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

2. 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

3. 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

4. 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)

5. 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

6. 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

7. 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

8. Regional trade initiatives, cont’d APEC initiatives 1.Free Trade Area of the Asia-Pacific, RIP 2.‘Soft law’ approaches: model measures, transparency & analytical work 3.P4 agreement (2006) 4.Trans-Pacific Partnership Agreement, P4 plus Australia, US, Peru, Vietnam(?)

9. 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…

10. 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)

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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……

17. 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?

18. 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….

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