Competing US-China trade deals set to tax our minister at Apec.

Heightened tensions between the world's two superpowers will test the diplomatic skills of Trade Minister Tim Groser who arrives in Beijing before John Key for the formal Apec leaders meeting.

China and the United States are now embroiled in a new round of shadow boxing as the competitive pressure between the two powers increases on the eve of Apec.

China has for months been gearing up to "reinvigorate" the long talked about Free Trade Area of the Asia Pacific (FTAAP) by kick-starting negotiations at this year's Apec. But the United States has blocked China's efforts, according the Wall Street Journal.

The US doesn't want attention to be deflected from plans to finalise negotiations on the smaller but well-advanced Trans Pacific Partnership (TPP).


This poses difficulties for Groser.

New Zealand is supportive of China's long-term aim to develop an all-embracing Asia-Pacific free trade area.

But Groser also wants to see the TPP finalised before changes in the US political cycle relegate negotiations to the back burner.

Prior to Apec, all eyes will be on the US mid-term elections. If the Republicans control the Senate (as expected) it should result in greater domestic political support within the United States for the inevitable tradeoffs necessary to close the TPP deal.

But getting the FTAAP "launched" would be a feather in Chinese President Xi Jinping's cap. It would link all 21 Apec economies into one giant free trade agreement.

It would also ensure China gets preferential trade access to some of its major trading partners in the Asia-Pacific. This would offset its own paucity of bilateral free trade agreements with other Apec nations.

China's Foreign Minister Wang Yi has strongly advocated the FTAAP proposal in meetings with the foreign ministers of other Apec nations. Wang is understood to have sought New Zealand's support for the FTAAP initiative in talks with Foreign Minister Murray McCully in Auckland during the election.

Last week, Wang again said the Apec talks would boost the FTAAP by helping to consolidate various trade pacts (TPP and the rival RCEP).


Instead the US wants to advance negotiations on the Trans Pacific Partnership. This is expected to edge closer to conclusion with a ministerial meeting scheduled for Saturday in Beijing. A political leaders meeting is expected to follow if sufficient progress is made.

The Journal also reports that Beijing has bowed to US pressure and dropped two provisions from the draft Apec communique, which is said no longer to call for an FTAAP "feasibility study" - trade lingo for starting negotiations - and has set no target date to finish the deal. China had wanted 2025 as an end date.

This places Groser in a difficult position.

New Zealand was one of the key players in getting TPP negotiations underway.

Groser will no doubt be playing a behind scenes role to try to make sure the competitive tensions do not result in a new spanner being tossed into the TPP negotiations.

This could happen, for example, if China made a formal request to join the TPP talks instead, as was floated by Zhu Guangyao, China's vice-minister of finance, at a Washington think-tank last month. The thought is that China has become more interested in joining the TPP as its own economic reforms progress.

It's instructive that when China first hosted Apec in Shanghai in 2001, it had just been welcomed into the World Trade Organisation. It was also six weeks after the September 11 terrorist attacks.

While host China valiantly tried to keep the focus on the Asia-Pacific economic agenda the United States was focused on security. George Bush and Colin Powell dominated much of the international news coverage overshadowing Jiang Zemin.

There was major discord over China's currency settings. The dynamics have changed since China's Shanghai Apec. The global trade structures have also changed.

The TPP, for instance, has been positioned as a gold standard in trade deals that would include 12 countries on both sides of the Pacific - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam - while excluding China.

Barack Obama has positioned the TPP as an economic pillar in the US's pivot towards Asia. But China's exclusion from it has played towards Beijing's decision to try and advance the FTAAP instead.

China is not the only country that will be tested by the "rules of the road" the US wants to set for the TPP - particularly on intellectual property rights.

If the FTAAP gets underway it will reduce pressure on the other 11 TPP partners to conform to US gold standards. It would also reduce momentum towards trade liberalisation on agricultural goods, which is not to New Zealand's advantage.

Groser - and other Apec trade ministers - will no doubt try and forge a compromise before the leaders meeting.