Australia’s Asia-Pacific trade balancing act

Australia’s Asia-Pacific trade balancing act

The Trump administration has sent conflicting messages regarding its stance on the Asia-Pacific, simultaneously heralding a new “Indo-Pacific” policy with a focus on freedom and international law through the Quad (Quadrilateral Security Dialogue), whilst also withdrawing the U.S from the Trans-Pacific Partnership (TPP) under the mantra “America First”. This dichotomy has policymakers, governments and business leaders confused. It also presents unique opportunities and challenges to many countries. Australia, one of the U.S’ closest allies, must balance its desire and need to play a leading role in the TPP and Regional Comprehensive Economic Partnership (RCEP) negotiations with the political sensibilities of the Australia-US-China triumvirate.   

The TPP and RCEP negotiations

The TPP, now revitalised after stalling following the departure of the U.S, is an opportunity for Australia to show itself as a credible leader on the international stage. In particular, Australia can take up the areas that the U.S drove forward while it was part of the deal: environmental sustainability, intellectual property, and rigorous governance and control mechanisms. The ASEAN-led RCEP also presents Australia with immense opportunities. The 16 participating countries in the RCEP account for almost 50% of the world’s population, over 30% of global GDP, and over 25 percent of world exports, with said economies accounting for almost 60% of Australia’s two-way trade, 18% of its two-way investment, and over 65% of its exports. The RCEP will be conducive to lowering trade barriers between members and securing improved market access for Australian exporters and investors, and similar opportunities beckon with the TPP.

The RCEP negotiations have been complicated by competing interests due to different degrees of economic and political development between member states. The TPP includes many accords vis-à-vis governance for state-owned enterprises, intellectual property transparency, environmental standards, dispute resolution and data liberalisation. Whilst 11 out of the 20 amendments regarding intellectual property have been either changed or removed following the U.S’ exit, the RCEP still comparatively lacks such provisions – it does not require members to protect labour rights or improve environmental standards like the TPP, and transparency and governance around the deal have been flagged as potential concerns.

Australia’s key policy objectives: RCEP and TPP

Australia must seek to balance its international trade and security objectives with its desire to play a role as a key negotiator for both deals’ key points and wider governance. Sponsoring increased legislative and regulatory transparency in key RCEP and TPP markets, relaxing cumbersome FDI restrictions in certain sectors, and allowing Australian investors to set up branches in partner countries without entering into a local partner joint venture scheme will increase Australia’s two-way investment flows and help Australian investors garner more control over their investments in RCEP partner countries. It’s also imperative that Australia balances Investor State Dispute Settlement (ISDS) clauses to simultaneously encourage investment and judicial and regulatory transparency, and prevent Australia from being prosecuted by foreign companies. Managing multi-nation tension points should be a priority for the Australian government to cement herself such discussions.

Tariff reduction in India continues to be one of many micro-disputes in the RCEP that plague its progress. India has pegged their willingness to adopt a single-tier tariff reduction to their request for greater market access to core RCEP service markets, something which many are reluctant to do. A single-tier tariff reduction would be advantageous to the Australian food, wine and dairy sectors, particularly the latter given the recent decline in milk prices and reduced foreign demand for Australian milk. A multi-tiered approach would make it significantly costlier for Australia to access India’s core markets.

Because of these differences, there’s an opportunity for Australia to use its diplomatic nous to manage the discussions and position itself as a key stakeholder in the negotiations. Australia should encourage a more open and transparent environment for Australian investors in key RCEP economies such as China, India and Indonesia, and promote improved access for Australian investors in Australia’s key regional markets – manufacturing, mining, agriculture, fisheries and forestry. Australia should encourage transparent communication through diplomacy, define dispute mechanisms and control frameworks for grievances, and diplomatically put pressure on tension points such as the single-tier tariff. Reversing cuts to DFAT to encourage proactive and productive diplomacy in these areas should be a priority.

Balancing Australia’s economic, political and security objectives

One of the biggest security risks in the medium-long term for Australia is that the Trump administration continues its rhetorical verbiage of disregarding historical alliances and viewing them as a zero-sum game. Despite disparity between Trump’s rhetoric and action, it’s likely the U.S would rather Australia did not play an active role in propping up the agreement that the U.S views as China’s geopolitical riposte to the TPP. Given it’s no longer a part of the TPP, it’s likely these concerns are amplified. And they should be. Researchers at Nankai University predicted the completion of the RCEP alone will benefit China by approximately $88 billion per year, whilst the RCEP and TPP ratified together would be worth $72 billion per year. These figures, along with the geopolitical power that China would gain, would go a long way in solidifying China’s global power and influence.

However unlikely, there is a risk that Trump follows through on his intention to make allies, such as South Korea, Japan, NATO, and now Australia, cough up more for U.S protection. Australia, whilst having a strong and modern military relative to its size, still relies on the U.S almost exclusively to act as a deterrent to foreign countries’ aggression and for the bulk of its weaponry, intelligence, equipment and technology. In this situation, Trump would place a caveat on continued military support for Australia, as he has similarly posited for Japan and South Korea, and demand that Australia withdraw itself from the TPP and/or the RCEP and begin to look elsewhere for the bulk of its trade, or look elsewhere for military protection.

Balancing its economic, political and security objectives should be a core focus of Australian foreign policy as the U.S purports to re-evaluate its alliance framework under the guise “America First”. Whether or not the Trump administration follows through with this threat, it’s important for Australia to seek a balanced, independent foreign policy that recognises the significance of deals such as the RCEP and TPP, China’s rise, and that the U.S remains Australia’s most important ally.

Categories: Asia Pacific, Politics

About Author

Nick Derewlany

Nick is a graduate from the University of Sydney with a BSc in Political, Economic and Social Sciences, and currently lives and works in London. He focuses on geopolitics and the impacts of technology on the human condition.