Crawford Falconer: New deal Asean answer to TPP

RCEP a crucial step in securing economic future of NZ.
Indian authorities are deeply uncomfortable with the strategic consequence of being an outlier. Picture / Greg Bowker
Indian authorities are deeply uncomfortable with the strategic consequence of being an outlier. Picture / Greg Bowker

Remember TPP?

Well, just when you thought it was safe to go back into the water, there's another mega regional trade negotiation coming right at you, going by the impenetrable acronym RCEP.

It covers the 10 Asean nations together with China, India, Japan, Korea Australia and New Zealand.

It is of huge diplomatic and commercial importance to us.

A successful deal would become a major part of the architecture for our future economic security. We are global traders, with fingers in a number of pies. But it is the dynamic Asian region that is the emergent and decisive driver for our current and future growth.

There is no way we could have, or should have, stood aside from this.

Commercially, being part of the Regional Comprehensive Economic Partnership (RCEP) is a no-brainer. Strategically, it is a breakthrough to have been accepted into this grouping.

RCEP is coming at us, yes. But not exactly at warp speed.

Down in the RCEP negotiating weeds, things have been rather cruising along. Real political attention has been principally elsewhere. Negotiators have not been under the cosh to get a result.

But, sometimes there comes the moment of realisation that things are actually bigger than you thought. RCEP was on the cusp of such a moment in Auckland this week.

Now that the Trans-Pacific Partnership (TPP) is a reality, countries of the region see more clearly that it makes sense to get serious about a complementary regional arrangement. You can see examples in recent comments from Singapore's senior Minister and Malaysia's Trade Minister.

The Auckland message seems to be: The time is nigh to decide whether you are there to cut bait or go fishing.

Success is far from guaranteed, but right now there is everything to play for.

RCEP doesn't have to be, and won't be, a mirror image of TPP. In areas like intellectual property, rules of origin and investment, we are more likely to get to outcomes that are instinctively closer to our own preferences. Technical barriers, trade facilitation and transparency will be difficult, but the potential gains are actually bigger than TPP, because you are starting from a lesser base.

Credible market opening will be needed, including for agriculture. In time, it should be doable for industrials, not least because of the way in which manufacturing networks in East Asia are intensely cross-border on the ground. It will be tougher where India is concerned.

It won't completely free up services markets, but it should deliver tangible improvements - including over our existing FTAs in the region. Many of these economies are actually less restrictive on agriculture market access than for example the US and Canada. And they have growing economies with growing demand for what we produce - safe, high-quality food and beverage.

From a specifically New Zealand point of view, RCEP has underexploited tactical strengths.

We seem to be embarking on a New Zealand-China FTA rev 1. Fine. But, actually, if we want better access for chilled beef, forestry or dairy, we are essentially hoping that someone sufficiently high up in Beijing will think it is important that we are kept happy. That doesn't give you all that much leverage over the Chinese Agriculture Ministry. But with RCEP there are much bigger strategic reasons why Beijing will want an overall deal. We can piggyback on that.

The same can be said for India.

India just hasn't been a serious player on the bilateral FTA club scene. And we have less leverage than anybody else. But Indian authorities are deeply uncomfortable with the strategic consequence of being an outlier. Above all, they see China is advancing not only economically, but also strategically within the region.

They really don't want to be left out. Thanks to the lifeline thrown to them by Asean to join the exercise, they have a unique opportunity with RCEP. They won't want to blow that. That gives us a degree of leverage we will never have bilaterally.

The signs are that China and India get the strategic importance. Asean certainly gets it. As much as anything (perhaps more than anything) RCEP is about Asean wanting to balance its relationships in the wider region. They want the growth that comes through trade.

But they don't want excessive big power rivalry creating stresses and strains within and around them, let alone forcing unnecessary choices upon them.

These are motivations that align firmly with any sensible analysis of our own interests in the region and beyond. They go way beyond even the obvious commercial benefits of involvement, to matters of regional political and security stability.

Above all you want the evolution of genuinely inclusive arrangements across the region. The big prize, over time, is an Asia-Pacific Free Trade Agreement. But you don't get there in a single bound. RCEP is a crucial step, just as TPP is.

Asean has effectively concluded that prospects for a healthy evolution are more likely if there is a balancing mega-agreement in the game. I suspect they are right.

Of course, the challenge will be, over time, to bring it all together in some shape or form. But it will be easier if the economies of East Asia have themselves been in a process of convergence through RCEP. Added to that, you have considerable membership overlap between RCEP and TPP. It doesn't guarantee you can bring them together, but it surely helps.

There is little doubt that the TPP process gave a nudge to RCEP. And it will be no bad thing if the TPP ratification process now gets a nudge from a successful RCEP negotiation.

This dynamic illustrates how vital it is for New Zealand to be inside both of these processes.

It also underlines how important it is that we have the bipartisan political support that will give the policy stability to work towards bringing these regional arrangements together, over time. If we can also energise the multilateral system, so much the better. But either way, an Asia-Pacific Agreement is the goal.

Crawford Falconer is currently Sir Graeme Harrison Professorial Chair in Global Value Chains and Trade. He was formerly the Deputy Secretary of the Trade and Economic Group of the Ministry of Foreign Affairs and Trade (MFAT). As New Zealand's senior trade official, he managed all trade negotiations between 2009 and 2011 and all bilateral trade and economic matters.

- NZ Herald

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