New world order: the APEC paradox

This is the paradox, and one that will shadow APEC deliberations as a body dedicated to freeing up regional trade and commerce.

" For the time being America will not assume its customary role as leader of discussions on trade and investment."

This represents a huge shift.

For the time being America will not assume its customary role as leader of discussions on trade and investment. That chasm will be filled by countries like Japan and China with a lesser role for Australia.

The libertarian Cato institute in a preview of President Donald Trump’s tour of Asia this week - including visits to Japan, South Korea and China before his participation in APEC - noted “sadly, the leader of a country typically known for its free-trade leadership will arrive at APEC with little moral authority on the subject.’’

Since the General Agreement on Tariffs and Trade (GATT) was struck in 1947 the United States has, for the most part, led efforts to reduce trade barriers and liberalize a global trading environment.

American leadership was instrumental in bringing to fruition the Uruguay Round which led to the establishment of the World Trade Organisation and other such trade initiatives.

US involvement in negotiations on a new Trans Pacific Partnership to promote free trade in the Asia-Pacific lent this initiative heft and credibility.

However, in one of his first – and least-constructive - executive decisions Trump pulled the US out of the TPP and in the process conveyed a negative message about an American commitment to a continuing process of trade liberalisation.

Horrible

During the presidential campaign, Trump described the TPP as a “horrible deal’’, a form of words he has used repeatedly.

Commenting on an APEC leaders’ retreat Cato observes “the ghost of TPP is sure to lurk in the background with any talk regarding open economies and free trade surely undermined by the action of Trump’s withdrawal from the Asia-Pacific trade deal.’’

From an Australian perspective, Trump’s decision could hardly have been more disappointing given the time and effort committed to a TPP outcome.

Former Trade Minister Andrew Robb had worked tirelessly to advance the TPP, regarded by Australian officials as key to a further process of building a free-trade zone in the Asia-Pacific.

The TPP 11 now involved in finalising what is being described as TPP 2.0 include Australia, New Zealand, Japan, Canada, Mexico, Chile, Malaysia, Vietnam, Singapore, Peru and Brunei.

Left understated for the most part in discussions about TPP, the trade pact was regarded by Australia as an important step towards a pan-regional Free Trade Agreement of the Asia-Pacific (FTAAP).

The FTAAP proposal was first canvassed at an APEC gathering in Hanoi back in 2006. It was given further impetus in Beijing in 2014 when APEC leaders commissioned “a collective strategic study.’’

This was to have been completed by the end of 2016. It is not clear whether it will be an agenda item in Da Nang.

In the meantime, the 11 remaining parties to the TPP have pushed forward with efforts to conclude an agreement. What is anticipated at APEC is an endorsement on the forum’s margins of the TPP in principle, leaving participants to put finishing touches by early in 2018.

Signatories (minus the US) met outside Tokyo last week to accommodate America’s withdrawal from a complex trading initiative. Some clauses will be suspended pending Washington’s decision whether to return to the agreement.

Suspended clauses relate to an eight-year data exclusivity period for biologic pharmaceutical patents, and the extension of intellectual property rights. These were basic American requirements.

New Zealand under its new Prime Minister Jacinda Ardern has expressed concerns about several aspects of TPP protocols, including those relating to the rights of foreigners to purchase property and the scope of an investor-state dispute settlement system.

Proliferated

ISDS protocols enable a foreign company to sue a state for compensation before an international tribunal. In a study by the APEC Policy Support Unit (PSU) it was found ISDS cases had proliferated in the past 30 years in the Asia-Pacific and involved investor claims of $US117 billion, but settlements of about half the amount were close to a global average.

NZ has indicated it would seek a review of the latter component of TPP regarded by critics as affording too much scope for interference in a nation’s sovereign affairs. On the former, Ardern has said concern about property purchases could be dealt with by domestic legislation.

In Sydney for a meeting with Prime Minister Malcolm Turnbull over the weekened, NZ’s PM made encouraging noises about concluding the TPP, telling reporters there is “no denying the TPP provides a distinct opportunity, especially with Japan which just wants to get the TPP signed and put to bed.’’

These teething issues underscore difficulties faced by negotiators in putting together a highly complex trade agreement whose provisions run to 30 chapters and include some 18,000 tariff items.

The TPP process began in 2006 with what was known as a P4 agreement between Brunei, Singapore, Chile and New Zealand. Other countries joined progressively. If the US had remained engaged the participating economies would have accounted for 40 percent of world trade.

On his first stop in Asia Trump will have been reminded by Japan of its disappointment over the TPP decision. An energised Shinzo Abe government following its re-election has emerged as a forceful advocate for the trade pact.

Tokyo’s sees TPP as one means of balancing China’s growing geo-economic power and influence in the region. US withdrawal undermines this strategy.

The US TPP decisions also has implications for the second stop on Trump’s Asia tour where it had been hoped South Korea could become the agreement’s thirteenth participant.

That prospect has receded.

Amity

In China, Trump and newly acclaimed Chinese president Xi Jinping will no doubt make a show of amity given the stakes involved, including mutual concern about North Korea.

However, trade issues threaten to cloud the picture with US officials accusing China in recent days of “predatory’’ trading practices. A US refusal to classify China as a market economy for anti-dumping purposes is one such irritant along with investigations of Chinese steel imports.

Viewed from Canberra these trade ructions between Australia’s most important economic partner and its cornerstone security guarantor are not regarded as helpful.

Nevertheless, Australian officials have resolved to press on with the TPP in the hope the US will reconsider at some point.

Australian finance minister Mathias Cormann has said Australia’s “belief is that over time, whether this administration or a future administration, the United States will want to have a piece of the action.’’

That may prove to be wishful thinking given resistance in Washington on both sides of politics to trade deals more generally.

When it comes to trade and American leadership in promoting a further lowering tariff and non-tariff barriers this is not the age of enlightenment.

Tony Walker is a vice chancellor’s fellow at La Trobe University and a Fairfax columnist.