies will find it difficult to join. The most important of those is China. The so-called platinum standards the US is pushing for in TPP — stronger intellectual property rights, stronger labour and environmental standards and regulatory discipline of state-owned enterprises — will make it hard for developing countries and transition economies [and even developed countries like Australia] to join’. These are not priority issues for making markets more contestable and efficient. If the TPP is to be worth the effort, and not undermine progress through APEC on broader regional cooperation, it needs to be directed at buttressing the global trading system when, with the failure of Doha, the global recession and a powerful retreat to protectionism, it is on the ropes. It must be an agreement that offers inclusion and more than the multiplication of preferential bilateral deals with exclusions and vetoes that favour the principal parties.
As Jonathon Pollack, from Brookings Institution, writes ‘the TPP in its extant form represents an overly constricted approach to trade ties across the Pacific; to many observers, it seems a thinly disguised means to counter China’s growing economic influence’. The TPP will need to be more.
Openness has brought prosperity, poverty reduction and remarkable modernisation of economies in the Asia Pacific. This has come through greater engagement in the global trade and economic system under the WTO trade and open investment regimes. The aim now is to get rid of residual trade barriers on a defined schedule and remove regulatory and institutional behind-the-border barriers to trade in order to reap more benefits from moving towards a single regional economy. It is not to create an inward-looking bloc that retains higher barriers to trade against those outside the group on a range of ‘sensitive’ commodities. The aim is to make it easy for others to join on to the agreement automatically, subject to their acceptance of, and compliance with, its terms.
In Canberra, the expectation is that the Australia-US summit will see Australia’s Prime Minister Gillard and President Obama announce closer US-Australian defence ties, specifically in the form of an increased permanent presence of American forces in Australia through the rotation of US marines through an Australian base near Darwin. This move has major-party bipartisan support in Australia, but it is no technical move. It potentially plays Australia right into the heart of the new US ‘Air Sea Battle’ strategy announced in Washington last week, debate about which, says Washington insider Chris Nelson, ‘will decide the fate of Asia (and so the globe) in this century’. The Australian government may yet rue its failure to present the initiative for public debate in advance, but there will be more on this at the time of President Obama’s visit to Canberra next Wednesday.
President Obama’s participation in EAS on 19 November, to which both the US and Russia have recently signed up, also aims to strengthen America’s economic engagement in Asia. The EAS is still a young institution that has not established a strong economic agenda. Its focus is leaning toward political-strategic issues, as Wihardja notes. These issues are important, but, as Armstrong argues, without a prominent place for positive-sum economic issues (the international financial institutions have not been invited to the Summit this year), zero-sum or negative-sum security issues could come to dominate. That would defeat the mooted purpose of America’s being there.
Yet the EAS group (ASEAN+6 plus the US and Russia) now forms the nucleus of a new political partnership with the US and Russia, and their participation in the EAS is another useful step in the evolution of Asia’s regional architecture, although it is unlikely to be its end-point.
Peter Drysdale is the editor of the East Asia Forum.