Trade machinations in Chile

Tony Walker

Tony Walker Author & former editor

Published

The world’s 45th largest economy, Chile is hardly the epicenter of the world trading system. But this week the South American country hosts an event which may prove to be of unusual significance for the global trading system, and for the countries of the Indo-Pacific in particular, including Australia.

Ostensibly, the Chile session has been called to review options in light of the US decision to cancel its participation in the Trans Pacific Partnership trade agreement. But with China’s involvement, along with that of South Korea (neither country is party to TPP), these talks will clearly have a wider purpose.

The Chile meeting will not resolve what steps might be taken to re-calibrate -- or simply bury -- TPP, described by former US Secretary of State Hillary Clinton as the “gold standard’’ of trade agreements, but it will provide an indication of where trade deliberations will go next.

TPP may not be dead but it is, at best, on life support - if not terminal.

From an Australian perspective - as one of the prime movers in negotiation of TPP - keeping alive the principles agreed in the ‘gold standard’ document remain a priority but Australia’s trade negotiators will almost certainly have to lower their sights to accommodate broader based, less rigorous regional agreements.

Australian Trade Minister Steve Ciobo has continued to argue the case for TPP and, like Coleridge’s Ancient Mariner in search of safe haven, is hoping something will turn up to rescue the trade deal. But without American participation it loses its universal appeal.

Robbed of the participation of the world’s largest economy TPP becomes a two-legged stool at best.

Two-legged stool 

So what might emerge from Chile? And from other multilateral trade discussions initiated? Including most particularly talk about a Regional Comprehensive Economic Partnership (RCEP) in which China is the main player.

Hitherto, the US has not been involved in RCEP deliberations, hence its description as being ‘China-led’.

This description would not have assumed the significance it has if it were not for President Donald Trump’s decision to cancel, by executive fiat, US participation in TPP allied with fire-breathing criticisms of a global trading system allegedly stacked against American workers.

China’s president Xi Jinping was not slow to take advantage of an apparent US retreat from a leading role in a process of trade liberalisation dating from the General Agreement on Tariffs and Trade which came into force on January 1, 1948.

At the World Economic Forum in Davos in January, Xi took aim at the protectionist impulses of a new American administration, telling delegates pursuing protectionism was like “locking yourself in a dark room, which would seem to escape the wind and rain but also block out the sunshine and air”.

In his remarks Xi unsurprisingly glossed over China’s own patchy record in opening its markets, including removing a panoply of non-tariff and other restrictions aimed at protecting domestic industries from external competition.

But for the moment, while a US administration finds its feet – a US Special Trade Representatives has yet to be confirmed by Congress – China will seek to fill a vacuum in seeking to advance various frameworks to facilitate its boundless trading ambitions.

Earlier this month in Kobe, Japan RCEP participants convened to map a way forward. It was the 17th round of negotiations involving 16 countries of the Indo-Pacific, including the 10 ASEAN members plus China, Japan, South Korea, India, Australia and New Zealand.

The 18th round will be held in the Philippines later in the year.

This is a powerhouse trading bloc by any standards and accounts for 30 per cent of global GDP and almost half the world’s population.

From an Australian perspective the RCEP as a fallback from TPP would seem to be a reasonable avenue to continue pushing free trade boundaries.

At least the RCEP helps to provide a framework for discussions as one of the building blocks towards the goal ultimately of establishing a Free Trade Agreement of the Asia-Pacific. Agreement was struck by APEC (Asian Pacific Economic Cooperation forum) under China’s chairmanship in 2014 to advance the ultimate goal of bringing into being a FTAAP.

This would be a monumental achievement with all sorts of geo-strategic implications for a rebalancing of global power and influence but much work will be required before any such possibility becomes a reality.

In the meantime RCEP and various bilateral trading initiatives will be the focus of regional trade liberalisation efforts.

As a nation dependent on trade Australia has no reason to let up in its efforts to bring about further trade liberalisation in its immediate region and beyond.

Antagonism

When the next APEC session is held in Vietnam later this year it will be interesting to observe US engagement in trade liberalisation discussions given the Trump administration’s antagonism to multilateral trade deals generally and its swift axing of TPP in particular.

US trade commentators hope once things settle down America will resume its traditional leadership role in expanding the boundaries of world trade, eschewing mercantilist impulses in the process.

As Alan Wolff, a former senior trade negotiator in Republican and Democratic administrations put it in a contribution to Fortune Magazine.

“It is best to cling the belief that the new US Administration has not yet thought through its next steps in international trade policy, nor that it has jettisoned responsibility for global economic leadership, a role that Franklin Roosevelt and every president since – without exception – has performed,” he wrote.

“It would be a shame to conclude that the United States has little to offer the rest of the world other than the limited and impractical ideas of a series of bilateral negotiations.”

Advantages for Australia in the RCEP process lie in the fact of the 16 participating countries nine are among Australia’s top 13 trading partners, including China, Japan, South Korea, Singapore, New Zealand, Thailand, Malaysia, India and Indonesia.

In total the RCEP participants account for about 60 percent of Australia’s two-way trade, and 70 percent of goods and services exports.

In other words the RCEP provides a fallback in the absence of any other alternative to TPP, although Australia appears still to be clinging to the hope it can be salvaged in some form.

Trade minister Ciobo told ABC Radio on the eve of his departure for Chile he wasn’t discounting the possibility of China’s engagement.

“The TPP has always had open architecture,” he said.  “It’s provided for other countries to join if they like to.” 

“Right here and now, of course, the key focus of the TPP is to look at whether or not the deal can be salvaged. I’ve spoken to a large number of my counterparts from TPP countries. There’s a desire not to let those gains slip through our fingers.

“What I will absolutely not do is just pull down the louvres and say ‘that’s it, game over’.’’

The minister’s persistence is admirable but Trump’s election is casting a long shadow over a global trading environment. Absence of American leadership in a continuing process of trade liberalisation, or backsliding, as the case may be, sends a poor signal.

China is wasting no time in seeking to fill a trade leadership vacuum, however flawed its own performance might be in fostering a trading environment in which market mechanisms, including a freely tradeable currency, remove barriers to a competitive trading environment.

The Indo-Pacific is burdened by a noodle soup of trade deals. What is needed is a framework agreement. The RCEP can hardly be expected to measure up to a TPP ‘gold standard’ in its eye for detail, including its relevance for small and medium-sized enterprises.

The RCEP would operate more like a traditional multilateral trading arrangement in which tariff reductions and removal of non-tariff barriers would be the staple.

In the end, such an outcome on the way to an FTAAP at some stage would be a step in the right direction.

On the other hand, Ciobo and his fellow TPP ministers should continue to push hard for elements of TPP, including well-developed dispute resolution mechanisms, to be included any new trading arrangement.

Tony Walker is an author and former Washington correspondent, international editor, Middle East editor and senior political editor at The Australian Financial Review and The Financial Times.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
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